Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimoto*1	A virtual mobile communications
businesses that involves conducting
an independent communication
business by borrowing the lines
from communication businesses
with a wireless communication
infrastructure, such as NTT
DOCOMO, INC. <9437>, KDDI
CORPORATION <9433>, and
SoftBank Corp.
*2	A mechanism or service for virtuallybuilding the functions of a data
center so they can be used over theInternet.
*3	A package service that cancommercialize MVNO at low costand low risk in a short period oftime that the Company provides tovarious businesses.

伪伪Aiming to achieve net sales of ¥50bn and operating
income of ¥5bn in FY4/20 through growing existing
businesses and expanding new businesses,
centered on “Health Tech”
FreeBit Co., Ltd. <3843> (hereafter, also “the Company”) provides a variety of Internet services tocorporations and individuals, from infrastructure through to consulting and solutions. In addition to
the provision of infrastructure for Internet service providers (ISP), the businesses the Company’sGroup are involved in include providing support for entering into MVNO*1 as an MVNE (Mobile Virtual
Network Enabler), Web marketing services, Internet-related services for individuals and collective
housing (condominiums), and the provision of Cloud infrastructure, particularly virtual data centers(VDC)*2. Also, toward the growth of its smartphone business that utilizes the Group’s businessexpertise, in 2015 it established Tone mobile inc., a joint venture with Culture Convenience Club Co.,
Ltd. (hereafter, “CCC”), and is currently focusing on expanding its businesses, including through theprovision of its proprietary smartphone TONE.
In the FY4/16 consolidated results announced on June 10, net sales increased 32.2% year-on-year(y-o-y) to ¥28,389mn, operating income rose 52.9% to ¥1,902mn, and net income attributable tothe owners of parent declined 46.1% to ¥553mn, but achieving record highs for both net sales andoperating income. In addition to the strong performances of the Mobile Business, including the “freebit
MVNO Pack,”*3, and the Ad Technology Business of Full Speed Inc.<2159>, the positive results were
due to the expansion of the Internet service for collective housing provided by GIGAPRIZE Co.,
Ltd.<3830> in the Broadband Business. Net income declined as a reaction to temporary factors in
the previous fiscal year, including the recording of deferred tax assets.
At the same time as the results announcement, the Company announced SiLK VISION 2020, its
medium-term business policy up to FY4/20. The policy describes the consolidated results targets for
FY4/20 of net sales of ¥50bn and operating income of ¥5bn from the FreeBit Group’s commitment
to its external markets. This basic policy outlines the goal of achieving business expansion in themedium to long term by aiming to realize growth through strengthening its existing Mobile and Ad
Technologies businesses; launching new businesses in the three fields the Company cited in SiLKVISION 2016, of “Health Tech,” “IoT,” and “Real Estate Tech” within the “Life Revolution” area; andleveraging synergies through Group coordination.
The Company’s targets for the FY4/17 results are for a double-digit increase in sales, a single-digit
increase in operating income, but a decline in net income, with net sales forecast to rise 23.3% to¥35,000mn, operating income to grow 5.1% to ¥2,000mn, but net income attributable to the ownersof the parent company to fall 54.8% to ¥250mn. The reason why operating income will only increaseby a single digit is because the forecast incorporates the prior investment of ¥500mn to ¥600mn
described in the medium-term business policy in order to launch the new businesses, centered on“Health Tech.” In addition, the major decline in net income is due to the fact that the temporary factorsthat occurred in the previous fiscal year, including a gain on the sale of a business, are not expectedin this fiscal year, and also because of an increase in income tax from the strong results recorded by
the subsidiaries, and as net income attributable to the non-controlling shareholders of GIGAPRIZE
and Full Speed will be recorded.
The contribution to profits of the Company’s subsidiaries is high, and compared to operating income
and ordinary income, net income tends to decline. Therefore, the Company as a whole is aware that
increasing profits is an issue to be addressed in the medium to long term.

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

伪伪Check Point• Achieved record highs in net sales and operating income in FY4/16 from the strong
performances of the Mobile and Ad Technology businesses• Planning prior investment of ¥500mn to ¥600mn in FY4/17 to launch new businesses,
centered on “Health Tech”• Is aiming for net sales of ¥50bn and operating income of ¥5bn as its FY4/20 consolidated
results targets

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section㻾㼑㼟㼡㼘㼠㼟㻌㼠㼞㼑㼚㼐㼟㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕(¥mn)

12-Aug.-16㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻠㻜㻘㻜㻜㻜

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Important disclosuresand disclaimers appear
at the end of this document.

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㻝㻢㻘㻜㻜㻜FISCO Ltd. Analyst
Nobumasa Morimoto(¥mn)

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伪伪Company Profile and History
Infrastructure provider based on the Internet, expanding its
business through active M&As
(1) Company Profile
Based on its corporate philosophy of “Being the NET Frontier! (expand the Internet, contribute tosociety)” and its mission of “Creating New Products from Zero,” the Company leverages its strengthof accumulating technological capabilities, of the development of Internet-related core technologies
and the management of large-scale systems, to provide a variety of Internet-related services tocorporations and individuals. These proprietary network services that combine cutting-edge
technologies, including patented technologies and marketing that anticipates market needs, enable
it to provide solutions that create new value based on the keywords of “Monozukuri (craftsmanship)in the IT age.”

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■Company Profile and History(2) Company history

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16*1	Rather than developing the Web
like a cobweb as it had been
Importantdeveloped indisclosures
the US, the Company
aimsdisclaimers
to create SiLK appear
as a “smoothandand soft Internet,” with the wordattheexpressing
end of thisdocument.
SiLK
the Japanese
styleof Internet service.
*2	As SiLK VISION 2010 progressed
better than
anticipated
FISCO
Ltd.
Analystand theinitial targets were achieved
one year aheadof schedule,
Nobumasa
Morimoto
the Company formulated SiLKVISION 2012 (FY4/10 to FY4/12)
and announced it in April 2009.
Subsequently, taking into accountthe effects of the execution of M&As
and other factors, in August 2010 itannounced SiLK VISION 2012 ver.2(FY4/10 to FY4/13) that extended
the plan’s period by one year.

