COMPANY RESEARCH AND ANALYSIS REPORT

Aeria Inc.
3758
TSE JASDAQ

17-Aug.-2018
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

17-Aug.-2018https://www.aeria.jp/ir/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01■Company profile---------------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Company profile .. .................................. ......................................................................................................

03

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

03■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 05
1. Business description. . ..................................................................................................................................

05

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

06

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

08

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

13■Business plan and M&A strategy---------------------------------------------------------------------------------------------------------------- 14
1. Business philosophy and management policies ..........................................................................................

14

2. Strategic goal of M&A............................ ......................................................................................................

15

3. Historical trends in M&A. . .............................................................................................................................

15

4. Promising new growth markets....................................................................................................................

17■Results trends -------------------------------------------------------------------------------------------------------------------------------------------------------------- 18
1. FY12/18 1Q results trends..................... ......................................................................................................

18

2. FY12/18 outlook.. ................................... ......................................................................................................

19■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 20■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/██SummaryWith communication as the keyword, Aeria looking make itself an
indispensable part of a networked society
Making use of internet and mobile technologies, Aeria Inc. <3758> (hereafter, also “the Company”) has long worked
to make itself as essential to a networked society as air is to life, with communication being its keyword. Aeria
currently divides its businesses into three reportable segments, IT services, contents, and asset management,with the IT services segment accounting for 29% of sales, the contents segment 56%, and the asset management
segment 15% of sales in FY12/17. The Company is currently enjoying rapid growth in sales and earnings but, notsatisfied to rest on its laurels, is constantly in search of new business opportunities, looking for new markets toenter and new ways to add value through the application of its in-house technologies and find ways to generatesynergies among its various businesses.
The IT services segment has two main companies that together provide a stable source of earnings, First Penguin
Inc. and AIR Internet Service Co., Ltd. First Penguin’s operates an affiliate platform business consisting mainly of
Infotop, an online shopping portal that specializes in informational products (educational materials, etc.). AIR Internet
Service operates data service businesses, including a cloud-based solutions business. At the contents segment,
the Company is engages in the development and sales of smartphone games targeting young women and also sells
related character goods. One of the companies in the contents segment is Liber Entertainment Inc., which had amajor hit game in 2017 with A3!, a Handsome young actor training game designed for young women in which theplayer assumes the role of the trainer of a stable of actors. The contents segment is currently growing at a rapid
pace due to the success of one or more hit games over three years. The asset management segment is engaged
in real estate sales, condominium renovation, and real estate-related consulting. Subsidiaries under the asset
management segment include Twist Inc., a provider of minpaku management services whose primary business isserving as the operations manager for Airbnb in Japan. In short, this business has stable sources of revenues aswell as businesses with future growth potential.
Going forward, Aeria is looking create new added-value by making full use of its existing technologies and expertise,acquire new technologies and move into new markets, and increase collaboration among group companies. An
example of intra-group collaboration is the planned opening of minpaku units whose decor is based on the popularcharacters featured in one of its smartphone games. Scheduled for opening in August 2018, this will be the first collaborative venture between the group’s game business and its minpaku business. On other fronts, on July 18, 2018,
Aeria started up Blockchain Trading Card, a digital trading card game service that uses blockchain technology. With
blockchain technology making it almost impossible to create counterfeit cards, Aeria is looking to create a market
for digital trading cards by allowing individual cards to be registered, issued, and traded. In the process, it aims toestablish a clear value for its digital content assets, something could not really do on its own prior to this. Along thissame line, Aeria has also taken an equity stake in DataGrid Inc., which employs deep learning AI technology, andtogether has undertaken a project that uses AI technology to create the appearance of the characters. The two havealready created some new character images in this manner, though the images still suffer from imperfects, suchas distortions in some facial lines. Going forward, the goal is to further improve the accuracy of the imagines anddevelop AI technology that can create images to suit the tastes of individual users. On a related front, on June 28,
2018, Aeria acquired CYBIRD Co., Ltd., making it a wholly owned subsidiary, and going forward plans to enhance
its own game development capabilities by drawing upon CYBIRD’s experience and expertise in creating romance
games that appeal to young women, and also make use of CYBIRD’s overseas distribution capabilities.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Summary

