Geniee (6562)
Business evolution driving higher returns

Share price: ¥815

Initiating coverage

Market cap: ¥14.7bn

14 February 2022

• Leading domestic AdTech company – Geniee is a domestic market
leader providing a comprehensive online sales and marketing
platform. This acts as an intermediary between online media andadvertisers, facilitating automated sales and transmission of adverts.
Geniee has top domestic market share of 29% in its ‘SSP’ supply side
platform service which allows media to monetise ad space
effectively.
• Business expansion bearing fruit – the company has undertaken
business expansion on two fronts which are beginning to deliver
positive earnings; developing a Marketing SaaS business, andbuilding a footprint overseas in South East Asian markets.
Source: Bloomberg

Shift to positive sales mix• Improving profitability – Geniee demonstrated record EBITDA
margins in Q3 FY3/2022, driven by 1) improving sales mix as
Marketing SaaS sales grew 94% YoY, and 2) prioritising high margin
business in the mainstay Ad Platform segment, in particular the‘DSP’ demand side platform service. We believe this trend willcontinue with this segment booking record-high quarterly grossprofit in Q3 FY3/2022.
• Longer term growth drivers – Geniee is a Softbank Group (9984)
company and this relationship is yet to be fully leveraged. It has
been building a presence in South East Asian markets which
contribute over 10% of total FY sales – we believe this provides
growth prospects for the longer term.
• Capital policy/shareholder returns – management has emphasised
capital allocation for business investment and M&A. However, there
is a 1.94% share buyback program in place.
• ESG – we score the company as ‘Amber’ under our AstrisSustainability model scorecard.
• Valuations – The shares are trading on an estimated PER FY3/2023
multiple of 11.4x and an estimated free cash flow yield of 10.8%.

Price performanceYear end

3/20203/2021

3/2022E

3/2023E

3/2024E

Business Overview

Sales (¥bn)
OP (¥bn)
NP (¥bn)
EPS (¥)DPS (¥)
Sales growth YoY (%)
OP growth YoY (%)
NP growth YoY (%)
EPS growth YoY (%)
PER (x)EV/EBITDA (x)EV/Sales (x)PBR (x)ROE (%)ROCE (%)
FCF yield (%)
Dividend yield (%)

14.35(0.09)(0.18)(9.99)
-4.1
n/a
N/A
N/A
N/A
69.8
1.0
5.8
(7.0)
(3.2)
(1.9)
-

14.06
0.20
0.10
5.66
-2.0
n/a
N/A
N/A
144.0
25.5
1.1
5.5
3.8
5.6
(1.1)
-

14.06
0.70
0.63
35.25
+259.3+523.1+522.8
23.1
13.7
1.1
6.4
27.6
22.4
2.8
-

18.28
1.37
1.28
71.32
+30.0
+95.0
+102.3+102.3
11.4
8.0
0.8
5.7
50.1
40.3
10.8
-

22.85
1.83
1.72
95.91
+25.0
+33.3
+34.5
+34.5
8.5
6.1
0.7
4.5
52.6
44.4
15.1
-

Abs (%)
Rel (%)

YTD
+4.1
+7.4

1mth
+19.3
+22.8

3mth
-13.7
-9.9

12mth
-6.2
-6.2

Company sector
Advertising Services
Interactive Media & Services (GICS)

Stock data
Price (¥)
Mkt cap (¥bn)
Mkt cap ($m)
52-week range (¥)
Shares O/S (m)Average daily value ($m)
Free float (%)
Foreign shareholding (%)
TickerExchange
Net Debt/Equity (x)FFO leverage (x)BBG BUY│HOLD│SELL

815
14.7
127.8
650-1,611
18.0
0.4
23.4
6.3
6562
Tokyo Mothers
0.1
0.6
0│0│0

Geniee is an online marketing technology company,
providing a cost efficient solution to place online ads. Its
Marketing SaaS offering is experiencing fast growth, and it
has an expanding overseas footprint in South East Asia.

Astris-Sustainability ESG rating

Next events

FY3/2022 results May 2022
Tel: +81 3 6868 8762
Email: corporateresearch@astrisadvisory.com

This report has been commissioned andpaid for by the company
1Summary
Geniee is a domestic market leader providing a comprehensive online sales and marketing
platform. This acts as an intermediary between online media and advertisers, facilitating
automated sales and transmission of adverts. Geniee has top market share of 29% in its‘SSP’ supply side platform service which allows media to monetise ad space effectively.
It has undergone business expansion on two fronts with the aim of improving overallprofitability – developing a Marketing SaaS business and expanding its footprint overseas inSouth East Asia. Recent results highlighted these investments are beginning to yield results,
with quarterly EBITDA margins reaching a record high of 9.6% in Q3 FY3/2022 (versus a 3year average of 1.8%).
We estimate that Geniee will experience sustainable growth for the medium term driven
by the following factors:•

Key driver is sales mix improvements – with the Ad Platform business prioritisinghigher margin business and Marketing SaaS enhancing overall profitability, we
estimate operating margins will rise significantly to 7.5% in FY3/2023. We arelower than the company target range mid-point of 9.1% OPM for FY3/2024.

•

Topline growth driven by Marketing SaaS – this segment made up 8% of total
sales in Q3 YTD FY3/2022 and grew 94% YoY. We estimate through a combinationof new customer acquisitions and low churn rate will drive overall sales growth forthe company into FY3/2023E.

•

Free cash flow generation to increase significantly - we estimate businessexpansion costs will be materially offset by increasing sales volume. Capexrequirements have been on a steady increase but we think this will flatten into
FY3/2022 and beyond. With limited working capital requirements we estimate FCF
margins should improve.

The shares are trading on an estimated PER FY3/2023 multiple of 11.4x and an estimatedfree cash flow yield of 10.8%.

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Company description
Overview
Geniee Inc was founded in April 2010 by founder CEO Tomoaki Kudo (formerly of Recruit
Holdings) and operates as a comprehensive online sales and marketing business. The corebusiness provides an online advertising platform which acts as an intermediary between
websites/apps and advertisers, facilitating automated sales and transmission of adverts ona real-time basis like a digital exchange. There are broadly three components:•

Demand Side Platform (DSP) – a platform where advertisers and agencies can buy
ad space, where inventory is aggregated for efficiency.