The predecessor of the Company, FreeBit.com Co., Ltd., was founded in May 2000 (name changed
to FreeBit Co., Ltd. in December 2002) by Atsuki Ishida, chairman of the board, who was involvedin the founding of DREAM TRAIN Internet INC. (hereafter, “DTI”), which is a subsidiary of Mitsubishi
Electric Information Network Corporation; Nobuaki Tanaka, president and member of the board;
and Takashi Shimizu, vice president and director. Based on its independently developed proprietary
technologies, it deployed Internet business support operations, such as providing infrastructure andtechnology for companies managing ISP and its sales grew. It listed on the Tokyo Stock Exchange(TSE) Mothers Market in March 2007.
After it listed, the Company developed its strategy based on its Medium-Term Management Plan.
At the same time as expanding its business area and scale through actively conducting M&As, it
implemented business-structure reforms targeting selection and concentration, which brings it up
to the present day. This stage, from its foundation up to the present day, can be divided according
to the three Medium-Term Management Plans, of SiLK*1 VISION 2010, SiLK VISION 2012 & 2012ver.2*2, and SiLK VISION 2016.
a) SiLK VISION 2010 (FY4/08 to FY4/10)
The Company developed a hybrid strategy based on the Medium-Term Management Plan SiLKVISION 2010 it announced in June 2007 (aiming to acquire ISPs, integrate them with DTI, andincrease user numbers. At the same time, aiming to differentiate itself by providing proprietaryservices utilizing its own technologies). After DTI was consolidated in August of the same year, inMarch 2009 Media Exchange Co., Ltd. (name changed to FreeBit Cloud Co., Ltd. in September
2010. Merged with DTI in February 2014) and its subsidiary GIGAPRIZE Co., Ltd. were consolidated.
In this way, the Company has been conducting M&As and integrating ISP operators.
b) SiLK VISION 2012 & 2012 ver.2 (FY4/10 to FY4/13)
For the period from 2010 onwards, the Company formulated and announced in April 2010 thesubsequent Medium-Term Management Plan SiLK VISION 2012, which was centered on the Smart
Infra strategy. Under this strategy, it aimed to utilize its proprietary technologies, such as network
virtualization and transitioning to IPv6, to convert the global Internet infrastructure to “Smart Infra:
a light and smart infrastructure.” Based on this strategy, from August 2010 it made consolidated
subsidiaries of the Internet advertising agency Full Speed Inc., FORiT Inc. that operates an affiliate
advertising business and provides its proprietary program Affiliate B, and BEKKOAME INTERNET
INC. that operates an IT platform business. Aiming to make its services multi-layered, at the sametime as entering into the Cloud business, MVNE and MVNO business, and Ad Technology Business,
the Company has been conducting structural reforms and technological integration in the companies
it has acquired, and it has become a corporate group possessing a complete set of components
relating to Internet services.
c) SiLK VISION 2016 (FY4/14 to FY4/16)
The Company next developed its strategy of aiming to expand its main business areas based on its
Medium-Term Management Plan SiLK VISION 2016 announced in March 2013 (the vertical integrationof the components built up to FY4/13 (multi-layered services), and the horizontal development of the
3 revolution areas of Mobile Revolution, Life Revolution, and Production Revolution).
In the Mobile Business, FreeBit Mobile Inc. was established in January 2015 to operate thesmartphone carrier business. In February of the same year in this business, the Company formeda strategic alliance with CCC, and then in March changed the corporate name of FreeBit Mobile
to Tone mobile inc., and it became the Company’s equity method affiliate (the Company’s capital
contribution ratio is 49%). On the other hand in the Ad Technology Business, in October of the same
year, Full Speed took over the ad network business for smartphones of Liveaid Inc., and in addition,
collaborated with IREP Co., Ltd., which is the largest SEM management company in the industry, andfounded the joint venture company THINKS Co., Ltd.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■Company Profile and History

Company History

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimoto

History
May 2000 Founded as FreeBit.com Co., Ltd. in Shibuya Ward, Tokyo, to provide Internet business support
June 2000 Started providing services to ISP (communication operators)
December 2002 Changed its corporate name from FreeBit.com Co., Ltd., to FreeBit Co., Ltd.
December 2003 Launched the FreeBit OfficeOne IP Business Phone, an IPv6 compliant IP telephone service
for corporations
May 2004 Announced and launched the OverLay Internet technology Emotion Link
May 2006 Launched the VPN service MyVPN for multi-sites and multi-stores
March 2007 FreeBit Co., Ltd. was listed on the TSE Mothers market
August 2007 Made a consolidated subsidiary of DTI that operates an ISP business for individuals
April 2008 Officially launched operations of Karatsu SiLK Hotlines as a call center business
March 2009 Made a consolidated subsidiary of Media Exchange Co., Ltd. (currently merged into DTI),
and at the same time, made a consolidated subsidiary of Media Exchange’s subsidiary
GIGAPRIZE Co., Ltd., which operates a condominiums ISP business
March 2010 Launched the virtual data center service (IaaS) FreeBit CloudVDC (formerly: MeX VDCENTERPRISE-FARM)
August 2010 Made consolidated subsidiaries of the Internet advertising agency Full Speed Inc., FORiT Inc.
that operates an affiliate advertising business and provides its proprietary program Affiliate B,
and BEKKOAME INTERNET INC. that operates an IT platform business
November 2010 GIGAPRIZE Co., Ltd. launched the service RentAgent for people renting an apartment
December 2012 Full Speed Inc. launched the advertising management integration program AdMatrix series
July 2013 FreeBit Co., Ltd. launched the MVNE service FreeBit MVNO Pack (formerly: YourNet MVNO
Pack) for MVNO through an LC connection with NTT DOCOMO, INC.
November 2013 With the aim of improving efficiency, incorporated the SiLK Hotlines call center business within
FreeBit Co., Ltd. and founded Freebit Smart Works Inc.
October 2014 With the aim of improving efficiency in its Internet connection-related business, transferred
GIGAPRIZE Co., Ltd. to be a direct subsidiary of FreeBit Co., Ltd.
January 2015 Founded Freebit mobile, inc. to operate an MVNO businessFebruary 2015 FreeBit Co., Ltd. implemented a strategic alliance with the Culture Convenience Club Group
March 2015 Changed the corporate name of FreeBit mobile, inc. to Tone mobile inc. In conjunction with
the implementation of a third-party allocation of shares to Culture Convenience Club Co., Ltd,
Tone mobile inc. became an equity method affiliate of FreeBit Co., Ltd.
April 2015 Founded freebit investment inc. with the objective of conducting investments for businessexpansion
October 2015 GIGAPRIZE Co., Ltd. made an equity method affiliate of For Members Co., Ltd., which is a
developing a franchise of AEON Housing, the real estate intermediary business of AEON MALL
October 2015 Full Speed Inc. took over the ad network (AID) business for smartphones of Liveaid Inc.
November 2015 Full Speed Inc. collaborated with IREP Co., Ltd., the largest SEM management company
in the industry, to found the joint venture company THINKS Co., Ltd., (Full Speed’s capital
contribution ratio is 49%) and made it an equity method affiliate
Source: prepared by FISCO with reference to the Company’s securities reports, homepage, etc.