For FY12/18 1Q, Aeria reported consolidated sales of ¥6,720mn (+196.1% year on year (YoY)) and operating profitof ¥807mn (+84.9%). The strong results reflected solid gains at the IT services segment and sharp rise earnings
at the contents segment on the back of the hit game A3! The recently established asset management segment
also managed to finish in the black thanks to the strong demand for investment real estate, though restrictions
on minpaku operations continued to pose problems. For the full year, Aeria is forecasting consolidated sales of¥23,000mn (+44.9% YoY) and operating profit of ¥4,000mn (+48.6%). The current outlook sees continued strong
gains at the IT services segment, a sharp jump in sales and earnings at the contents segment on the rollout of new
titles and updates to existing titles, and, at the asset management segment, slow but steady gains from minpaku
services adding to earnings from real estate sales. It should be noted, however, that the Company’s initial forecast
for FY12/18 did not assume that revenues from A3! would continue to grow this year or that the hit game would
be released overseas, and also did not include sales from a steady stream of new title releases. It also did notinclude the addition of CYBIRD as a wholly owned consolidated subsidiary, which for the six months it is included
in FY12/18 results is expected to add another ¥5,000mn to consolidated sales and ¥200mn to operating profit. All
things considered, investors can fully expect to see Aeria exceed its current sales and earnings forecast for FY12/18.
Key Points
Backed by stable revenue stream from IT services, Aeria looking to move further into game development andreal estate sales. Sales and earnings rising rapidly• Hit game A3! to continue contributing to operating profit in FY12/18; full-fledged contributions also expectedfrom minpaku business• Looking for new ways to create new value added by using in-house technology and expertise to develop newtechnologies and enter new fields•

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㻲㼅㻝㻞㻛㻝㻤㻌㻱

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

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/██Company profile
Developing businesses in IT services, contents and asset
management
1. Company profile
Making use of internet and mobile technologies, Aeria has long worked to make itself as essential to a networked
society as air is to life, with communication being its keyword. Aeria is a holding company and currently has a totalof 26 consolidated subsidiaries and one equity-method affiliate. Aeria divides its businesses into three reporting
segments, IT services, contents, and asset management. Under IT services, businesses include an affiliate platformbusiness whose primary business is the operation of Infotop, an online shopping website that handles informational
products, as well as a data service business and systems development business. At the contents segment, businesslines include developing, distributing, and operating smartphone games, online games for tablet computers, andsales of related character goods, drama CDs, voice CDs, and other goods. The asset management segment isengaged in real estate leasing and sales, invests in domestic and overseas companies, and also operates a minpaku
business.

Expansion into other businesses using IT services as a base
2. History
Takayuki Nagashima, the current Chairman of the Board, and Yusuke Kobayashi, the President and CEO, joined
together in back in 1998 to form Communications Online Limited (the predecessor to Aeria). Located in Chiba
Prefecture, Communications Online provided internet-related information services. In 2001, Communications Online
entered the online game business with the addition of subsidiary Gamepot Inc. (now the GMO Group). This wasfollowed in 2002 by the establishment of Aeria, which went on to a 2004 listing on the Osaka Stock Exchange’s
Hercules Market (now the Jasdaq Market on the Tokyo Stock Exchange). Following its stock exchange listing, in2005 Aeria acquired AIR Internet Service Co., Ltd. and its IT services business and, with this as the foundation,
expanded into other areas including smartphone games and online shopping websites. Seeing growing demand in
the minpaku market, Aeria started up an asset management business in 2017.

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03 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Company profile

History
Date
May 1998
September 1999
May 2001

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)

October 2002

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

Began offering email delivery ASP services through AIR Internet Service

March 2008

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

Established European subsidiary as subsidiary of US-based Aeria Games & Entertainment, Inc.

September 2008

Began business partnership with aprecio Corporation

March 2009

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.
a second-tier subsidiary

June 2015

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

October 2015

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

December 2015

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

June 2017

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

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

September 2017

Acquire Xenoverse Inc. through simple share exchange, making it a wholly owned subsidiary

October 2017

Acquired GG7 Inc. through simple share exchange, making it a wholly owned subsidiary

October 2017

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

October 2017

Established joint venture with Edia Co., Ltd.

November 2017

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

July 2017

Acquired Twist Inc., making it a subsidiary*

June 2018

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

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/██Business overview
All three segments showing strong growth
1. Business description
In FY12/18 1Q, the IT services segment accounted for 25% of sales, the contents segment 40%, and the asset
management segment 35%. At the IT services segment, First Penguin and AIR Internet Service both continued to see
steady growth in sales and earnings. The contents segment performed well with product sales and games aimed at
women from Liber Entertainment and ASGARD, especially in 2017 with the smartphone game A3! becoming a big
hit and gaining popularity into 2018. The asset management segment only began in 2017, however there is potential
for the contributions of the minpaku business, while the investment property market remains robust.