•

Data Management Platform (DMP) – a data store which helps advertisers build
campaigns by building a target audience.

•

Supply Side Platform (SSP) – a platform where media sell ad space, maximizing
revenue by attracting the most attractive offers.

The domestic Demand Side Platform (DSP) market is roughly twice the size of the SSP
market, and Geniee is seeing rapid growth here with gross profits for this productgrowing 81% YoY in H1 FY3/2022. The DSP market is dominated by Google Ads witharound 60%-70% market share, followed by Yahoo Japan with around sub 5% (source:
Japan Fair Trade Commission).
Similarly Google Ads has around 50%-60% share in the Supply Side Platform (SSP)
market. Around 30%-40% of the market is operated by independent Ad Techcompanies such as Geniee – at 29.1% (source: Deloitte Tohmatsu MIC ResearchInstitute, 2019) Geniee has the largest domestic market share in the SSP category
which manages the supply and distribution of ad inventories, having business ties withover 20,000 companies (mainly small and medium-sized businesses). Geniee also
operates its advertising platform business overseas in South East Asia which
contributes over 10% of total sales.
Figure 1: AdTech workflow

Source: Company

Delivering impactful advertising is paramount for ad platforms but Geniee also competes todeliver best-in-class cost effectiveness for its customers. Management believes this is3
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achieved by a combination of in-house technological expertise and continued investment in
the platform.

Business expansion
The domestic online advertising has secular growth prospects but remains crowded andcompetitive. Geniee has therefore expanded its business in the following manner:•

Digital OOH (Out Of Home) media – digital signage that appear in outdoor
environments (such as station billboards and taxis) that can be managed online,
just like online adverts. This business commenced in February 2019.

•Marketing SaaS – Geniee has developed four SaaS products that complement
existing online marketing activities and has an installed base of over 10,000
domestic companies and are often sold as a bundled service. These are:

Currently 4 coreproducts inMarketing SaaSo

SFA/CRM (formerly Chikyu)– a salesforce automation (SFA)/customer
relationship management (CRM) tool (launched June 2018). There areover 4,500 customers are across diverse verticals and include Bic Camera(3048), ASKUL (2678) and Duskin (4665).

o

MA (formerly MAJIN)– a tool to automate online marketing (launched July2016). Customers include Rakuten (4755).

o

CHAT (formerly Chamo) – chatbot designed to increase the conversion
rate with online customers (launched November 2018).

o

SEARCH (formerly Probo) – website search solution for company websites
and ecommerce sites. This product is developed by 100% acquired
Business Search Technologies Corp in October 2020 (consideration was¥1.1 billion).

•

Overseas expansion – the company believes that emerging markets will be a longterm earnings driver. The first operation was Singapore in August 2012, Vietnam in
September 2013, Indonesia in September 2015 and Thailand in August 2017.

•

M&A – the company is expanding its product offering by acquiring bolt-on
technology companies.

Business segment details
The company has adjusted disclosure of business segments from FY3/2022. The Ad
Platform business now includes Ad management (procurement and then selling-on ofadvertising space); previously it was included in Marketing Solutions (now called Marketing
SaaS) segment.

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Business segment details
Business segment
Ad Platform

Marketing Saas
(previously
Marketing Solutions)
Overseas

Key services
• SSP
• DSP
• DOOH• Ad management• Others• SFA/CRM• MA• CHAT• SEARCH

Description
Core AdTech business serving customers on both the
supply and demand side platforms.

Marketing SaaS tools that are complimentary to the Ad
Platform business.

Sales of services in South East Asian markets.

Source: Company

Figure 2: Q3 YTD FY3/2022 revenues by segment

13%
8%

79%

Ad Platform

Marketing SaaS

Overseas

Source: Company

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Figure 3: Q3 YTD FY3/2022 operating profit by segment
1400
1212.466
1200

JPY (millions)

1000
800

Ad Platform
Marketing SaaS

600

Overseas
400
200
0
OP

Source: Company

Change in revenue recognition policy
From FY3/2022 Geniee has made a significant change to its revenue recognition policy,
introducing ASC606 under FASB, IFRS15 under IASB and ASB Japan 29. This allows an entity
to assess whether it is a principal or an agent for promised goods or services – and in
Geniee’s case as an agent can recognize revenue at the net amount (i.e. the commission
received). This is applicable for Geniee’s Ad management business. Thus policy change has
the following impact:•

Guidance range for FY3/2022 sales is below FY3/2021 actual based on grossrevenue accounting for Ad management business.

•

Net revenue recognition assists in raising profitability metrics.

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Business expansion highlighting positive sales mix shift
Over the last two years Geniee’s efforts at business expansion has required investment
which has led to falling returns. FY3/2022 company guidance implies a significant
turnaround with the previously loss-making new activities operating in the black.
Profitability turnaround per product division

Operating profit (¥m)
OPM (%)
Approximate OP generated byprofitable businesses (¥m)
Profitable businesses by products:

Approximate operating losses
generated by new activities (¥m)
New activities by product:

FY2/2020

FY2/2021

FY2/2022CE

(91)
-0.9
500

190
1.4
700

640 – 840
5.4 (at midpoint)
770 – 970

SSP
DOOH
DMS

SSP
DSP
DMS
Overseas
BST
(500)

SSP
DSP
DMS
Overseas
Saas/BST
(100)

DOOH
SaaS
OthersDOOH
Others(600)
DSP
Overseas
SaaS
Others

Source: Company

We observe that the new activities turning profitable is having a beneficial impact on thesales mix. Gross margins have been trending up on a quarterly basis to record high levels,
driven with the growth of higher margin services within Ad Platform together with
Marketing SaaS scaling.
Figure 4: Sales mix impact on profitability – quarterly basis
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
(5.0%)
Q1

