COMPANY RESEARCH AND ANALYSIS REPORT

Aeria Inc.
3758
TSE JASDAQ

3-Jun.-2019
FISCO Ltd. Analyst

Kimiteru Miyata

FISCO Ltd.
http://www.fisco.co.jp

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 02
1. Company profile.. ................................... ......................................................................................................

02

2. History................................................... ......................................................................................................

03■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 04
1. Business description. . ..................................................................................................................................

04

2. IT services. . ..................................................................................................................................................

05

3. Contents segment.. ......................................................................................................................................

06

4. Asset management segment.......................................................................................................................

09■M&A strategy and business reorganization-------------------------------------------------------------------------------------- 11
1. Management policy and stage............... ......................................................................................................

11

2. M&A strategy aims and accelerated M&A. ...................................................................................................

11

3. Business reorganization......................... ......................................................................................................

12

4. Anticipated new fields............................ ......................................................................................................

13■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 14
1. FY12/18 results trends.................................................................................................................................

14

2. FY12/19 outlook.. ................................... ......................................................................................................

15■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 16
1. Dividend. . ............................................... ......................................................................................................

16

2. Shareholder benefit program................. ......................................................................................................

17■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 17

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
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Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/██Summary
IP business driving growth
Aeria Inc. <3758> (hereafter, also “the Company”) has three main business areas - IT services, contents, and asset
management. The IT services business provides data service, the contents business develops smartphone games,
and asset management handles planning and operation of lodging facilities. The Company has leveraged stableearnings in IT services business to fuel M&A and steadily expand contents and asset management businesses.
It headed in a new direction in contents business following the hit A3! game and purchase of CYBIRD Co., Ltd.,
which has the Ikemen (Handsome) series, with a shift from simple fee-based income to intellectual property (IP)rights business, such as selling goods using characters and stage adaptations, as the main income source. The
Company is currently promoting business reorganization via selectivity and focus in order to concentrate businessresources in IP business. It aims to fuel growth with IP business.
The Company also earnestly pursues initiatives in new technologies, growth markets, and other new fields, just as it
has previously done. In contents business, it is developing contents that apply AI, VR/AR, blockchain, and other new
technologies. An example is creating high-quality character appearance images, which could even be mistaken as
the face of an actual idol, utilizing AI-based automated generation of character appearance images jointly developedwith DataGrid Inc. In asset management, which it entered in 2017, the Company started minpaku (short-term rental
housing) service to tap into growing accommodations demand from foreign tourists visiting Japan. The minpaku
experiment through collaboration with its own IP is enjoying a healthy start.
The Company reported FY12/18 results with ¥31,471mn in sales (+98.3% YoY) and ¥1,876mn in operating
income (-30.3%). Sales climbed on upbeat A3! sales and increase in consolidated subsidiaries, such as CYBIRD.
Meanwhile, development costs at consolidated subsidiaries increased due to M&A activity, and SG&A expenses
rose too because of higher collection agency fees related to growth in contents business sales and advertising andpromotional costs. Based on a determination that its IP offers very high potential, the Company decided to bolster
advertising and promotional activities during the fiscal period as an effort to pull away from late arrivals. A3! remains
highly received because of its impressive game content and has acquired sustainable popularity. We think this wasa major turning point for the Company’s IP strategy.
The Company guides for ¥32,000mn in sales (+1.7% YoY) and ¥2,200mn in operating income (+17.3%) in FY12/19.
It expects the IT services business to continue stable growth. Contents business is likely to drive consolidated
earnings with focus on existing titles and IP expansion and margin improvement as well as full-year contribution by
CYBIRD profits. Asset management earnings should settle down with a shift from start-up status to expansion in theminpaku service business. We think the outlook seems slightly conservative, despite the Company’s acceleration ofactivities in its various businesses, because of a strong resolve to avoid lowering guidance.
Key Points
IP business taking off with the A3! hit and CYBIRD acquisition
Earnings improvement from business reorganization and focus on IP business driving growth• Steady progress with initiatives in AI technology, minpaku demand from foreigners visiting Japan, and othernew fields••

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

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Source: Prepared by FISCO from the Company’s financial results██Company profile
Promoting three businesses centered around the Internet
1. Company profile
The Company has three main business areas - IT services, contents, and asset management. The IT services
business handles an affiliate platform that specializes in online electronic publications, data services, and systemdevelopment business. The contents business develops, distributes, and operates smartphone and tablet games
and sells drama CDs, voice CDs, and character goods. The asset management business consists of real estatebusiness, leasing management business, accommodations facility planning, operation, control, and managementbusiness, consulting business related to these areas, and investments in domestic and overseas companies. The
Company aims to “become an essential presence, similar to air, in the network society” by moving in the directionof network society advances and harnessing Internet and mobile technologies. With this spirit, it has taken on
challenges in many businesses since being founded. The Company utilizes a holding-company format that consistsof 27 consolidated subsidiaries and one equity-method affiliated as of end-December 2018.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Company profile