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㻠㻜㻑

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

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05 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻌㼎㼞㼑㼍㼗㼐㼛㼣㼚㻌㼎㼥㻌㼟㼑㼓㼙㼑㼚㼠㻌㻔㻲㼅㻝㻞㻛㻝㻤㻌㻝㻽㻕
18/12期売上高構成比㻵㼀㻌㼟㼑㼞㼢㼕㼏㼑㼟㻝㻡㻑㻭㼟㼟㼑㼠㻌㼙㼍㼚㼍㼓㼑㼙㼑㼚㼠㻟㻞㻑㻯㼛㼚㼠㼑㼚㼠㼟
㻡㻟㻑

Source: Prepared by FISCO from the Company’s financial resultsWhile still a cash cow, First Penguin starting to make aggressive
moves
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 a steadystream of revenues and earnings. It divides its services lines broadly into three areas: business cloud 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 whichcomes with its own online storage service. ISP services include domain registration and other website-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.
The largest of these its affiliate platform business, which operates Infotop, a web portal for selling informational
products (educational materials, etc.). Earnings from this area are both high and stable.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

The affiliate platform business operated by First Penguin has a business model that is similar to that of Rakuten
Market. Rakuten Market has an extremely large number of categories in its ecommerce mall but it captures
only the information exchanged between the seller and the buyer while leaving the distribution and accountsettlement up to the individual merchants. In contrast, Infotop’s ecommerce mall has a single category, called
informational products*1, but it encompasses every aspect of the dealings between buyers and sellers, not only
the digit information but the distribution and account settlement as well. In other words, First Penguin serves as anintermediary for the seller, the buyer, and the introducing agent, managing the payments for sales and commissions
between the seller and the introducing agent, and also managing the account settlement and the product delivery
between the seller and the buyer. There is a big difference between Infotop and Rakuten Market when it comesto how distribution as handled, but the biggest different between the two is there is the presence of introducing
agents (affiliates, affiliate partners*2) at Infotop whereas Rakuten Market has none. By putting introducing agentsin the picture, First Penguin has increased the searchability of Infotop for even long-tail informational products. In
this respect, Infotop provides the same kind of chaotic enjoyment that people previously obtained from looking forlong-tail products on Rakuten Market. As a result, Infotop has a cumulative total of more than 2.0mn registeredsellers, buyers, and introducing agents, and has logged more than 60,000 sales of information materials acrossa wide variety of popular topics that people find helpful in their everyday lives. Infotop also stands out from otherwebsite in that forms of acceptable payment include not only bank transfers and credit cards, but also the various
money transfer systems available at convenience stores, BitCash, and other forms of payment.
*1	Informational products: 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 on rareoccasions such guide books are said to be pyramid schemes or make fraudulent claims, Infotop’s careful examinationof 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. Unlike the average affiliate, affiliate partners are involved in the business.

Infotop website (left) and business model (right)

Source: The Company’s website

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

In May 2018, First Penguin started full-scale operations of AquaGates, an account settlement service built to global
standards. First Penguin has more than 12 long years of experience of providing different payment options to
individuals and companies, and in the process developed its own credit assessment system to give it the flexibility
to make determinations in case where it used to be difficult to assess, such as cross-border transactions, C2C
transactions, and transactions involving services that do not yet exist. Making use of this experience, it decided
to set up this payment system that would cover transactions (ranging from corporations to individuals runningside-businesses) that existing payment services were unlikely to handle, especially people such as freelance
operators or those running a side-business that would have trouble obtaining credit. During 2018 it plans to makethis payment system available through 200 companies. First Penguin already offers a wide range of payment
options, including credit cards, mobile payments, and digital currencies, but will soon be adding BitCash (prepaid
digital cash), nihaopay (from Aurfy Japan), and SWIFT PASS (account settlement service that instantly generates
a payment URL), and plans to add still more payment options in the future, including payment in virtual currencies
and foreign currencies. Reflecting the value attached to the convenience provided by the addition of new payment
options, AquaGates entered into contracts 50 contracts during its first month in operation, roughly three times
more than it had initially expected.
In other areas, First Penguin has also been active recently at its overseas employment assistance business, whose
mainstay service goes under the name CoCoCarat. CoCoCarat specializes in employment assistance services
for people looking to work in Southeast Asia. It currently has partnerships with personnel placement agencies
in the seven major countries in Southeast Asia and serves as the registration agent for the job application withthe local placement agency. In February 2018, CoCoCarat started up an online English-language conversion
service, CoCoCarat English Conversion, to serve the customers of its overseas employment assistance service.
The course contents are the same as those used by the KONICA MINOLTA Online English Conversation service(owned by KONICA MINOLTA <4902>), which developed a series of practical English conversion lessons basedon the experienced gained by KONICA MINOLTA in the field of global communications over many years.