伪伪Business descriptions
Provides a wide range of Internet-related services, from
infrastructure to consulting and solutions(1) Group conditions
In addition to the Company, the Company Group is comprised of 11 consolidated subsidiaries, suchas DTI, GIGAPRIZE and Full Speed, and 4 equity method affiliates, including Tone mobile.
Overview of the main subsidiaries and affiliates
Consolidated subsidiaries
DREAM TRAIN Internet INC.
GIGAPRIZE Co., Ltd.
Full Speed Inc.
BEKKOAME INTERNET INC.

Description of main business
Internet connection services, Cloud services, services to provide an Internet
server environment, high speed mobile communications services
Internet connection services for collective housing (condominiums)
Internet marketing business, Ad Technology Business
Platform business (housing service, hosting service, etc.), SaaS (ASP) business(video delivery service, email delivery service, etc.)
Internet advertising agency business, affiliate business, ad network businessNew businesses planning, start-up investment, and M&As

FORiT Inc.
freebit investment inc.
Equity method affiliate
Tone mobile inc.
Smartphone carrier business
Source: prepared by FISCO based on the Company’s securities report, homepage, etc.

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Business descriptions(2) Business descriptions
In terms of the businesses the Company is involved in, since FY4/16, with the objective of clarifying
the future trends in its main businesses, it changed its business segments to the Broadband Business(FY4/16 sales ratio, 34.5%), the Mobile Business (17.7%), the Ad Technology Business (41.0%), theCloud Business (6.5%), and Other businesses (0.3%).

FreeBit Co., Ltd.

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3843 Tokyo Stock ExchangeFirst Section

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㻮㼞㼛㼍㼐㼎㼍㼚㼐

12-Aug.-16㻟㻠㻚㻡㻑㻹㼛㼎㼕㼘㼑

㻭㼐㻌㼀㼑㼏㼔㼚㼛㼘㼛㼓㼥

Important disclosuresand disclaimers appear
at the end of this document.

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㻠㻝㻚㻜㻑

㻻㼠㼔㼑㼞

FISCO Ltd. Analyst
Nobumasa Morimoto

㻝㻣㻚㻣㻑

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a) Broadband Business
The Company, GIGAPRIZE, and DTI conduct this business. Targeting the approximately 300 ISPs
nationwide in Japan, the Company provides a high-speed Internet backbone over fixed lines and
ISP services to support ISPs’ shift to broadband. Also, DTI provides an Internet connection service
to individuals, while GIGAPRIZE is developing a business of providing a unified ISP service for
condominiums, from the technical survey and design specifications through to maintenance.
In the context of the expansion of the Internet business for condominiums, GIGAPRIZE is aiming
to strengthen its provision of a total IT solutions service for the real estate industry. Toward this,in October 2015, it formed a capital and business alliance with For Members Co., Ltd., which isdeveloping a franchise of AEON Housing, the real estate intermediary business of AEON MALL
Co., Ltd. <8905> and For Members was made an equity method affiliate (capital contribution ratio of
19.98%). Further, in February 2016, it entered into an OEM agreement with Mitsuuroko Co., Ltd. (anoperating subsidiary of Mitsuuroko Group Holdings <8131>), and will start to provide its “Mitsuuroko
net” Internet connection service to the Mitsuuroko Group’s energy customers of approximately 1
million households, and also to Mitsuuroko’s 1,600 corporate members nationwide (both figures are
as of the end of January 2016), with the aim of introducing the service into 30,000 households in thefirst fiscal year.
Its performance for introducing ISP into its main customers of collective housing was 142,228 homes
at the end of March 2016 (100,829 homes at the end of March 2015). Its competitors include Internet
Initiative Japan Inc. <3774> (hereafter, IIJ) for corporations, and Asahi Net, Inc. <3834>for individuals.
b) Mobile Business
The Company, DTI, and the equity method affiliate Tone mobile conduct this business. As an MVNE,
the Company provides “freebit MVNO Pack” as a support package for MVNO entrant businesses.
It also sells pre-paid SIM cards and rental routers to foreign tourists visiting Japan, and additionallyconducts a smart device business that provides smartphones to Tone mobile. Other than these
services, DTI provides the mobile high-speed data communication service DTI SIM, which realizes
the most inexpensive plan in the industry.
The freeBit MVNO Pack bandwidth at the end of May 2016 had expanded at a pace of 4.1 times
compared to 1 year earlier, due to the growth in the number of users that occurred in conjunction with
the increase in the number of companies introducing it. Competitors include Japan Communications
Inc. <9424> and IIJ.