Transition from M&A-driven expansion to pursuit of synergies
2. History
Takayuki Nagashima, chairman and representative director, and Yusuke Kobayashi, president and representative
director, founded predecessor Communications Online to deliver Internet-related information provision services in
Chiba Prefecture in 1998. The Company entered the game industry (online games) with the acquisition of Game Pot(GMO Group) in 2001, established Aeria in 2002, and listed shares on the Osaka Stock Exchange’s Hercules market(now Tokyo Stock Exchange JASDQ market) in 2004. Leveraging income from IT services business Air Internet
Service Co., Ltd. acquired in 2005, it expanded to smartphone games and online sales sites. It launched the asset
management business in light of growing minpaku demand in 2017. The Company is currently promoting businessreorganization from a perspective of selectivity and focus aimed at realizing synergies following exhaustion of M&A
activity that targeted future growth and synergies and is cultivating game characters and other intellectual property
rights (IP) as a major income source.
History
Date
May 1998
September 1999
May 2001
October 2002

Event
Established Communication Online Ltd.
Established internetcom K.K. (merged with US-based Jupitermedia, capitalized at ¥20mn)
Established Gamepot Inc. (merged with Gagamel.com (Korea); capitalized at ¥20mn)
Established Aeria Inc. (through spin-off)December 2004

Listed on Osaka Stock Exchange’s Hercules Market (stock code: 3758)

November 2005

Acquired 100% of shares in AIR Internet Service Co., Ltd., making it a wholly owned subsidiary

December 2005

Listed Gamepot Inc. on Sapporo Stock Exchange’s Ambitious Market

December 2005

Established Aeria Finance Inc. as wholly owned subsidiary to run investment business

April 2006

Acquired 20% stake in Yutaka Shoji Co., Ltd., making it an equity-method affiliate

August 2006

Acquired 50.1% stake in ACQUIRE Corp., making it a subsidiary

August 2006

Established Aeria Games & Entertainment, Inc.

October 2006

Established Aeria IPM, Inc. as wholly owned subsidiary to oversee copyrights

June 2007

Acquired 100% of shares in Kurezo Co., Ltd., making it a wholly owned subsidiary

June 2007

Acquired 41.3% stake in Taiko Holding Co., Ltd. (owner Akatsuki Securities), making it a subsidiary

January 2008
March 2008

Began offering email delivery ASP services through AIR Internet Service
Added vulnerability detection tool (Retina) as part of standard service through AIR Internet Service

April 2008

Transferred all shares in consolidated subsidiary Gamepot Inc. to So-net Entertainment Corp.

July 2008

Acquired Daito Me Co., Ltd. through share exchange, making it a wholly owned subsidiary

July 2008

Began offering carbon offset support program through AIR Internet Service

August 2008
September 2008
March 2009

Established European subsidiary as subsidiary of US-based Aeria Games & Entertainment, Inc.
Began business partnership with aprecio Corporation
Began offering groupware ASP for Cybozu Office 8 through AIR Internet Service

July 2010

Began offering cloud-based service to help prevent misdirected email through AIR Internet Service

December 2012

Removed Aeria Games & Entertainment, Inc. from subsidiaries by establishing AGGP Holdings, Inc.
as an intermediary holding company

December 2014

Acquired Gamania Digital Entertainment Inc. through share exchange, making it a wholly owned subsidiary

April 2015

Acquired Infotop Capital Corp. through share exchange, making it a wholly owned subsidiary and making Infotop Corp. (now First
Penguin) a second-tier subsidiary

June 2015

Acquired Liber Entertainment Inc. through share exchange, making it a wholly owned subsidiary

October 2015
December 2015

Acquired ASGARD Co., Ltd. through share exchange, making it a wholly owned subsidiary
Acquired GESI Co., Ltd. through share exchange, making it a wholly owned subsidiary

June 2017

Completed transition of Arithmetic Inc. as a wholly owned subsidiary through simple share exchange

July 2017

Acquired GOODVISION CORPORATION through simple share exchange, making it a wholly owned subsidiary

July 2017

Acquired Twist Inc.*, making it a subsidiary

August 2017

Acquired Impression inc. through simple share exchange, making it a wholly owned subsidiary

August 2017

Acquired Sakuragate Inc. as wholly owned subsidiary through simple share exchange

August 2017

Acquired eitarosoft, inc. through simple share exchange, making it a wholly owned subsidiary

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Company profile

Date

Event

September 2017
October 2017
November 2017

Acquired Xenoverse Inc. through simple share exchange, making it a wholly owned subsidiary
Acquired GG7 Inc. through simple share exchange, making it a wholly owned subsidiary
Acquired Total Management Corporation, making it a subsidiary

January 2018

Entered into agreement to establish joint venture company with Wanin International Co., Ltd.