Q2

Q3

FY3/2019

Q4

Q1

Q2

Q3

Q4

FY3/2020

Q1

Q2

Q3

FY3/2021

Gross Margin

Q4

Q1

Q2

Q3

FY3/2022

EBITDA Margin

Source: Company

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Peer group analysis
Geniee’s core Ad Platform business has its three sub-categories of SSP, DSP and DMP which
all have their peers with some crossover. Marketing SaaS is a fragmented market withmany players both domestic and overseas. Both business segments show attractive
structural growth driven by existing online trends such as ecommerce and digitaltransformation – hence the very high level of competition.
The SSP market has experienced some consolidation but the following domestic peers
continue to compete for market share:•

Fluct – owned by Carta Holdings (3688)•

Ad Generation by Supership Holdings (unlisted)•

Adstir – owned by UNITED INC (2497)•

MicroAd Compass – majority stake held at Cyber Agent (4751)•

GMO SSP – owned by GMO Ad Partners (4784)

Overseas there are significantly larger players catering to an international audience, such as
OpenX, Index Exchange, Pubmatic, Magnite and Sovrn. Hence, it makes sense for Geniee toestablish an overseas footprint in emerging markets.
SaaS is a software licensing and delivery model where software is centrally hosted and theservice is made available by subscription. The revenue model is attractive as it is recurring,and customer success results in low churn, high renewal rates and high lifetime customer
value. Gross margins can typically range from 60% to 80%.
Domestic SaaS heavyweights include CRM player Sansan (4443) as well as niche players
such as KnowledgeSuite (3999), Softbrain (delisted) and Chatworks (4448). We have someconcerns that major overseas players such as Salesforce, Hubspot and Zoho have alreadyentrenched themselves in Japan and new entrants will find it hard to cultivate market
share. Where Geniee is in a position of strength is the ability to focus on small and medium
sized businesses where customer acquisition costs should be manageable.

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Geniee has seen a marked
increase in EPS revision
over the last 12 months

Peer analysis on key valuation and leverage metrics – Ad Tech
DIVIDEND YIELD
5 Yr
Ave
Yield

Yield
LTM

PROFITABILITYEPS REVISIONSLEVERAGE

Payout
LTM

OPM
10Y
Ave

OPM
LTM

ROE
10Y
Ave

ROE
LTM

Δ in
EPS

3M Δ
EPS
FY1

12M Δ
EPS
FY1

Net
debt/
EquityEV / EBITDA

PER

Price/Book

Net
debt/
EBITD
A

12M
Fwd

10 yr
Avg

12M
Fwd

10 yr
Avg

PBR
LTM

10 yr
Avg

TickerCompany

Mkt Cap
US$ (m)6562

Geniee, Inc.

121

0.0%

0.0%

0.0%

0.9%

3.5%

-3.9%

13.8%

0.0%

0.0%

346.2%

0.1x

0.3x

na

21.6x

na

50.9x

5.1x

6.2x

4784

GMO AD Partners Inc.

59

1.3%

2.4%

108.8%

2.0%

1.2%

4.5%

2.7%

0.0%

0.0%

-23.2%

-1.0x

-8.7x

na

na

na

na

1.2x

1.8x

7068

Feedforce Group Inc.

101

0.0%

0.0%

0.0%

11.5%

38.4%

18.6%

27.0%

0.0%

-21.8%

-7.5%

-0.5x

-1.1x

9.1x

22.8x

24.5x

52.0x

4.3x

14.7x

2159

Full Speed Inc.

46

0.2%

0.9%

8.1%

5.4%

4.8%

25.5%

12.4%

0.0%

0.0%

-7%

-0.8x

-4.4x

na

na

na

15.2x

1.1x

6.4x

3688

Carta Holdings, Inc.

440

1.4%

2.5%

42.3%

8.7%

18.0%

15.5%

11.8%

0.0%

1.8%

68%

-0.7x

-3.2x

4.9x

5.6x

13.6x

17.3x

1.9x

2.7x

0.6%

1.2%

31.8%

5.7%

13.2%

12.0%

13.6%

0.0%

-4.0%

75.2%

-0.6x

-3.4x

7.0x

16.7x

19.0x

33.9x

2.7x

6.4x

Simple average
Source: FactSetPeer analysis on key valuation and leverage metrics - SaaS
DIVIDEND YIELDPROFITABILITYEPS REVISIONSLEVERAGE

EV / EBITDA

PER

Price/Book

TickerCompany

Mkt Cap
US$ (m)

5 Yr
Ave
Yield

Yield
LTM

Payout
LTM

OPM
10Y
Ave

OPM
LTM

ROE
10Y
Ave

ROE
LTM

Δ in
EPS

3M Δ
EPS
FY1

12M Δ
EPS
FY1

Net
debt/
Equity

Net
debt/
EBITD
A

12M
Fwd

10 yr
Avg

12M
Fwd

10 yr
Avg

PBR
LTM

10 yr
Avg

6562

Geniee, Inc.

121

0.0%

0.0%

0.0%

0.9%

3.5%

-3.9%

13.8%

0.0%

0.0%

346.2%

0.1x

0.3x

na

21.6x

na

50.9x

5.1x

6.2x

4443

Sansan, Inc.

1,390

0.0%

0.0%

0.0%

-11.2%

-0.5%

-112%

3.2%

-10.2%-19.7%-38.8%-0.8x-15.8x55.6x

103.1x170.6x253.5x

13.3x

22.1x

4060

rakumo Inc.

61

0.0%

0.0%

0.0%

6.2%

21.6%

-27.4%

25.0%

0.0%

0.0%

-0.6%

-1.3x

-4.7x

na

na

24.2x

63.7x

7.8x

15.7x

4478

freee K.K.

2,294

0.0%

0.0%

0.0%

-41.8%-23.4%-20.7%-10.0%

0.2%

-7.2%

-430%

-1.0x

20.5x

-261.7xna-183.3x

na

5.6x

19.6x

4019

Stamen Co., Ltd.

49

0.0%

0.0%

0.0%

-44.3%

3.3%-20.0%

0.8%

0.0%

0.0%

-36%

-1.3x

-34.5xna

na

na

435.5x

6.3x

9.8x

3923

RAKUS Co., Ltd.

3,528

0.1%

0.1%

14.3%

17.3%

17.3%

29.0%

29.6%

0.0%

-2.2%

-59%

-0.6x

-1.4x

121.9x85.2x

219.1x135.1x

50.1x

30.6x

4448

Chatwork Co.Ltd.