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■■Business descriptions

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16*1	It was founded in February 2015
through a capital and business
Importantalliance withdisclosures
the CCC Group inorderdisclaimers
to strengthen its
planning
andappearand sales force toward capturing
atthe endofinthisdocument.
1 millionusers
the mobilearea.
Its predecessor was FreeBit Mobile
Inc. (founded January 2015),
which was based on the Group’s
FISCO
Ltd.carrier
Analystsmartphonebusiness thatit entered-into Morimotoin November 2013.
Nobumasa
Its corporate name was changed in
March 2015, and following a thirdparty allocation of shares to CCC,
it became the Company’s equity
method affiliate (the Company’s
capital contribution ratio is 49%).
*2	It has launched a deployment instores nationwide, starting with
14 TSUTAYA stores. It is currently
expanding this deployment withthe aim of opening stores in 200
TSUTAYA stores nationwide by
FY3/17.
*3	The advertising management
integration platform provided by Full
Speed. It maximizes advertisingthrough the integrated managementof all marketing phases, fromawareness of the advertisingamong site users through toapplications and purchases.
*4	Affiliate refers to an advertisingsystem in which the site manager
can receive remuneration inaccordance with the results
achieved from the listing of client’s
ads on its sites (homepages, blogs,
newsletters, etc.) Affiliate B createsa network from the approximately
550,000 partner sites, and it isbeing developed for PCs, tablets,
smartphones, and other mobile
devices.
*5	Infrastructure, such as theequipment and lines needed tooperate the information system,
which enables services to be used
remotely over the Internet.
*6	A mechanism that enables the user
to call for and use the software
when they need it, such as over theInternet.
*7	A key component. The Company
focuses on the development ofcore components that will become
the foundation of its services.
It is able to provide a variety ofservices through combining thesecomponent API.

Conversely, Tone mobile*1, which is the joint venture company of the Group and CCC, conductsa smartphone career business, mainly providing smartphones to individuals as an MVNO. In
November 2015, the Company launched sales of the LTE compliant new terminal TONE (m15)that it developed with the concept of “Quality to provide peace of mind to everyone” (terminal price,¥29,800; monthly usage fee, ¥1,000) at Futako Tamagawa TSUTAYA ELECTRICS and Daikanyama
TSUTAYA BOOKS, and it is expanding the sales network to TSUTAYA directly-managed stores andfranchise stores.*2c) Ad Technology BusinessThis business is conducted by consolidated subsidiary Full Speed and FORiT, the subsidiary of Full
Speed. They utilize the marketing platform AdMatrix*3 series developed in-house by Full Speed,
and also Affiliate B*4, a program developed by FORiT to provide highly original Internet advertisingsolutions services, including for SEO, listing advertising, social media marketing, display advertising,and affiliate advertising.
In October 2015, Full Speed formed a strategic business alliance with IREP <2132> with theobjectives of improving the expertise of managed advertising and strengthening the structure forproviding services at the highest level in the industry, and they founded the joint venture company
THINKS (Full Speed’s capital contribution ratio is 49%). Additionally, it is bolstering the Ad Technology
Business, including by taking over businesses, such as the ad network business for smartphonesof Liveaid.
The main users are around 1,500 companies with no bias toward any particular industry. There aremany competitors, including MicroAd, Inc. in the CyberAgent, Inc. <4751> Group, the VOYAGEGROUP, Inc. <3688>, FreakOut, Inc. <6094>, and UNITED, Inc. <2497>.
d) Cloud BusinessThis business is conducted by the Company, BEKKOAME INTERNET, DTI and GIGAPRIZE. They
utilize the data center management expertise cultivated in broadband infrastructure management
to provide a wide range of Cloud services, including IaaS*5, SaaS*6, and VPN, and also to provide
virtual cyber services and large-scale email systems that utilize the Cloud to the greatest possible
extent.
The main users of the virtual data center (VDC) service are corporations, including game companies
and TV stations. Conversely, the main users of the Cloud services are both corporations andindividuals. In addition to IIJ, competitors include SAKURA Internet Inc. <3778> and Bit-isle Equinix
Inc. <3811>.
e) Other businesses
It corresponds to the SI businesses providing services not described above.

伪伪Strengths and business risk
One of only a few companies that possess the high-leveltechnological development capabilities and application
capabilities to provide a one-stop Internet service(1) The Company’s strength
The Company’s strength is that it is one of only a few companies that can provide a one-stop service
by offering a variety of multi-layered Internet-related services based on its proprietary technologies.
This strength is built on three points: 1) the Company possesses many proprietary technologies
that it developed independently, 2) it has the application technological capabilities that enable it toturn these technologies into core component API*7, and 3) it has a business model in which 90% of
earnings are from continuous billing.
(2) Business and other risks
Recently, the Company has focused on expanding its Mobile Business and Ad Network Business.
Therefore, we think that the risks in these businesses could constitute the greatest risk factors.

We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■■Strengths and business risk

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimoto

First, with regards to the Mobile Business, the risks that can be cited are the reduction in mobile phonecharges and the launch of Tone mobile. With regards to the reduction in mobile phone charges, whena price reduction by a major communicator operator, such as NTT DOCOMO, is considerable, it has
a negative impact on the Company, as its share of MVNO users will decline, causing its results toworsen. But under the current situation, the impact is expected to be limited to the point where sales
in which the terminal is free will not be possible, so it is difficult to imagine that a full-fledged pricewar will develop. So for MVNO, it is highly likely that this will instead have a positive effect, which is
why we think it will not be a risk.
With regards to the launch of Tone mobile, its results may fluctuate depending on the progress madein store development and the scale of the investment in advertising expenses. Specifically, while
advertising will be conducted in conjunction with the period for store expansion, if the progress madeby CCC in its store development is slower than anticipated, the acquisition of users will fall below thetarget, which will have an adverse effect on sales of terminals and communication services.
On the other hand, the risks for the Ad Technology Business can be considered to be the acquisitionof clients for the main products, such as AdMatrix, falling below the target.