February 2018

Acquired shares of Seisyou Co., Ltd., making it a subsidiary

June 2018

Acquired CYBIRD Co., Ltd., making it a wholly owned subsidiary

January 2019

Sold eitarosoft, Inc. and Seisyou

January 2019

Established Aeria Contents Holdings Inc. as an intermediate holding company in the contents business

January 2019

Established Aeria One Inc. as an external alliance contact point for group company assets*Twist Inc. was a limited liability company at the time it was acquired but has since been converted to a corporation
Source: Prepared by FISCO from the Company’s website██Business overview
All three segments showing strong growth
1. Business description
Segment sales composition in FY12/18 was IT services business at 20%, contents business at 47%, and asset
management business at 33%. In IT services business, mainstay Air Internet Service and First Penguin continue toachieve stable growth. In contents business, A3!, a major hit developed by Liber Entertainment, is sustaining healthy
momentum and acquired CYBIRD started contributing income too. In asset management business, which began
in 2017, existing business is vibrant, and the Company has started initiatives for minpaku service. Rapid expansion
stands out in contents business and asset management business in recent years.
Income trends by segment

Source: The Company's results briefing materials

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Business overview

Stable income source, though also takes on challenges
2. IT services
Under the IT services segment there are two main companies, AIR Internet Service and First Penguin. AIR Internet
Service operates a data service business while First Penguin operates an affiliate platform business. Other subsidiaries under the IT services segment include Grey Cells, Inc., which offers system solutions and consulting services,
and CyberZero Ltd., whose services include social app development and support services for companies uses
social media.
(1) AIR Internet Service
AIR Internet Service provides various internet services for businesses, including its cloud-based email solutions
service (All in One Mail) and a cloud-based reservations management system (Reserve Keeper) for restaurants.
With the bulk of its business stemming from its data center operations, AIR Internet Service generates an exceptionally steady stream of revenues and earnings. It divides its services lines broadly into three areas: businesscloud services, managed hosting services, ISP services. Under business cloud services, in addition to All in One
Mail and Reserve Keeper, AIR Internet Service offers the popular Cybozu Office (said to be the No. 1 groupware
product in Japan). Under managed hosting services, AIR Internet Service offers its proprietary WEBooth hosting
services which comes with its own online storage service. ISP services include domain registration and otherwebsite-related services.
(2) First Penguin
First Penguin operates diversified businesses, including the affiliate platform business, advertising, content creation/sales, media management, overseas trading, and overseas and domestic employment assistant businesses.
This segment covers a wide range of businesses, including affiliate platform, advertising, contents production
and sales, media operation, overseas trade, overseas job placement assistance, and domestic job placement
assistance. It newly entered payment agency business in 2018. Affiliate platform business is the main area. It
operates the infotop portal site, which sells information materials (information reaching materials) *1, and generates
strong income on a stable basis. The infotop site has over two million cumulative registered sellers, buyers, andintroducers and sells more than 60,000 materials. It is a popular site that covers all types of categories related todaily life. First Penguin serves as a broker for sellers, buyers, and introducers and has a framework for managing
sales and compensation payments between sellers and introducers as well as payment and product transfer
agent services between sellers and buyers. While the business model has some resemblance to Rakuten Ichiba,
infotop differs significantly in just handling the single category of information materials and managing commercial
flow and the presence of introducers (affiliate *2 partners).
*1	Information materials: Information that is primarily bought and sold over the internet. The information itself is the product,such as study guides for foreign language, guides on asset management, and self-improvement guides. While some ofthem are said to be fraudulent, Infotop’s careful examination of the materials sold through its website leaves very little
room for disreputable operators to sell their wares.
*2	Affiliate: An advertising technique wherein a blogger or magazine receives compensation from the seller if the write-upof the product leads to a sale.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Business overview

Infotop website (left) and business model (right)

Source: The Company’s website

Rapid expansion of IP business3. Contents segment
In contents business, the Company has supplied various games to the market for the platforms of each era, includingPCs, Japan-style mobile phones, and smartphones. Smartphone games are currently the most popular offerings. The
Company develops smartphone games for women and has achieved major hits with I★Chu and A3!. It also acquired
CYBIRD with the Ikemen Series, a major offering. Furthermore, the Company is shifting this business from simple
fee income to an IP business that utilizes characters cultivated in these titles in other areas besides games too.
(1) Liber Entertainment
Liber Entertainment is a core company in the contents business that develops and operates social games,
develops consumer games, and operates consulting business for games. It has achieved success by focusing on
development of Ikemen training games for women and delivered a hit with the I★Chu smartphone game in 2015
and a major hit with A3! in the 2017. It is also expanding business scope to peripheral businesses that utilize its
IP. Hit products have an effect for three years, and broadening to peripheral businesses can extend the period
even more. This is a well-performing subsidiary currently in a growth phase.
a) I★Chu
This is a love rhythm adventure game in which the player is a teacher and producer who trains the “Ichu,” an idol
egg, to become a full-fledged idol. It began official service in June 2015 and generates income from item charges.
Basic play is free. It took off and reached one million downloads by January 2017. Real-world products havedone well too because of this success. The Company supplies music CDs, comic anthologies, short stories, fanbooks, and other items. I★Chu The Stage is a 2.5D* version and has been more than 10 times up top now. The
game is enjoying a very long run, including collaboration events with Hello Kitty and the possibility of a new series.
*	2.5D: Original works and concepts from “2D” anime and video games converted into “3D” live stage productions.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Business overviewb) A3!
This is an Ikemen training game in which the player assumes the role of director at a run-down theater on the vergeof closing and trains new Ikemen actors through rehearsals and makes the production a success. The entire series
is dubbed with voices, and minigames have been recorded to generate additional income. Service began withfree basic play and item charges in January 2017. Leveraging its success with I★Chu, the Company attained a
massive hit that was at six million downloads as of February 2019. It has already launched numerous real-world
related products, including CDs and comic anthologies. It developed the stage version MAINSTAGE A3! and held
live events in June to November 2018 and January to March 2019. It is also holding the new MAINSTAGE A3!
In April-May and August-September 2019. Furthermore, it is promoting overseas rollout, including the start of
traditional-Chinese version distribution (Taiwan, Hong Kong, and Macau) and conclusion of a licensing contract for
an English version to be distributed globally. We anticipate that it will start distributing in China, where it has lagged
thus far, too. The Company has developed A3! into a larger business than I★Chu, and the game’s popularity is
unlikely to recede for the time being.
Concept images for A3! (left) and I★Chu (right)