244

0.0%

0.0%

0.0%

-5.6%

-10.2%

0.0%-25.1%

0.0%

2.0%

-297%

-0.6x

3.8x

-87.4x

96.6x-70.9x126.1x

17.1x

27.6x

0.0%

0.0%

2.0%

-11.2%

1.7%-22.2%

5.3%

-1.4%

-3.9%

-73.5%

-0.8x

-4.5x

-42.9x

76.6x

32.0x

177.5x

15.1x

18.8x

Simple average
Source: FactSet

OPM LTM has improved
significantly compared to
the OPM 10Y average for
SaaS players

9www.corporateresearch.astrisadvisory.com

Group structure
Geniee has the following group companies:
Group companies
Focus on South
East Asianmarkets

Subsidiaries

Stake

Description

Geniee International Pte.

Group
company
statusConsolidated

100.0%

Geniee Vietnam Co.

Consolidated

100.0%

PT. Geniee Technology Indonesia

Consolidated

100.0%

PT. Adstars Media Pariwara

Consolidated

51.0%

Geniee Adtechnology (Thailand) Co.

Consolidated

100.0%

Business Search Technology

Consolidated

100.0%

Singapore-based, core
operation is in Ad Platform
Hanoi-based, core
operation is in Ad Platform
Jakarta-based, core
operation is in Ad Platform
Jakarta-based, core
operation is in Ad Platform
Bangkok-based, core
operation is in Ad Platform
Part of Marketing SaaS
providing the ‘Probo’
product

Source: Company

Geniee issued equity to the Softbank Group (9984) in October 2014 and commenced abusiness partnership. Softbank Group currently owns 31.2% of Geniee, making it a Softbank
Group associate company.

Relationship with Softbank GroupThe business partnership agreement between Geniee and Softbank Group is a rolling
annual contract that encompasses the following:•

Softbank Group can use Geniee’s systems in Japan, and having non-exclusive
license to sub-license to third parties.

•

To share data from Softbank’s own SSP, and to strengthen its sales efforts.

•

To exchange human resources.

•

Softbank Group outsources ad distribution and posting to Geniee.

•

Geniee acts as a sales agent for Softbank Group’s ad platform on a non-exclusive
basis to third parties.

In terms of sales volume, FY3/2021 saw sister company Yahoo Japan (4689) contributing
7% of total sales whilst Softbank Group made up 10.6% of total.

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Figure 5: Top three contributors to FY3/2021 sales

37%

56%

7%

Google Inc

Yahoo Japan

Others

Source: Company

Geniee also has one director on the board from Softbank Group – Mr Koichi Machida.
Appointed in June 2020, this is a non-executive directorship and he currently heads up
Softbank’s digital marketing division.
The business partnership said to be on offer with Softbank Group can be quantified asfollows:•

Access to Softbank Group’s customer data – monthly impressions total 60 billion.

•

Ties with 3,000 active customers.

•

Ad distribution via co-developed Ad Platform operation.

•

Cross-border ad distribution to attract inbound tourists and cross-border
ecommerce.

•

Joint projects in the South East Asian region.

R&D
Company disclosure for FY3/2021 show that there was only ¥2.18 million R&D expense
which is a low amount. Spending here was said to be focused on relationship analysis
between advertisers and online users. There was also research conducted on net media
categorisation.
This disclosure does not accurately convey the level of R&D being conducted. This isbecause there is a process of continual improvements being performed on the Ad Platform,
partly brought on by implementing customer requests for new functionalities. Geniee does
not classify these as standalone R&D spend, with some work being capitalised as software
work-in-progress.

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Business model
Ad Platform
Geniee’s Ad Platform business generates sales in the following manner:••

Advertisement publication fees:oGeniee receives an ad publication fee based on display occurrences directfrom the advertiser.

o

An indirect fee from the advertiser via ad agencies, external DSPs, Ad
Network or OEM ad platform systems.

Monthly usage fees for the DMP (Data Management Platform) used by advertisers.

There is seasonality of ad demand, with peaks in March and December.
Demand drivers for the Ad Platform business include:•

Increasing allocation of advertising budget to online media.

•

Product-driven demand e.g. nesting consumption ecommerce.

•

Introduction of new advertising formats e.g. rewarded video ads, a format thatgives users a reward in exchange for time spent viewing an ad.

Figure 6: Ad Platform earnings model

Source: Company

This business becomes competitive via:•

Establishing scale – inviting as many media sites (websites and apps) as possible
with a zero joining fee, and providing a large number of impressions (the numberof times an ad is displayed).

•

Demonstrating cost benefit – by maximising impact of advertisers and increasing
the yield of ad space for media.

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Geniee also conducts OEM business, developing similar ad platforms for third parties
both domestic and overseas.

Recent trends
Growth is currently being driven in the DSP area with a focus on ecommerce which has
seen a major hike in activity due to the pandemic. The mainstay SSP business is focused onincrease sales channels and making cost efficiencies to drive profitability.
This has resulted in a notable decline in customer numbers over the last 2 years, althoughaccompanied by a major jump in sales per customer.

Marketing SaaSAs a marketing technology company, Geniee has access to a wealth of valuable online user
engagement data. This data can be utilised by marketing-focused SaaS tools to improvecustomer advertising efforts.
The sales channel is primarily direct and targeted towards small and medium sizedbusinesses. The business is aiming for more large enterprise customers which allows forhigher pricing.
Marketing SaaS tools provide the following benefits to Geniee:•

A recurring monthly subscription-based revenue stream.

•

Ability to upsell to existing customers in the Ad Platform business.

•

Higher gross margins, allowing for improvements in the sales mix.

Recent trends
The Marketing SaaS segment has witnessed the following recent trends:•

Q3 FY3/2022 paying accounts grew approximately 50% YoY to over 9,000, driven
by expanding tool functionality and strengthening sales channels.

•

Q3 FY3/2022 quarterly sales grew 36% YoY. Growth benefitted from the acquisitive
impact of REACT (purchased in August 2021) which strengthened the ‘Chamo’chatbot offering.

•Company disclosure shows that recent customer churn has stabilised at below 1%
per quarter. This implies that gross revenue retention (GRR) has also improved.