伪伪Results trends
Achieved record net sales and operating income from the
expansions of the Mobile and Ad Technology businesses(1) FY4/16 consolidated results
In the FY4/16 consolidated results, net sales increased 32.2% year-on-year (y-o-y) to ¥28,389mn,
operating income rose 52.9% to ¥1,902mn, and net income attributable to the owners of parent
declined 46.1% to ¥553mn, while both net sales and operating income were record highs. The
reasons why net income declined despite the record highs was as a reaction to temporary factors in
FY3/15, including the recording of gains on a business transfer and from changes in equity, and also
because of a rise in net income attributable to non-controlling shareholders.
Overview of the FY4/16 consolidated results
FY4/14
ResultRelativeto sales

FY4/15ResultRelativeto sales%change
y-o-y
3.9%
9.8%
-5.5%
-5.4%
-5.8%
-19.5%

Result(Unit: ¥mn)
FY4/16%
Relativechangeto sales
y-o-y
32.2%
71.1%
45.1%
28.9%
8.6%
22.2%
-0.1%
6.7%
52.9%
4.7%
34.6%

Sales
20,665- 21,469
28,389
Cost of sales
12,66761.3% 13,909
64.8%
20,177Gross profit
7,998
38.7%
7,560
35.2%
8,212
SG&A expenses
6,677
32.3%
6,315
29.4%
6,309
Operating income
1,320
6.4%
1,244
5.8%
1,902
Ordinary income
1,219
5.9%
982
4.6%
1,322
Net income attributable to the
235
1.1%
1,025
4.8% 335.1%
553
1.9% -46.1%
owners of parent
Source: Prepared by FISCO based on the Company’s financial results summary and financial results briefing
materials

Net sales recorded high-level growth in excess of 30% y-o-y, driven by the continuous growth of the
Mobile Business and Full Speed’s Ad Technology Business. Gross profit rose 8.6% to ¥8,212mn
alongside the increase in net sales. But communication costs grew due to the rise in costs topurchase bandwidth in conjunction with the higher sales in the Mobile Business, and also due tothe rise in fixed network communication costs. Consequentially, network-related costs increased, so
the gross profit margin fell by 6.3 percentage points to 28.9% from 35.2% in the previous fiscal year.
Conversely, advertising costs and sales promotions costs fell due to the FreeBit Mobile company split
and the reduction in incentives to acquire fixed network customers, and therefore SG&A expenses
declined 0.1% to ¥6,309mn (the SG&A expenses ratio was 22.2%, a fall of 7.2 percentage points).
As a result of the above, operating income greatly increased and the operating margin rose by 0.9
of a percentage point to 6.7%.

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■■Results trends

The conditions according to segment are as follows.

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresa) Broadband BusinessNet sales increased 6.5% y-o-y to ¥10,017mn, but segment income decreased 16.3% to ¥1,685mn,
for higher sales but lower profits. The main factors behind the increase in sales were the steady
expansion of the GIGAPRIZE* Internet service for condominiums (from 100,829 homes in FY3/15
to 142,228 homes in FY3/16, an increase of 41.1% y-o-y) and also the smooth rise in the number ofusers of DTI Hikari, DTI’s Internet service for individuals (user numbers increased by approximately
9.8 times in 1 year). The reasons for the decline in profits despite these higher sales were the impact
of negative factors like the lower profits from the fall in sales of the fixed network connection service,and the higher network-related costs following the rise in traffic due to the increase, for example, ofviewing of videos via fixed lines.
However, looking on a quarterly basis, it is clear that excluding condominium Internet net sales, thedeclines in net sales and segment income have both bottomed-out, that the higher condominium
Internet sales are covering for the declines in sales and profits in the other areas, and that a returnto profitability is in sight.

*	
GIGAPRIZE’s
FY3/16consolidated
anddisclaimers
appearresults were net sales of ¥2,928mn(upthe34.4%
and document.
operatingatendy-o-y)of thisincome of ¥463mn (up 29.5%).

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㻮㼞㼛㼍㼐㼎㼍㼚㼐㻌㻮㼡㼟㼕㼚㼑㼟㼟㻘㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼍㼚㼐㻌㼟㼑㼓㼙㼑㼚㼠㻌㼕㼚㼏㼛㼙㼑㻺㼑㼠㻌㼟㼍㼘㼑㼟㻌㻔㼛㼠㼔㼑㼞㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕(¥mn)

FISCO Ltd. Analyst
Nobumasa Morimoto㻺㼑㻌㼟㼍㼘㼑㼟㻌㻔㼏㼛㼚㼐㼛㼙㼕㼚㼕㼡㼙㼟㻕

(¥mn)

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Source: prepared by FISCO based on the Company’s financial results briefing materialsb) Mobile BusinessNet sales increased 132.9% y-o-y to ¥5,016mn, while the segment loss was reduced to ¥33mn(compared to a loss of ¥736mn in the previous fiscal year). The factors behind this were as follows:
the steady acquisition of business subscribers for the provision of the “freebit MVNO Pack,” theMVNO package service (as of May 2016, the “freebit MVNO Pack” bandwidth had increased byaround 4.1 times compared to the same month in the previous fiscal year); the strong performanceof prepaid SIM cards (cumulative sales from February 2015 have exceeded 310,000 SIM cards); in
DTI, the significant expansion in the number of contracts (increased by around 4 to 5 times comparedto Q2) for “DTI SIM,” a mobile high-speed data communication service launched in September of lastyear; and in the smartphone business, the launch of shipments of “TONE m15” (established a supply
system on a scale of hundreds of thousands of units).