Source: The Company’s results briefing materialsc) Other products from Liber Entertainment
Soen No Kantai is a full-fledged naval battle game in which the player becomes the general commander of the
Soen fleet and battles with a mysterious enemy, the shadow fleet. Service started with free basic play and item
charges in September 2017. It is steadily attracting interest and reached 880,000 downloads in March 2019.
Other consignment and development cooperation titles include Kai-ri-Sei Million Arthur, Rebellion Run: Dash or
Capture!!, and One Piece ROMANCE DAWN Boken-no-Yoake. Management is also considering development ofa beautiful girls training game aimed at male players.
(2) CYBIRDThe Company acquired CYBIRD, a longstanding smartphone game provider with the story-type female-oriented
romance game Ikemen series that is highly popular with women, as a subsidiary in June 2018. It is also wellrespected in escape game and fortune-telling segments. The Ikemen series is a blockbuster game with over 20
million cumulative downloads. Following consolidation, we expect CYBIRD to provide not only a large income basein the game market for women, but also synergies in overseas rollout and contents promotion for the Company’sother games and characters in light of CYBIRD’s robust track record in overseas business and character IP
management.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Business overview

Image example from the Ikemen series

Source: CYBIRD web page(3) Shift to IP business
Besides these, the Company has many other games and contents that have either been released or are currently
in development. It owns numerous well-received products, including Arithmetic Inc.’s DYNAMIC CHORD and
10 Count (a boys’ love comic) and Sakuragate Inc.’s online casino and land casino slot games. However, theCompany’s approach to contents business has changed considerably since the A3! hit and acquisition of Ikemen
series. While games offer appeal as fee-based business, they are even more attractive as IP business utilizing
characters because of significant room to expand income beyond just the games to goods, CDs, stage events,and other areas. Furthermore, characters have a longer lifecycle than games and generate high royalties. Platformchanges have less impact on IP than games. With new usage styles due to broad adoption of smartphones,
interest in characters originating from games has risen and animation developed from games, which previously was
not that common, is increasing too. The Company’s direction in game development has shifted from high-volume
output aimed at obtaining fee income to careful development with emphasis on IP business since the hit with A3!
and acquisition of the Ikemen series. We think the shift has provided motivation for reorganizing subsidiaries andtitles with an approach of focus and selectivity as explained below.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Business overview

Main smartphone game titles thus far
Date

Producer/Distributor

Description

2003-

Entered the game industry with contents for KDDI <9433> mobile handsets in 2003, mainly grew with PC
games and delivered numerous hits, including Shin Megami Tensei: IMAGINE

July 2008<Launched on iPhone in Japan (SoftBank Mobile)>

July 2009<Launched on Android OS smartphones in Japan (NTT DoCoMo)>
Ramped up development of smartphone games from 20132013July 2013

Aeria Games

Officially started service for realistic war fighting game, Battle Rush!

November 2013

Aeria Games

Officially started service for Blacksmith and Dragons RPG

December 2013

Aeria Games

Officially started service for Various Monsters, an exciting new rhythm RPG

April 2014

Aeria Games

Officially started service for Klee: From the Town of Dancing Moon Drops, a classic online RPG

June 2015

Liber Entertainment

Officially started service for I★Chu love rhythm and adventure game

December 2016

Aeria Games

Officially started service for STARLY GIRLS: -Hoshimusume- next-generation training simulation game

January 2017

Liber Entertainment

Officially started service for A3!, Handsome actor training gameMay 2017

GESI

Began distributing Secret Inn, a heart-warming RPG where players live with the hero

July 2017

Team-0

Released first game in FuluBeatVR VR rhythm game series

September 2017

Liber Entertainmen

Officially started service for Soen No Kantai realistic naval battle game

December 2017

AGE

Officially started service for Everyone’s Casino social casino game for everyone

January 2018

Team-0

Officially released second game in Symphony Line VR VR rhythm game series

March 2018

Arithmetic

Released the Android version of WolfToxic – Ookami Otoko ni Ki wo Tsukero

March 2018

eitarosoft

Started distribution of Dance Trips, a romance restaurant game jointly developed with Otomate

March 2018

Team-0Started puzzle adventure game Two Years’ Vacation service (Survival life with friends on an unknown
island)June 2018

Team-0

Officially released HappyTubeVR, the third products in its VR rhythm game series

August 2018

ASGARDRun second promotional gift campaign for new title DYNAMIC CHORD JAM&JOIN!!!!