•

On a quarterly basis this segment has turned to positive operating profit from Q2
FY3/2022.

Overseas
Geniee is growing its overseas footprint by primarily acting as a reseller/partner for online
marketing platforms such as Google. It is also developing local resellers and partnerships
for its Ad Platform. In FY3/2022 the company has disclosed partnerships withvideostreaming service provider Dailymotion Asia Pacific PTE.

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Recent quarterly sales and OP trends by segment
As identified by the improvement in the sales mix in Figure 4., we see that all businesssegments recorded positive segmental operating profit margins in Q2 FY3/2022. The
largest change was seen in Marketing SaaS, which we believe will become the highest
margin segment at Geniee in the next year.
Figure 7: Quarterly sales trend under new business segment disclosure
3,500
3,000

JPY (millions)

2,500

2,000
Ad Platform
1,500

Marketing SaaS

1,000

Overseas

500
Q1

Q2

Q3

Q1

FY3/2021

Q2

Q3

FY3/2022

Source: Company

Figure 8: Quarterly OP trend under new business segment disclosure
500
400

JPY (millions)

300
200
Ad Platform
100

Marketing SaaS
Overseas

-100
-200
Q1

Q2

Q3

Q1

Q2

FY3/2021

Q3

FY3/2022

Source: Company

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Figure 9: Quarterly OP margin trend under new business segment disclosure (pre-eliminations)

Segment Operating Profit Margin

30.0%

20.0%
10.0%
0.0%
Ad Platform-10.0%

Marketing SaaS

-20.0%

Overseas-30.0%
Actual -116%-40.0%
Q1

Q2

Q3

Q1

FY3/2021

Q2

Q3

FY3/2022

Source: Company

Addressable market•

Geniee estimates that its strategic addressable market is worth ¥1.2 trillion,
achievable by both strengthening and expanding its products and services range.

•

The total addressable market is estimated to be worth ¥3.0 trillion.

The above figures illustrate that the market for online advertising and marketing SaaS is
significant – but competition is high with relatively low barriers to entry.

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Capital allocation
Over the last 6 years, Geniee has the following track record of cumulative capital allocation:•

Free cash flow generation has been inconsistent; the company has burnt cash inthree of the last four years since listing in December 2017.

•

Equity issuance via IPO in 2018 remains the largest source of funding to date.

•

Debt issuance was driven primarily by borrowings made in FY3/2021 to fund M&A
activities.

•

M&A has been the largest cash-out item as the company aimed for businessexpansion.

Figure 10: 6-year cumulative capital generation and allocation (FY3/2016 - FY3/2021)
3,000

JPY (millions)

2,500
2,000
M&A
Equity financing

1,500

Debt financing
1,000Free cash flow

5000Cash inCash out

Source: Company

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0

Share price01/12/2021

01/10/2021

01/08/2021

01/06/2021

01/04/2021

01/02/2021

01/12/2020

01/10/2020

01/08/2020

01/06/2020

01/04/2020

01/02/2020

01/12/2019

01/10/2019

01/08/2019

01/06/2019

01/04/2019

01/02/2019

01/12/2018

01/10/2018

01/08/2018

01/06/2018

01/04/2018

01/02/2018

01/12/2017

Share price (¥)
2500

2000
50

1500
0

-50

1000
-100

-150

-200

500

Annual Free Cash Flow (¥m)

Annual free cash flow and share price performance

Figure 11: Historic Share price performance versus annual FCF generation
200

150

100

-250

-300

-350

FCF (JPYm)

Source: Refinitiv, company

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Recent results
Q3 YTD FY3/2022 results
Key financials
JPY (millions)
Sales
Operating profit/(loss)
Operating margins
Recurring profit/(loss)
Net income attributable to parent

Q3 YTD FY3/2021
10,156
37
0.3%
2
(23)

Q3 YTD FY3/2022
10,384
400
3.8%
417
307

Growth YoY (%)+2.2+971.3
N/A
N/A

Source: company
Note: Sales growth YoY does not compare like-for-like with change in revenue recognition policy from FY3/2022

Per business segment (pre-elimination)
JPY (millions)
Sales
Ad Platform
Marketing SaaS
Overseas
Operating profit/(loss)
Ad Platform
Marketing SaaS
Overseas
Operating margins
Ad Platform
Marketing SaaS
Overseas

Q3 YTD
FY3/2021

Q3 YTD
FY3/2022

GrowthYoY (%)

8,726
410
1,020

8,193
794
1,396

-6.1
+93.6
+36.9

743
(53)
67

1,212
36
113

+63
N/A
+68

8.5%
-13.1%
6.6%

14.8%
2.5%
8.2%

Source: company

Q3 FY3/2022 results highlighted the following:•

Ad Platform – Geniee is executing well and gaining market share in both the DSP
and SSP markets, as well as focusing on winning profitable business to improvemargins. Quarterly Q3 FY3/2022 gross profits reached a record-high of ¥0.71
billion, increasing 29% YoY. As mentioned previously, sales volume is declining YoY
due to new net accounting standards for revenue recognition.

•

Marketing SaaS – sales continue to grow as the company acquires more customers,
with the churn rate stable at below 1.0%. A new partnership with SS Technologies
has strengthened access to the real estate sector, and Geniee has fully acquired
the company REACT to extend and strengthen its chat-based web customer
services.

•

Overseas – stable growth and margins here as the company expands its footprintin South East Asia acting as a reseller and partner to local players. Growth has been
notable with the tie-ups with Dailymotion Asia Pacific and GliaCloud.