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

■■Results trends㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㻹㼛㼎㼕㼘㼑㻌㻮㼡㼟㼕㼚㼑㼟㼟㻌㼚㼑㼠㻌㼟㼍㼘㼑㼟㻌㼍㼚㼐㻌㼟㼑㼓㼙㼑㼚㼠㻌㼕㼚㼏㼛㼙㼑(¥mn)

㻺㼑㼠㻌㼟㼍㼘㼑㼟㻞㻘㻜㻜㻜㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑

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㻝㻘㻡㻜㻜
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FreeBit Co., Ltd.

㻝㻘㻜㻜㻜3843 Tokyo Stock ExchangeFirst Section

㻡㻜㻜

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㻡㻣㻡

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12-Aug.-16

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Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimoto*1	Full Speed’s FY4/16 consolidated
results were net sales of¥15,061mn (up 26.4% y-o-y), andoperating income of ¥955mn (up67.9%).
*2	A mechanism that enables the user
to call for and use the software
when they need it, such as over theInternet.
*3	A backup service for corporations
that combines the engine of Acronisof the United States and theCompany’s technologies to makepossible services from daily backup
to DR countermeasures.
*4	Infrastructure, such as theequipment and lines needed tooperate the information system,that enables services to be used
remotely over the Internet.
*5	A service in which the IaaS
(Infrastructure as a Service)“FreeBit Cloud VDC” developedby the Company is built not in the
FreeBit Cloud environment, but
on a private Cloud within the user
environment.

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Source: prepared by FISCO based on the Company’s financial results briefing materialsc) Ad Technology BusinessNet sales rose 44.9% y-o-y to ¥11,691mn and segment income grew 54.5% to ¥908mn, for major
increases in both sales and profits. Full Speed recorded significant increases in both sales andprofits*1 mainly due to factors including 1) it is focusing on business expansion and is steadily
increasing sales of the “AdMatrix” series, a proprietary advertising management comprehensive
platform, and 2) its other services, of affiliate advertising and social media marketing, are also
trending strongly. Another positive factor was that FORiT increased user numbers to improve its
revenue situation, of high in summer but low in winter, and it was able to secure an upward trend inits results.
d) Cloud businessNet sales declined 1.9% y-o-y to ¥1,997mn and segment income fell 21.4% to ¥85mn, to continue
the trend of a double-digit fall in profits. The main reason for this was the decline in sales of thelegacy services, centered on the housing and hosting services, provided by BEKKOAME INTERNET.
However, the new services, of the SaaS*2 backup service “FreeBit Cloud Backup Orchestra”*3 andthe IaaS*4 private Cloud service “FreeBit Cloud VDC Private”*5, have been launched and a system
is being established to cover the decline in sales from legacy services.
Segment net sales and profits
FY4/15ResultRelativeto sales

FY4/16
TargetResult%Relativechangeto salesy-o-y%changevs.
targetFY4/17
Target21,46927,00028,38932.2%
5.1%
35,000Total net sales
9,405
43.8%
9,675
10,017
35.3%
6.5%
3.5%
11,041
Broadband
2,154
10.0%
5,273
5,016
17.7% 132.9%
-4.9%
8,451
Mobile8,069
37.6%
10,305
11,691
41.2%
44.9%
13.5%
14,099Ad Technology
2,037
9.5%
1,891
1,997
7.0%
-1.9%
5.7%
1,899
Cloud
175
0.8%
102
81
0.3%
-53.5%-20.0%
Other businesses
-372
-246
-415
Adjusted amount
1,244
5.8%
1,500
1,902
6.7%
52.9%
26.9%
2,000
Operating income
2,014
21.4%
1,367
1,685
16.8%
-16.3%
23.3%
1,493
Broadband-736-34.2%
44
-33
-0.7%
92
Mobile
588
7.3%
850
908
7.8%
54.5%
6.9%
1,110
Ad Technology
108
5.3%
6
85
4.3%
-21.4% 1322.9%
78
Cloud
-90
-51.8%-149-147 -181.1%
Other businesses
-639
-618
-596
Adjusted amountNote: segment net sales are before the elimination of internal transactions
Source: prepared by FISCO based on the Company’s financial results summary and briefing materials

(¥mn)

%
Relativechangeto sales
y-o-y
23.3%
31.5%
10.2%
24.1%
68.5%
40.3%
20.6%
5.4%
-5.0%
5.7%
5.1%
13.5%
-11.4%
1.1% -377.2%
7.9%
22.1%
4.1%
-8.6%
-

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■■Results trends

Steady accumulation of net assets(2) Financial position

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimoto

At the end of March 2016, total assets had increased ¥2,607mn from the end of the previous fiscal
year to ¥21,931mn. Breaking this down, current assets rose ¥3,392mn to ¥15,989mn. This was
mainly due to increases in cash and deposits of ¥927mn, notes and accounts receivable-trade of¥1,307mn, and merchandise and finished goods of ¥615mn. In contrast, non-current assets declined¥784mn to ¥5,942mn, due to factors like a reduction in intangible non-current assets of ¥322mn,
including a ¥534mn decrease in goodwill, and a decline in investments and other assets of ¥382mn,
such as from a decrease in investment securities.
Liabilities increased ¥2,097mn to ¥10,766mn. This was mainly because current liabilities rose
¥2,066mn compared to the end of the previous fiscal year to ¥9,049mn, including due to increases
in short-term loans payable of ¥765mn and accounts payable of ¥1,472mn. Net assets increased¥510mn to ¥11,164mn, as the negative factors, like the acquisition of treasury stock of ¥263mn,
were exceeded by positive factors, including the increases in retained earnings of ¥395mn and noncontrolling shareholders’ equity of ¥392mn.
Looking at the cash flow situation, the balance of cash, deposits, and equivalents at the end of March
2016 had increased ¥927mn compared to the end of the previous fiscal year to ¥7,911mn. Cashflow provided by operating activities was ¥1,751mn. This was because although trade receivables
increased ¥1,307mn, net income before adjustment for income tax increased to ¥1,446mn, andoutstanding accounts rose to ¥1,507mn. In contrast, cash flow used in investing activities was¥508mn, as despite revenue from a business transfer of ¥256mn, expenditures to acquire tangible
non-current assets was ¥303mn, to acquire intangible non-current assets was ¥323mn, and toacquire investment securities was ¥156mn. In addition, cash flow used in financing activities was¥306mn, due to expenditures (net) to repay long-term loans payable of ¥296mn and to acquire
treasury stock of ¥297mn.
Looking at the management indicators, while net assets are steadily accumulating, the equity ratio,
which expresses financial soundness, declined slightly compared to the end of the previous fiscal
year to 45.5%, due to the effects of the acquisition of treasury stock. Conversely, although ROE,
which expresses profitability, fell to 5.6% because of a reduction in extraordinary income, both the
ROA and the operating margin improved following the higher results.
Balance sheet, cash flow statement, and management indicators
Balance sheet
Current assets