August 2018

CYBIRD

Started distribution of music x romance♪ simulation game Ikemen Live: Koi no Uta wo Kimi ni

January 2019

Arithmetic

Began distribution of 10 Count for App react (boys’ love game)February 2019

Arithmetic

Released Etokare – Jyunishi ni Neko ga Moreta Riyu

Future plans

Liber Entertainmen

Beautiful girl training program (name undecided) under development, A3! for men
Currently developing many other products*As of the end of February 2019
Source: Prepared by FISCO from the Company’s website

Succeeded in a minpaku collaborative experiment
4. Asset management segment
The Company quickly acquired multiple real estate-related companies after the halfway point in 2017 - Twist in July,
Impression in August, and Total Management in November. Impression develops investment-purpose condominiums
harnessing its strength in investment property sales, sells residence real estate, and handles renovation business.
Total Management excels at development of standalone home units and income-earning properties, implements
used condominium renovations and property sales, and provides consulting services. It acquires many properties
related to inheritance situation, and this business has surprisingly low risk. Companies in the asset management
have already been generating solid profits. While income sharply increased in FY12/17, the segment contributed
substantially to overall sales and profits in FY12/18 too.

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Business overview

Twist is a unique company that offers minpaku operation agent service to individuals and others. It provides a
one-stop complete agent service for high-income properties mainly in Tokyo and Kyoto that covers from selectionof minpaku sites with potential to generate high investment return, conversion to minpaku specifications with interior
design by professional designers, provision of 24-hour multi-language support, property cleaning and management,
and placement on Airbnb and Agoda, Asia’s largest global online lodging reservations site. It offers excellent affinity
with the group as a whole. By collaborating with Twist, other companies in the asset management business can
supply properties from their portfolios as minpaku sites. The Company combines this service with technology fromIT services business to supply highly convenient service known as “real estate tech.” It also has an even richer rangeof ideas utilizing contents business IP.
The Company started a collaborative minpaku service with DYNAMIC CHORD and 10 Count in 2018. In a test for
two rooms owned by Total Management in Shimo-Kitazawa (Tokyo), room interior utilized characters to create alively environment with the games and the locations offered limited character goods and limited novelty presents.
These steps were very popular. It was possible to charge higher rents and boost profits. The Company intends tocontinue to actively operate minpaku sites that collaborate with games and obtain economies of scale by expanding
this business. It is reviewing events and other activities too in light of recent expansion of the 2.5D market. The
Company is also looking at utilization of other company IP, not just IP from its own group. Progress realizing various
synergies and collaboration with Twist as a key company could enable this business to increasingly contribute tohigher added value and growth as a group.
Interior of the collaborative minpaku facility

Source: Prepared by FISCO from the Company's results briefing materials

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COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/██M&A strategy and business reorganization
How to remain an essential presence
1. Management policy and stage
Since its founding, the Company promoted a concept of “becoming an essential presence, similar to air, in the
network society” and “aggressively developing businesses in areas with rapid growth” in order to sustain a position
as an essential firm. It aims to develop businesses over the longer term by keeping pace with advances in the
network society, including blockchain, AI, VR/AR, and other new technologies, and harnessing new areas, such as
growth in lodging demand from foreigners visiting Japan. Active M&A and other investments in growth markets in
the Company’s various businesses are a vital component of the business cycle of acquiring business assets thatgenerate stable income, aggressively investing in growth markets, and strengthening the business foundation in
growth markets. However, we think the Company has currently entered a stage of reinforcing the business foundationin growth markets.

M&A aimed at acquiring human resources and synergies
2. M&A strategy aims and accelerated M&A
The Company’s M&A strategy aims to acquire management resources and teams and boost their motivationand obtain business assets capable of creating synergies. In particular, the latter seeks to build a robust income
foundation that distributes risk in the various businesses and expand scale and also bring the Company into growthmarkets. We think the Company incurred the most risk with four companies it purchased in 2015 - First Penguin in
pursuit of stable income, Liber Entertainment with smartphone games, a growth area, ASGARD, and GESI. However,in the following fiscal year (FY12/16), the Company booked an operating loss of ¥1,605mn (though it reported¥501mn in EBITDA) because ASGARD and GESI did not reach initial profit expectations, Liber Entertainment incurred
substantial costs for new title development expenses and advertising outlays, and it had goodwill depreciation costs
and impairment charges due to these difficulties. Yet A3! released by Liber Entertainment in January 2017 was amajor hit and income recovered sharply to ¥2,691mn in operating profit in FY12/17. With this success, the Company
accelerated M&A activity by purchasing nine companies in FY12/17 and two companies in FY12/18.
Inter-segment synergies created by M&A

Source: Prepared by FISCO from the Company’s management policy briefing materials

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11 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