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FY3/2022 outlook
The company has maintained FY2/2022 guidance post Q3 FY2/2022 results.
FY3/2022 company guidance(JPY millions)

FY3/2021 actual

FY3/2022 CE

Sales
Growth YoY(%)
Operating profit
OPM (%)EBITDANet income
EPS (JPY)
PER (x)

14,061
-2.0
195
1.4
587
101
(5)
N/A

13,425-13,739-3.5*
640-840
5.4*
1,259-1,459
526-665
33.1*
23.1

FY3/2022 CE(restated with unchanged
revenue recognition
policy)15,049-15,363+8.1*
640-840
4.9*
1,259-1,459
526-665
33.1*
23.1

Source: Company, Bloomberg
Note: * at midpoint of range

Figure 12: Q3 YTD FY2/2022 results versus FY3/2022 guidance (at midpoint)

Operating profit

run-rate 54%

Sales

run-rate 76%
0

2,000

4,000

6,000

8,000

10,00012,00014,00016,000JPY (millions)FY

Q3 YTD

Source: Company

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Medium term plan
Targets
Geniee has disclosed the following goals for the medium term:•

To become a market leader in AdTech, growing the Ad Platform business whilst
aiming for high growth in Marketing SaaS.

•

To list on the Prime Market on the Tokyo Stock Exchange, aiming to clear thethresholds required for liquidity, corporate governance, management track recordand financial metrics.

•

To investigate the adoption of IFRS accounting standards.

The financial targets for FY3/2024 are as follows:
Medium term plan financials(JPY millions)
Sales
Growth YoY(%)
Operating profit
OPM (%)EBITDANet income

FY3/2021 actual
14,061
-2.0
195
1.4
587
101

FY3/2022 CE
13,425-13,739-3.5*
640-840
5.4*
1,259-1,459
526-665

FY3/2024 CE
25,000-30,000+23.4
2,000-3,000
9.1*
2,700-3,200
N/A

EPS (JPY)

5.6

33.1*

N/A / 97.3**

PER (x)ROE (%)

144.0
3.8

24.6
N/A

8.4**
N/A

Source: Company, Bloomberg
Note: * at midpoint of range; **estimated EPS with normalized tax rate

M&A
Management has stated that it wishes to undertake complementary bolt-on acquisitions inorder to expand its product portfolio in Marketing SaaS, the aim being to provide a onestop service platform. There have been 4 acquisitions undertaken since FY3/2018 (and oneexit).
Recent M&A deals
Name
CATS

Date
February 2022

REACT

August 2021

Business SearchTechnology
Chikyu Inc

October 2020

EXITED:
Adskom India Pvt

Deal value
N/A

April 2018

Description
Digital transformation
tools
Develop and operatechatbot service on LINE
and Meta
Probo product (website
search)SFA/CRM tool

September 2018

Overseas expansion

N/A

N/A
¥1.10 billion¥0.24 billion

Source: Company, Refinitiv

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Shareholder returns
Dividends
The company has not issued a dividend since listing, as management is prioritising capital
allocation to business development and to strengthen the balance sheet. By targetingbusiness expansion, management believes this will lead to stable and recurring profit
generation.

Share buybacks
There is no formal policy in place, but Geniee announced a voluntary open market
share buyback program in August 2021.
Details of current share buyback program
Offer start and end date
No of shares to repurchase (max)% of shares outstanding
Total buyback amount (max)Open market purchases (Y/N)
Shares repurchased to date

16 August 2021 – 15 August 2022
350,000
1.94%¥0.35 billion
Y
47,900 (31 January 2022)

Source: Company

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Astris earnings estimates andkey assumptions
Astris key earnings forecasts are as follows:
Earnings estimatesYear end
Sales (¥bn)
Growth YoY (%)
OP (¥bn)
OPM (%)
FCF (¥bn)
FCF margin (%)
FCF conversion (%)
FCF yield (%)

FY3/2022E
14.06
0.70
5.0

FY3/2023E
18.28
+30.0
1.37
7.5

FY3/2024E
22.85
+25.0
1.83
8.0

0.42
3.0
65.5
2.8

1.59
8.7
124.1
10.8

2.21
9.7
128.4
15.1

Source: Astris Advisory

The core assumptions to these estimates are as follows:•

Key driver is sales mix improvements – with the Ad Platform business prioritisinghigher margin business and Marketing SaaS enhancing overall margins, weestimate operating margins will rise significantly to 7.5% in FY3/2023. We arelower than the company target range mid-point of 9.1% OPM for FY3/2024.

•

Topline growth driven by Marketing SaaS – this segment made up 8% of total
sales in Q3 YTD FY3/2022 and grew 94% YoY. We estimate through a combinationof new customer acquisitions and low churn rate will drive overall sales growth forthe company into FY3/2023E.

•

Free cash flow generation to increase significantly - we estimate businessexpansion costs will be materially offset by increasing sales volume. Capexrequirements have been on a steady increase but we estimate this will flatten into
FY3/2022 and beyond. With limited working capital requirements we estimate FCF
margins to improve.

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Company information
Management

On the board of
4 listed
companies

CEO
Shareholding (direct)
Career history
2006
2010
2020

Tomoaki Kudo
36.42%

Director
Shareholding (direct)
Career history
1989
2009
2014

Michimasa Naka
0.05%

2015
2016
2017
2019
2020

Joined Recruit Holdings after graduation
Founded Geniee as CEO
Appointed CEO of subsidiary Business Search Technology

Joined Solomon Brothers Asia Securities
Appointed Executive Vice-President of Citigroup Securities K.K.
Appointed non-executive director of iStyle Inc (3660)
Appointed non-executive director of Geniee
Appointed director Prevent SAST Insurance
Appointed Representative Director of Broadwalk Capital
Appointed Representative Director of Accelerator Inc
Appointed director VISION Inc (9416)
Appointed director VECTOR Inc (6058)

Executive Officer – Technology
Strategy
Shareholding (direct)
Career history
2018

Meng Xiang Liang

Executive Officer – Marketing
SaaS
Shareholding (direct)
Career history
2016
2019
2021

Hirotaka Ohashi

Executive Officer – Ad
Platform Supply side
Shareholding (direct)
Career history
2015
2019

Shunsuke Kawasaki

Deputy General Manager – Ad
Platform (Demand side)
Shareholding (direct)
Career history
2016
2021

Ayaka Kobayashi

N/A
Joined Geniee
Heads up the science team, currently working on improving
development efficiencies and strengthening product functionality.