FY4/15

FY4/16

12,596

15,989(¥mn)
Main change factors
Cash and deposits +927, Accounts receivable
3,392+1,307, Merchandise and finished goods +615
Intangible non-current assets -322, Investments and-784
other assets -382
2,607

ChangeNon-current assets

6,726

5,942

Total assets

19,323

21,931

Current liabilities

6,983

9,049

Non-current liabilities
Total liabilities

1,686
8,669

1,717
10,766(interest-bearing debt)

3,197

3,666

Net assets

10,654

11,164510

Total liabilities and net
assets

19,323

21,931

2,607

2,207
-524
585
6,983

1,751
-508
-306
7,911

927

Cash flow statement
Operating CF
Investing CF
Financing CF
Cash and equivalents

Short-term loans payable +765, Accounts payable
2,066 +1,472, Long-term loans payable scheduled for
repayment with 1 year -287
30 Lease obligations +59, Long-term loans payable -8
2,097
Short-term loans payable +765, Long-term loans
469 payable (including scheduled for repayment within
1 year) -296
Retained earnings +395, Non-controllingshareholders’ equity +392, Treasury stock -263

Management indicators<Soundness>
Current ratio
180.4% 176.7%
Equity ratio
50.9%
45.5%
D/E ratio
32.5%
36.8%
<Profitability>
ROE
12.9%
5.6%
ROA
5.4%
6.4%
Operating margin
5.8%
6.7%
Source: prepared by FISCO based on the Company’s financial results summary and briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■■Results trends

Based on the growth in the existing businesses, is aiming to
expand by launching new businesses in the three fields of“Health Tech,” “IoT”, and “Real Estate Tech”(3) The SiLK VISION 2020 medium-term business policy

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimoto

Following the end of SiLK VISION 2016, which was the medium-term management plan announced
in March 2013 that ran up to FY4/16, the Company has announced SiLK VISION 2020 as its mediumterm business policy up to FY4/20. The policy describes its consolidated results targets for FY4/20
of net sales of ¥50bn and operating income of ¥5bn from the FreeBit Group’s commitment to its
external markets.
This basic policy outlines the goal of achieving business expansion in the medium to long term byaiming to realize growth by strengthening its existing businesses in the areas of “mobile” and “adtechnology,” and launching new businesses in the three fields the Company cited in SiLK VISION
2016, of “Health Tech,” “IoT,” and “Real Estate Tech” within the “Life Revolution” area.
Initiatives in the medium-term business policy by the Group’s main companies
Company name

Descriptions of the initiatives
Generate revenue from launching and promoting a “health care” related new business,
FreeBitand the launch of a new mobile communications service that is bundled with surveillancecameras and various sensors
GIGAPRIZE
Launch of a living environment-related business aiming to increase scale
Product development compliant with the latest advertising technologies, such as video- andFull Speed
AI-related, and the launch of an app business for foreign visitors to JapanDTIStrategic expansion of “DTI SIM,” a mobile service for consumers
Actively investing in businesses according to themes, including Health Tech, Fin Tech, Realfreebit investment
Estate Tech, IoT, and inbound demand from foreign visitors to Japan
Source: the Company’s financial results briefing materials

With regards to the three fields in the Life Revolution area, for “IoT” the Company plans to launchin the summer a new mobile communication service bundling surveillance cameras and various
sensors. For “Health Tech,” it will launch new businesses (the specific details are currently being
considered), and it plans to develop them to cooperate with Full Speed, which has related clientsin the same field, and thereby pursue synergy effects. For “Real Estate Tech,” GIGAPRIZE, which
specializes in businesses related to real estate, is planning initiatives using its existing business asa foothold.

Prior investment to launch new businesses, centered in“Health Tech,” will keep down growth in operating income tosingle digit(4) The FY4/17 Company targets
The Company’s targets for the FY4/17 results are for a double-digit increase in net sales, a singledigit increase in operating income, but a decline in net income, with net sales forecast to rise 23.3%
to ¥35,000mn, operating income to grow 5.1% to ¥2,000mn, but net income attributable to theowners of parent to fall 54.8% to ¥250mn.
Overview of the FY4/17 Company targets(¥mn)
FY4/16
FY4/17
Relative toRelative to % change
ResultTarget
sales
sales
y-o-y
Net sales
28,38935,00023.3%
Operating income
1,902
6.7%
2,000
5.7%
5.1%
Ordinary income
1,322
4.7%
1,500
4.3%
13.4%
Net income attributable to the owners of parent
553
1.9%
250
0.7%
-54.8%
Source: prepared by FISCO based on the Company’s financial results summary and briefing materials

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■■Results trends

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

The same as in the previous fiscal year, it is thought that the main reason for the double-digit
increase in net sales will be the expansion of the Mobile Business and the Ad Technology Business.
The reason why despite the higher sales, operating income will only increase by a single digit isbecause the forecast incorporates the prior investment of ¥500mn to ¥600mn in order to launch the
new businesses, centered on “Health Tech.” In addition, the expected major decline in net income isfrom the fact that the temporary factors that occurred in the previous fiscal year, including a gain on
the sale of a business, are not expected in this fiscal year, and also due to factors like an increase
in income tax from the strong results recorded by the subsidiaries (approximately ¥240mn), andthat net income attributable to the non-controlling shareholders of GIGAPRIZE and Full Speed(approximately ¥500mn) will be recorded.
The forecasts for each segment are as follows.