M&A strategy and business reorganization

Strengthening synergies and governance through businessreorganization
3. Business reorganization(1) Reorganizing subsidiaries and contents
Thanks to hits with A3! and I★Chu, the Company acquired IP business as a new business field. We think thepurchase of the Ikemen series in 2018 gave the Company confidence to achieve growth in IP business. Therefore,
in order to allocate business resources to IP businesses and expand into new technologies and new fields, suchas foreign travelers to Japan, it is consolidating business scope that had been broadened and strengthening thebusiness foundation with selectivity and focus. Since 2Q FY12/18, the Company started reorganizing businesses
and booked impairment charges on goodwill (¥655mn) for Arithmetic and other investments with insufficient
progress toward business plans. It also took goodwill impairment losses due to conservatively revising outlooks
for four consolidated subsidiaries (¥686mn) and on software assets at five consolidated subsidiaries (¥659mn).
With ASGARD, the Company received debt forgiveness on loans from ASGARD directors (¥657mn; it thus booked¥657mn in debt forgiveness profit) because ASGARD slipped into a state of excess liabilities on rising development
costs and sluggish sales and merged ASGARD into Arithmetic through a spin-off style absorption intended toshore up mutual weaknesses. Additionally, the Company sold shares in eitarosoft, which has extensive IP fromother companies, and Seisyou, on diminished synergy expectations in minpaku cleaning, and removed these
entities from consolidated scope.
(2) Bolstering synergies and governance through business reorganization
The next step after selectivity and focus is promoting efforts to build an efficient business model as a corporate
entity. The Company established Aeria Contents Holdings (ACH), an intermediate holding company, with Chairman
Nagashima as the president and Liber Entertainment’s representative director and president Kotaro Hayashida asa director and thereby created a framework to comprehensively manage and supervise the contents business.
This scheme facilitates 1) collaboration with the ACH executive team, mainly built around Mr. Hayashida, indevelopment of new game titles at the various companies, 2) sharing of management functions and related
curtailment of managing costs, 3) curtailment of hiring costs through optimal allocation of human resources andeffective utilization of human resources, and 4) sharing of company information and knowledge with ACH as thehub. The Company also established Aeria One Inc. for the purpose of actively creating synergies through use ofgroup business resources, such as IP, and promoting alliances by finding new business opportunities inside andoutside the group without being restricted by concepts in existing business segments.
Strengthening synergies and governanceSource: Prepared by FISCO from the Company's results briefing material

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

12 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

M&A strategy and business reorganization

Incorporating new technologies and growth markets
4. Anticipated new fields
Despite business reorganization, the Company has strived to incorporate new technologies, such as AI, VR/AR, andblockchain, and markets related to the growing number of foreign visitors to Japan as new fields. Both opportunities
offer large scale and could make fundamental changes in social structure.
(1) New technology field
In new technology, the Company is developing a trading card service that utilizes blockchain and reviewing useof VR/AR in lodging facilities, but these efforts are still looking ahead to the future. In application of AI to creative
areas, the Company invested in DataGrid, a venture firm with AI technology that employs deep learning. DataGridis engaging in R&D on technology that automatically generates character appearance images using AI. If theCompany applies this technology, it could assign not only character appearance image creation, but also scenario
creation, automated voice generation, natural language processing, and other aspects to AI software and limit therole of people to training and supervision. This might enable production of global only-one customized games.
At the current stage, character appearance automated generation software has succeeded in automaticallygenerating 70,000 characters from data exceeding 200,000 items. The Company could increase income if it
becomes possible to endlessly add characters. Replacement of manually drawing characters from scratch with AI
should help curtail costs as well. We think this is an attractive project and see applications in other areas besides
games, such as minpaku reservations and key hand-offs, lodging rights interaction, and blockchain.
Character appearances automatically generated by AI

Source: The Company's results briefing materials

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13 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

M&A strategy and business reorganization(2) Asset management business in a growth market
The number of foreigners visiting Japan rose by 8.7% YoY to 31.19mn people in 2018 (Source: Japan National
Tourist Organization) and continued increasing in January and February 2019. We expect further growth in foreign
visitor volume ahead of the 2020 Tokyo Olympics and Paralympics event, including support from national policy
aimed at making Japan a major tourist destination. However, Japan faces a significant shortage of lodging facilities
and minpaku sites have the potential to fill the gap. It implemented the Residential Accommodation BusinessAct (New Minpaku Act), which lifted the ban on minpaku practices, in June 2018. The new law aims to cultivate
minpaku service, but also sets regulations, such as a limit on the number of operating days and notificationand lodging party identity confirmation duties. A growing number of local government entities are bolstering
their regulations in reaction to concerns expressed by neighboring residents, including noise, garbage disposal
practices, and other manner infractions and criminal usage. Nevertheless, we project steady improvement inminpaku business health over the longer term because of increase in the number of official registered operators
under the New Minpaku Act. The Company started its asset management business to target this area and iscurrently preparing and conducting experiments aimed at expansion of room volume.

