DeNA : FY2016Q1 Results Briefing Q&A Summary

Summary of Key Questions and Answers From Earnings Results Briefing for Q1 FY2016

The following is a summary of the key questions and answers from the earnings briefing for the first quarter of FY2016, held on August 10, 2016.

Q1 Have declining trends in other companies' titles impacted the coin consumption from your native app games in Japan?

A1 We do not believe there is any direct impact on our titles.

Q2 Have you factored any revenue associated with the Nintendo alliance into your guidance for the first half of FY2016? Will there be any costs incurred before future title launches?

A2 We have factored in a conservative estimate for the contribution from the game app that we've already released, and did not include any contribution from new titles. Also, we do not expect to have any significant expenses, such as marketing costs, before the new titles launch as our disclosed role division for the Nintendo alliance suggests.

Q3 The revenue from the Curation Platform Business is growing, but the operating loss from New Businesses and Other does not appear to have improved. Going forward, can we expect the bottom line for the New Businesses and Others segment to improve as the Curation Platform Business grows?

A3 In the first quarter we aired a TV commercial for MERY, which is part of the Curation Platform Business, and this was the main factor behind the quarter-over-quarter fluctuations for the New Businesses and Others segment. Going forward we will continue our investment in new businesses, but in general we expect profitability for the segment to improve as the Curation Platform Business grows. Since we are currently ramping up our team in the Curation Platform Business, fixed costs will increase. However, this business does not have significant variable costs, so as revenue increases operating profit should follow.

Q4 Pokémon GO appears to have struggled with server operations but I believe initial traffic management is crucial. Will you be able to handle such huge traffic? There is a lot of interest from users in upcoming titles from the Nintendo and DeNA alliance.

A4 We have always designed our infrastructure to scale in accordance with the amount of user traffic, regardless of whether the titles are from the Nintendo alliance or not. So I believe, we will be able to accommodate future traffic without problems. The initial response to Miitomo, the first title in the Nintendo alliance, was significant, and we were able to effectively handle that traffic. I believe the user response to Pokémon GO was even larger, and the fact that it is a location-based game possibly made the operations even more challenging.

Q5 Do you plan to implement strong in-game operations from the very initial stage for the upcoming titles from the Nintendo alliance?

A5 It is crucial to have front-end development capabilities and a team structure that allows for agile operations. We also plan to make use of both companies' learnings in future titles.

Q6 What is the premise for your second quarter guidance, including trends for each business?

A6 For our Game Business, we do not expect significant contribution from new native apps launching during the second quarter. We expect browser games to continue their gradual decline. We also expect that New Businesses and Others will see improvement in the bottom line quarter-over-quarter.

Q7 What is your guidance for the China Business?

A7 We believe that the second quarter bottom line for the China Business should improve slightly quarter-over-quarter.

Q8 The operating loss from the West Business was limited in the first quarter. How do you expect that to trend?

A8 We are maintaining a lean team in the West Business. We optimized our game portfolio and continue to steadily control our costs, which resulted in a very small operating loss for the first quarter. Future performance will depend on performance of new titles. We just launched a new title in July 2016, and will be tracking its performance.

Q9 For the Automotive Business and AI (artificial intelligence) initiatives, what kind of projects are you pursuing, and what is your team size?

A9 The Automotive Business includes initiatives in the self-driving field and a car sharing service. Since our initiatives are in the service layer and many of them are in the field testing phase, our team size is at approximately 20 at this moment. Hiroshi Nakajima from the executive team is leading this business.

I [Isao Moriyasu] am directing the AI project, and Shuhei Kawasaki, one of DeNA's board members, is also participating on the technology side, as he has lots of insight in the AI field.

Q10 For the Japan Game Business, is your goal to maintain the stable performance of your existing key titles by means of in-game operations, or are you aiming to grow them further by, for example, strengthening promotion?

A10 Our titles, like FINAL FANTASY Record Keeper, are maintaining a high level of performance. We plan to further grow key titles with upside potential through expanding in-game operations, adding new features, and executing timely marketing initiatives.

Q11 The user base for the Curation Platform Business appears to be growing faster than we anticipated. Are you considering moving up your goals for revenue and operating profit now?

A11 The user base is growing faster than we anticipated. We have high internal goals for revenue and operating profit.

Q12 Will upcoming new titles from your alliance with Nintendo offer novel gaming experiences?

A12 Unfortunately I cannot comment on any of the upcoming titles individually. We are developing these titles with the goal of delighting many users.

Q13 Tell us about your pipeline other than the Nintendo alliance titles for the second half of FY2016.

A13 We are planning for five to ten new titles in Japan during FY2016 excluding titles from the Nintendo alliance.

Q14 How much of the total monthly users and revenue for the Curation Platform Business is from MERY? The number of total monthly users for MERY is over 20 million. We do not disclose the revenue per media, but I can say that MERY accounts for over half of the revenue of the Curation Platform Business.

A14 The number of total monthly users for MERY is over 20 million. We do not disclose the revenue per media, but I can say that MERY accounts for over half of the revenue of the Curation Platform Business.

*Source: Google Analytics. Refers to the total number of monthly users for each service. Figures include users who access the same service across multiple devices, including smartphones and PC.