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.

a) Broadband BusinessNet sales are forecast to increase 10.2% y-o-y to ¥11,041mn, but segment income to decrease
11.4% to ¥1,493mn. The main reason for the higher net sales is from the steady expansion of thecondominium Internet service, including from the effects of the partnership with Mitsuuroko. But
despite this, profits are forecast to decline because of the rise in network costs, such as from theincrease in the use of rich content.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㼠㼔㼑㻌㼞㼑㼟㼡㼘㼠㼟㻌㼒㼛㼞㻌㼠㼔㼑㻌㼕㼚㼠㼞㼛㼐㼡㼏㼠㼕㼛㼚㻌㼛㼒㻌㼠㼔㼑㻌㼏㼛㼚㼐㼛㼙㼕㼚㼕㼡㼙㻌㻵㼚㼠㼑㼞㼚㼑㼠㻌㼟㼑㼞㼢㼕㼏㼑FISCO Ltd. Analyst
Nobumasa Morimoto㻔㼔㼛㼙㼑㼟㻕
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㻝㻥㻤㻘㻞㻞㻤
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㻲㼅㻟㻛㻝㻣
㻔㼠㼍㼞㼓㼑㼠㻕b) Mobile BusinessNet sales are forecast to increase 68.5% to ¥8,451mn and segment income to achieve profitability
at ¥92mn (compared to a loss of ¥33mn in the previous fiscal year). The reasons for this are thecontinued expansion in sales of the “freebit MVNO Pack” from its improved name recognition in the
MVNE and MVNO markets; the fully fledged launch of sales of “Mobabiz,” a new Cloud-based PBX
service; and also the growth in sales of the smartphone business for the sales of handsets for Tone
mobile, which is occurring alongside the store openings within TSUTATA stores.
Within these efforts, Mobabiz, which was announced in March, is a service in which calls can be madeand received not in the usual way of installing a PBX in the user’s office, but through a smartphonethat is installed with a specialist app and that uses an extension call function and a fixed telephone
number. The Company has concluded a sales agency agreement with IE Group, Inc. in the HIKARITSUSHIN, INC. <9435> Group, and in addition, it is cooperating with 300 dealers and aiming to
expand its share of the business phone market that is said to be worth ¥150bn a year.

*	Ubiquitous network solutions
to realize safe and securecommunications by connecting
every type of information device
to the Internet using the OverLay
Internet.

The Mobabiz business model includes the following points; 1) it ensures the quality of the businessuse calls through utilizing patented technologies, including the Company’s proprietary Emotion Link
(Emotion Link Active Node)* technology, 2) the call charge is reduced by up to 78%, 3) it reducessound equipment and maintenance costs through utilizing NTT optical calls and putting PBX on the
Cloud, 4) it promotes BYOD (Bring Your Own Device), in which employees can utilize for work theirown smartphone, and 5) calls can be made and received by smartphone using a fixed telephone
number (0AB-J).

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

■■Results trendsc) Ad Technology BusinessNet sales are forecast to rise 20.6% y-o-y to ¥14,099mn and segment income to grow 22.2% to¥1,110mn, for double-digit increases in both sales and profits. This is because the results of theexisting businesses of Full Speed and FORiT are expected to trend strongly.

FreeBit Co., Ltd.
3843 Tokyo Stock ExchangeFirst Section

12-Aug.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Nobumasa Morimotod) Cloud business
Sales and profits are expected to once again fall, with net sales declining 4.9% y-o-y to ¥1,899mn
and segment income decreasing 8.4% to ¥78mn. But the decline is forecast to slow down. This will
be because while the rate of decrease for legacy services of housing and hosting will be reduced, theCloud infrastructure service will expand, centered on the virtual data center (VDC).

伪伪Returning Profits to Shareholders
Basic policy is to continuously return profits to shareholder
from a medium- to long-term perspective
The Company’s basic policy is to develop and expand its business for the future by retaining theinternal reserves necessary to strengthen its management foundations and financial position
while prioritizing continuous returns of profits to shareholders at the same time as obtaining theirunderstanding on its policy for the business expansion that it is aiming for from a medium- to longterm perspective. With regards to the payment of dividends from retained earnings, the Company
appropriately returns profits to shareholders in consideration of the progress made in its MediumTerm Management Plan and business performance in each respective consolidated fiscal year.
In accordance with this policy, the Company plans to pay a dividend of ¥7 in FY4/16 (dividend payout
ratio of 28.3%). It also intends to continue to pay a dividend per share of ¥7 in FY4/17 (dividend
payout ratio of 78.2%).
The Company conducted a share buyback with the objectives of raising value per share andimplementing a flexible capital policy in response to changes in its management environment(number of shares acquired, 350,000 shares; acquisition period, September 14 to October 1, 2015;
total cost of acquisition, ¥263.9mn).
Other than this share buyback, the Company has acquired its own shares on two other occasions in
the past. The same as with the most recent buyback, the objectives were to raise value per share andto implement a flexible capital policy in response to changes in its management environment. But it
is considered that this was because the share price was judged to have remained undervalued dueto the previous slump in results. At FISCO, when considering that presently the results have clearlychanged direction toward a full-fledged growth trend, going forward we consider that the Company
will continue with its policy of returning profits to shareholders through stably paying dividends andconducting share buybacks.

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