██Results trends
Major changes in the business structure
1. FY12/18 results trends
The Company reported FY12/18 results with ¥31,471mn in sales (+98.3% YoY), ¥1,876mn in operating income(-30.3%), ¥1,615mn in ordinary income (-41.5%), and ¥1,380mn in net losses attributable to parent shareholders(setback to a loss). In Internet-related business areas where the Company operates, Internet usage and EC (electronic commerce) markets are still expanding and content services have diversified. Competition among companies,
meanwhile, has been intensifying, and development costs, personnel costs, and sales promotion outlays are trending
upward. In this environment, the Company built a position in the smartphone market by focusing on women andother niche markets with support from stable income in IT services business. Furthermore, it promoted minpaku
business that taps into foreign tourists visiting Japan and also utilizes the Company’s IP and generates synergies.
Sales climbed because of robust income from A3! and additions of CYBIRD and other consolidated subsidiaries.
While gross margin slipped, this can be attributed to the impact of development costs at consolidated subsidiaries.
SG&A expenses rose on higher collection agent fees with increase in contents business sales and larger advertisingand promotion costs. In particular, the Company reinforced advertising and promotions to the point of updating
guidance during the period because of its recognition of the strong potential of its IP assets. This stance pulled itaway from new entrants. A3! remains highly received because of its impressive game content and has acquiredsustainable popularity. Nevertheless, we think this was a major turning point for the Company’s IP strategy. The
Company booked ¥722mn in extraordinary profits, including debt forgiveness profits from ASGARD, but ¥2,201mn
in extraordinary losses, including impairment charges on goodwill from Arithmetic and some other consolidated
subsidiaries and software titles accompanying focus and selectivity. It also booked ¥454mn in 2Q related to correction of the corporate tax and other values related to the purchase of Infotop shares by Infotop Capital in 2015.

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14 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.

3-Jun.-2019

3758 TSE JASDAQ

https://www.aeria.jp/ir/

Results trends

FY12/18 results
FY12/17(\mn)

Ratio to sales(%)

FY12/18(\mn)

Ratio to sales(%)

Change(%)

Sales

15,871100.0

31,471

100.0

98.3

Gross profit

8,155

51.4

11,092

35.2

36.0

SG&A expenses

5,463

34.4

9,215

29.3

68.7

Operating profit

2,691

17.0

1,876

6.0

-30.3

Recurring profit

2,760

17.4

1,615

5.1

-41.5

Net profit (loss) attributable toparent company shareholders

2,080

13.1

-1,380-4.4

Setback

Source: Prepared by FISCO from the Company’s financial results

In the results by segment, the IT services business posted ¥6,055mn in sales (+30.2% YoY) and ¥481mn in profit(+9.4%) as the two main subsidiaries (AIR Internet Service and First Penguin) maintained stable income. The
contents business reported ¥14,262mn in sales (+59.6%) and ¥922mn in profit (-61.9%). Sales rose on continued
robust A3! business and rapid expansion of IP business, including character good sales and stage events, while
profits came under pressure from advertising and promotional costs to obtain market position. Asset managementbusiness booked ¥10,008mn in sales (+320.4%) and ¥452mn in profit (vs. a ¥94mn loss in FY12/17). Sales andearnings improved substantially, including promotion of IP collaboration with the Company’s contents business at
Twist and Total Management.
FY12/18 results by segment
FY12/17(¥mn)

Ratio to sales(%)

IT services

4,616

Contents

8,874

Asset management

Segment sales

FY12/18(¥mn)

Ratio to sales(%)

Change
(%)

29.1

6,055

19.2

30.2

55.9

14,262

45.2

59.6

2,380

14.9

10,008

31.8

320.4

-

-

1,209

3.8

-

Ratio to sales(%)

FY12/18(¥mn)

Ratio to sales(%)

OthersOperating profit before adjustment

FY12/17(¥mn)

Change(%)

IT services

440

9.5

481

8.0

9.4

Contents

2,420

27.3

922

6.5

-61.9

-94

-3.9

452

4.5

-

-

-25

-2.1

Asset management
Others*Moved into black-* Others includes cleaning business, chemicals business, etc.
Source: Prepared by FISCO from the Company's financial results

Slightly conservative guidance
2. FY12/19 outlook
For FY12/19, the Company forecasts sales of ¥32,000mn (+1.7% YoY), an operating profit of ¥2,200mn (+17.3%),
recurring profit of ¥2,000mn (+23.8%), and net profit attributable to parent company shareholders of ¥1,400mn(vs. a ¥1,380mn loss in FY12/17).

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

15 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.