N/A
Joined Geniee
Appointed executive officer for product management
Appointed Chief Product Officer

N/A
Joined Geniee from Mitsui Trading
Appointed executive officer

N/A
Joined Geniee
Appointed deputy manager of the Demand side operation in Ad
Platform

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Contact details
Sumitomo Realty & Development Shinjuku Oak Tower 6th Floor
6-8-1, Nishi Shinjuku
Shinjuku-ku
Tokyo 163-6006
Japan

www.geniee.co.jp
IR address: Kazuhiro.nose@geniee.co.jp
Tel: +81 (3) 5909 8177

Source: Company

Summary history
Key corporate timeline
April 2010
February 2011
April 2011
August 2012
September 2013
March 2014
September 2015
July 2016
August 2017
December 2017
June 2018
November 2018
November 2020
August 2021
February 2022

Geniee established in Nishi Shinjuku, Tokyo
Commences reseller activities for Google AdSense
Geniee SSP business starts
Establishes Singapore subsidiary Geniee International Pte.
Establishes Vietnamese subsidiary Geniee Vietnam Co.
Geniee DSP business starts
Establishes Indonesian subsidiary Geniee Technology Indonesia.
‘MAJIN’ marketing SaaS commences
Establishes Thai subsidiary Geniee Adtechnology (Thailand) Co.
IPO on Tokyo Stock Exchange Mothers
Absorbs the CRM/SFA system unit from Chikyu
Acquires Chamo, the developer of the self-named chatbot tool
Acquires Business Search Technology
Acquires REACT
To acquire CATS

Source: Company

Shareholders details
Major shareholders
Tomoaki Kudo
Softbank Group
Nomura PB Nominees Limited Omnibus Margin
Hiroshi Hirose
Takuya Yoshimura
NICE SATISFY LIMITEDJapan Custody Bank
Okasan Online Securities
BNY GCM CLIENT ACCOUNT JPRD AC ISGJP Morgan Securities plc

Stake (%)
35.54
31.16
4.22
3.71
3.29
2.22
1.33
0.97
0.97
0.94

Source: Company

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Astris Quant Sheet
Share price chart and factor analysis
180

2,500

2,000
140
1,500

120
100

1,000

6562 JP

Factors Rebased to 100

160

80
500
60

Momentum

GrowthValue

Oct-21

Jul-21

Apr-21

Jan-21

Oct-20Jul-20Jan-20QualityApr-20Jul-19Oct-19Jan-19Apr-19Oct-18

Jul-18Apr-180

Jan-18406562 JP

Source: FactSet

Factors
Momentum: 12 Month - 1 Month Performance
Quality: ROE, CF to Assets, Debt/ Assets
Growth: OP growth, Asset Growth
Value: Book to Market

1 year Corr

3 year Corr

-0.23
-0.22
-0.22
-0.10

0.07
0.06
0.00
0.16

3 Year Corr

10 Year
Corr
0.33
0.31
0.28
0.30
0.31

Performance drivers

0.00

0.10

0.20

0.30

0.40

0.50

Idiosyncratic

FX

SectorMarket0.60

Source: FactSet

Factors
Topix Services
Topix 1st Section
TSE Mothers
Topix Small Cap Index
MSCI Japan

0.43
0.35
0.38
0.31
0.36

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Astris-Sustainability ESG
assessment
Ratings and scorecard
Our in-house Astris-Sustainability ESG model rates Geniee with a score of 39%, placing it inthe ‘Amber’ rating of our assessment in FY2/2021. The direction of travel is a positive one
from FY2/2020 at 37%.
Our in-house methodology* takes what we have selected as core measurable ESG factors,
ranking its performance versus its domestic Global Industry Classification Standard (GICS)
peers with market capitalisation of under US$500 million.
Figure 13: Astris-Sustainability ESG model rating for Geniee

Source: Astris Advisory (*Note – for details of our in-house rating system please contact Astris Corporate Advisory)

ESG scorecards
Environmental (3 factors)

FY3/2020

FY3/2021

Astris Environmental score
Industry Rank
Social (8 factors)
Astris Social score
Industry Rank
Governance (36 factors)
Astris Governance score
Industry rank
TOTAL SCORE

N/A
N/A

N/A
N/A

N/A
N/A

N/A
N/A

47.9
48 out of 85
36.8

50.7
50 out of 85
38.8

Source: Company, FactSet, Astris Corporate Advisory

Our methodology has highlighted the following key topics:

Environmental
The company has no disclosure of policies.

SocialThe company has no disclosure of policies.

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GovernanceThe corporate governance system at Geniee is broadly comprised of the following:•

Board of directors – CEO Kudo acts as the chairperson.

•

Audit and Supervisory Committee – made up of three independent non-executive
directors. This committee meets once a month and on required basis; in FY3/2021
there were 100% attendance.

•

Management meeting – held between CEO, the chair of the Audit and Supervisory
Committee and operating officers of the business segments (and other staff asrequired) twice monthly.

•Compliance Committee – held by operating officers, the chair of the Audit andSupervisory Committee and the CEO on a quarterly basis.

Controversies
We note we have been unable to find major controversies that may have significant
financial or reputational repercussions for the company and their shareholders.

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Areas of discussion
Highlighting key topics for investors
We believe the following will be key areas for discussion with investors:
1. Marketing SaaSa. When will the company start to disclose more KPIs?
b. What are the targets for profitability at operating level for this segment?
c.

How much sales contribution will this segment make in the medium tolong term?

2. Capital allocationa. How much business investment is required in order to reach medium term
plan targets? Does this involve M&A?
b. What are the expected returns from these investment plans?
3. Relationship with Softbank Group – how will Geniee effectively leverage thisrelationship, as progress to date appears limited.
4. Shareholder returns – and management’s thinking behind how best to allocate any
excess capital in the medium to longer term.
5. Medium term plan – is there a target for Free Cash Flow generation?

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JGAAP Financials
`
(¥bn)
Sales
COGS
Gross profit
Gross profit margin (%)

FY
3/20
14.35
12.13
2.22
15.5

FY
3/21
14.06
11.45
2.61
18.5

FY
3/22E
14.06
10.83
3.23
23.0

FY
3/23E
18.28
13.71
4.57
25.0

FY
3/24E
22.85
16.91
5.94
26.0

Total OPOP margin (%)
Non-operating income
Non-operating expense
Recurring profit
Extraordinary gains
Extraordinary losses
Pre-tax profit
Tax
Effective tax rate (%)
Net income
Non-controlling NI
Parent attributable NI(0.09)(0.6)
0.01(0.06)(0.14)(0.03)(0.17)
0.00(2.8)(0.18)
0.00(0.18)

0.20
1.4
0.02
(0.06)
0.15(0.01)
0.14
0.03
25.2
0.10
(0.00)
0.10

0.70
5.0
0.01
(0.06)
0.65
0.65
0.02
3.1
0.63
0.00
0.63

1.37
7.5
0.01
(0.06)
1.32
1.32
0.04
3.1
1.28
0.00
1.28

1.83
8.0
0.01
(0.06)
1.78
1.78
0.06
3.1
1.72
0.00
1.72

Sales growth YoY (%)
OP growth YoY (%)
NI growth YoY (%)

-4.1
N/A
N/A

-2.0
N/A
N/A

+259.3+523.1+30.0+95.0+102.3

+25.0
+33.3
+34.5

Balance sheet(¥bn)
Cash & equivalents
Trade debtors
Stock
Other
Current assets
Tangible assets
Intangible assets
Investment & others
Fixed assets
Total assets
Short term borrowing
Trade creditors
Other
Current liabilities
Long term borrowing
Other LT liabilities
Long term liabilities
Shareholder’s equity
Non-controlling interests
Total net assets
Total liabilities & net
assets

FY
3/20
1.20
1.11
0.17
2.47
0.53
0.85
0.41
1.79
4.27
0.28
0.78
0.39
1.44
0.15
0.13
0.28
2.54
0.01
2.55
4.27

FY
3/21
1.09
1.45
0.19
2.73
0.45
2.07
0.40
2.92
5.65
0.66
1.01
0.49
2.15
0.71
0.13
0.84
2.66
2.66
5.65

FY
3/22E
0.65
1.45
0.19
2.29
0.44
2.12
0.40
2.96
5.24
0.66
0.98
0.47
2.11
0.71
0.13
0.84
2.29
0.00
2.30
5.24

FY
3/23E
1.39
1.45
0.19
3.03
0.33
2.13
0.40
2.87
5.90
0.66
1.24
0.60
2.50
0.71
0.13
0.84
2.56
0.00
2.56
5.90

FY
3/24E
2.75
1.45
0.19
4.39
0.13
2.12
0.40
2.66
7.04
0.66
1.53
0.74
2.92
0.71
0.13
0.84
3.28
0.00
3.28
7.04

Cash flow statement(¥bn)
Net income/pre-tax profit
Depreciation/amortization
Other non-cash items
Changes in working capital
Cash from Operating Activities
Capex
Acquisition of business
Other investing cash flow
Cash from Investing Activities
Total cash dividends paid
Debt issuance/(retirement)
Equity financing
Other
Cash from Financing Activities
FX impact
Net cash flow

FY

FY

FY

FY

FY

3/20
(0.18)
0.31
0.08(0.13)
0.07(0.35)(0.07)
0.00(0.42)(0.09)
0.01(0.00)(0.08)(0.00)(0.42)

3/21
0.10
0.39
(0.01)(0.05)
0.43(0.60)(0.86)
0.00(1.46)
0.91
0.01(0.01)
0.91
0.01(0.11)

3/22E
0.63
0.39
0.03
(0.05)
1.01(0.60)(0.86)
0.00(1.46)
0.01(0.01)
0.00
0.00(0.44)

3/23E
1.28
0.51
0.01
0.39
2.19
(0.60)(0.86)
0.00(1.46)
0.01(0.01)
0.00
0.00
0.74

3/24E
1.72
0.64
0.02
0.43
2.81
(0.60)(0.86)
0.00(1.46)
0.01(0.01)
0.00
0.00
1.36

Free cash flow

(0.27)(0.16)

0.42

1.59

2.21

Free cash flow margin (%)
Free cash flow conversion (%)
Capex/sales (%)
Capex/depreciation (%)
CFO margin (%)

-1.9
N/A
2.4
112.9
0.5

-1.2
N/A
4.2
152.0
3.1

3.0
65.5
4.2
152.0
7.2

8.7
124.1
3.3
117.0
12.0

9.7
128.4
2.6
93.6
12.3

Key metrics

FY
3/20

FY
3/21

FY
3/22E

FY
3/23E

FY
3/24E

15.5
(0.6)
(1.2)
(4.2)
(7.0)
(3.2)
(3.1)

18.5
1.4
0.7
1.8
3.8
5.6
4.2

23.0
5.0
4.5
12.1
27.6
22.4
17.7

25.0
7.5
7.0
21.8
50.1
40.3
35.0

26.0
8.0
7.5
24.5
52.6
44.4
41.3

1.7
1.7

1.3
1.3

1.1
1.1

1.2
1.2

1.5
1.5

0.2
0.3
0.6
(10.1)
N/A

0.5
(0.1)
0.5
18.8
0.5

0.6
(0.3)
0.4
N/A
0.7

0.5
0.0
0.4
N/A
N/A

0.4
0.4
0.5
N/A
N/A

(9.99)
N/A
(1.9)
5.8
1.0
69.8
(163.8)
N/A

5.66
144.0
(1.1)
5.5
1.1
25.5
76.6
N/A

35.25
23.1
2.8
6.4
1.1
13.7
21.3
36.1

71.32
11.4
10.8
5.7
0.8
8.0
10.9
9.4

95.91
8.5
15.1
4.5
0.7
6.1
8.2
6.8

Profitability
Gross margin (%)
Operating margin (%)
Net margin (%)
ROA (%)ROE (%)ROCE (%)
ROIC (%)
Liquidity
Current ratio (x)Quick ratio (x)Leverage
Debt/Equity ratio (x)Net Debt/Equity ratio (x)Equity ratio (x)Interest cover (x)Net Debt/EBITDA (x)Valuation
EPS reported (¥)
PER (x)DPS (¥)
Dividend payout ratio (%)
Dividend yield (%)
Free cash flow yield (%)
PBR (x)EV/sales (x)EV/EBITDA (x)EV/EBIT (x)EV/FCF (x)29www.corporateresearch.astrisadvisory.com

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