3-Jun.-2019

3758 TSE JASDAQ

https://www.aeria.jp/ir/

Results trends

FY12/19 outlook
FY12/18(\mn)

Ratio to sales(%)

FY12/19 E(\mn)

Ratio to sales(%)

Change(%)

Sales

31,471100.0

32,000100.0

1.7

Gross profit

11,092

35.2

-

-

-

SG&A expenses

9,215

29.3

-

-

-

Operating profit

1,876

6.0

2,200

6.9

17.3

Recurring profit

1,615

5.1

2,000

6.3

Net profit (loss) attributable toparent company shareholders-1,380

-4.4

1,400

4.4

23.8
Moved into black

Source: Prepared by FISCO from the Company's financial results

In FY12/19, the Company expects continuation of stable income growth in IT services business. It also anticipates
improved profitability in contents business driven by focus on expansion of existing titles and IP, enhanced grossmargin from business reorganization and sharing knowhow through ACH, and curtailment of development costs
due to decline in new titles versus the previous year. Additionally, a full-year contribution from CYBIRD, which was
acquired as a subsidiary in June 2018, is likely to make a large contribution to raising market share. There mightalso be interest in the Company’s casino games that offer added value with operational knowhow following passage
of Japan’s Integrated Resort (IR) Act in July 2018. The Company aims to strengthen minpaku service, including
collaborative minpaku with IP from other companies. While it is beginning to accelerate business activities following
reorganization, as described above, the outlook still seems somewhat conservative. We attribute this stance to theCompany’s strong resolve to avoid lowering guidance in FY12/19.

██Shareholder return policy
Undecided FY12/19 dividend
1. Dividend
The Company acknowledges that returning profits to shareholders is an important management issue, but wants
to expand profit retention in light of efforts to improve and strengthen operations and future business initiatives. It
intends to use retained profit funds mainly for M&A and other capital alliances, R&D activities, and new businessplans. While the Company had a basic policy of paying a continuous stable dividend from surplus funds in FY12/18, it
ended up lowering the annual dividend outlay by ¥5 YoY to ¥5 (no interim dividend), including the impact of loweringprofit guidance during the period. In FY12/19, we hope to see recovery to the previous level based on profit trends,
but the Company has not reached a decision on the dividend yet.

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16 17

COMPANY RESEARCH AND ANALYSIS REPORTFISCO Ltd.
http://www.fisco.co.jp

Aeria Inc.
3758 TSE JASDAQ

3-Jun.-2019https://www.aeria.jp/ir/

Shareholder return policy㻰㼕 㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㼍 㼚㼐㻌㼐㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛（¥）

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻕

㻝㻞㻚㻜
㻝㻜㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻕

（㻑）

㻤㻚㻝

㻝㻜㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻟㻚㻤
㻜㻚㻜

㻤㻚㻜

㻙㻣㻚㻜

㻢㻚㻜

㻙㻝㻜㻚㻜

㻙㻝㻢㻚㻝

㻡㻚㻜
㻙㻞㻜㻚㻜

㻠㻚㻜
㻙㻟㻝㻚㻞

㻞㻚㻜

㼀㻮㻰

㻜㻚㻜

㻙㻟㻜㻚㻜
㻙㻠㻜㻚㻜

㻲㼅㻝㻞㻛㻝㻠

㻲㼅㻝㻞㻛㻝㻡

㻲㼅㻝㻞㻛㻝㻢

㻲㼅㻝㻞㻛㻝㻣

㻲㼅㻝㻞㻛㻝㻤

㻲㼅㻝㻞㻛㻝㻥㻌㻱Note: The Company made a 2-for-1 share split on July 1, 2017.
Source: Prepared by FISCO from the Company's financial results

QUO cards for the popular A3! title as a shareholder benefit
2. Shareholder benefit program
The Company provides a shareholder benefit each year with the aim of deepening shareholder understandingof its businesses and encouraging share ownership over the longer term. It sends the benefit with notification ofresolutions for the general shareholder meeting typically mailed in late March to shareholders on the ledger as of theshareholder benefit standard date (at the end of December). The shareholder benefit in FY12/18 was QUO cards
for the popular A3! Title, with expected distribution of ¥300 for 100 shares up to less than 1,000 shares, ¥500 for
1,000 shares up to less than 5,000 shares, ¥700 for 5,000 shares up to less than 10,000 shares, and ¥1,000 for
10,000 shares or more.

██Information security
Strict compliance with confidentiality in regards to personal
information
In the course of business, some Aeria Group companies require that individual users registering for online services
provide personal information, including their name, address, telephone number, and email address. Personal
information may also be collected and held temporally by client companies with the consent of the provider of that
personnel information. Such personal data is treated as confidential by the Group, with internal access subject torestrictions and additional measures in place to prevent unauthorized external access. Aeria does not store any
personal information stemming from sales made through App Store or Google Play.

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

17 17

Disclaimer
FISCO Ltd. (the terms “FISCO”, “we”, mean FISCO Ltd.) has legal agreements with theTokyo Stock Exchange, the Osaka Exchange,and Nikkei Inc. as to the usage of stock priceand index information. The trademark and value of the “JASDAQ INDEX” are the intellectual
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This report is based on information that we believe to be reliable, but we do not confirm or
guarantee its accuracy, timeliness,or completeness, or the value of the securities issued bycompanies cited in this report. Regardless of purpose,investors should decide how to use
this report and take full responsibility for such use. We shall not be liable for any result of its
use. We provide this report solely for the purpose of information, not to induce investment or
any other action.
This report was prepared at the request of its subject company using information provided
by the company in interviews, but the entire content of the report, including suppositions andconclusions, is the result of our analysis. The content of this report is based on informationthat was current at the time the report was produced, but this information and the content of
this report are subject to change without prior notice.
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The final selection of investments and determination of appropriate prices for investment
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FISCO Ltd.