Big hit game A3! to be followed by more new titles
3. Contents segment
Over the years the contents business has brought various types of games to the market that were suited to theplatforms available at the time. At this time the target market for the games it is developing has been narrowed down
to young women, and sales of related goods are also doing well.
(1) ASGARD
ASGARD manufactures and sells CD/PC software for young women, doing studio recording and manufacturing
and selling consumer game software under two labels (where there have been releases) using a single studio. At
its mainstay Honeybee label, ASGARD produces CDs aimed at women, such as the DYNAMIC CHORD series,
does some collaborative CD featuring well-known game titles from other companies targeting for women; in thismanner, it has managed to consistently release two to three CDs a month. Other series include Starry☆Sky,
Shinigami Kareshi (Reaper Boyfriend), and Blackish House series. These and other products are sold through an
online shopping website (honey shop) that ASGARD operates. The ASGARD studio has two rooms for recording,
one large and one small; this setup allows it to do a wide variety of recording, from games, narration, and dramas,
and to music. It has also turned DYNAMIC CHORD into an animated TV series. It has also turned DYNAMIC
CHORD into an animated TV series and will also release a DYNAMIC CHORD game app during the summer of
2018. In this relation, we note that, as of July 24, pre-release registration for the game app had already topped
400,000—a good indication that many fans are anxiously awaiting the release of the new game app.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

Asgard hit series: DYNAMIC CHORD (left) and “Honeybee” brand site (right)

Source: The Company’s results briefing materials(2) Liber Entertainment
Liber Entertainment is involved in social game development and operation, consumer game development, andalso has a consulting business that provides consulting services for other companies in the game business. By
narrowing its smartphone game development efforts down to a Handsome young actor training game genre thattargets young women, it has enjoyed success, bringing out two big hits in quick succession, I★Chu in 2015 and
A3! in 2017. This resulted in a sharp jump in sales and earnings at Liber Entertainment in FY12/17 and, since theimpact of major hits is generally expected to last about three years, it is quite likely that Liber Entertainment willsee further growth in sales and earnings this year.
Liber Entertainment: sales and earnings trends (for reference)(fiscal year, ¥mn)
2013

2014

2015

2016

2017

Sales

250

824

277

837

6,848

Recurring profit

-74

158

-90

51

2,893

Net profit

-74

130

-92

31

1,982

Net assets

-69

60

-32

25

2,060

Total assets

129

261

206

301

3,777

Source: Prepared by FISCO from the Company’s securities reporta) I★Chu
I★Chu is a romance rhythm adventure in which the player is a teacher-cum-producer and must train an idol
wannabe to be a fully-fledged entertainer (I★Chu) into a full-fledged star. Service for I★Chu officially started inJune 2015; free-to-play and charging for in-game items. In January 2017 I★Chu recorded more than 1.0mn
downloads, making it a major hit. The popularity of I★Chu spurred sales of related real products, leading to therelease of a total of nine music CDs (five singles, four albums), two comic anthologies, three novels, as well as
fan books and other character goods. In addition to these spin-off products, I★Chu was also made into a 2.5D*
stage show (I★Chu The Stage) that ran a total of 12 performances between August and September 2017.
*	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

17-Aug.-2018https://www.aeria.jp/ir/

Business overviewb) A3!
A3! is a Handsome young actor training game in which the player assumes the role of the general manager ofrun-down, collapsing theatrical company that has to train a new group of young, would-be actors to be successfulstage performers. Because all episodes are done in “full voice,” mini-games have also been available to earnmore money for the theatrical company. Service for the game was started in January 2017; free-to-play andcharging for in-game items. Leveraging its experience with I★Chu, Liber Entertainment turned A3! into an evenbigger hit with some 5.5mn downloads in July 2018. Sales of related real products include nine CDs (one single,
eight mini albums), two comic anthologies, and a large number of other goods. In addition, A3! has been madeinto a live stage show entitled “MANKAI STAGE A3! — SPRING & SUMMER 2018” that will run between Juneand November 2018 in two cities, Tokyo and Osaka. Live streaming is also implemented for this show. LiberEntertainment has also decided to extend the live stage performances with “MANKAI STAGE A3! — AUTUMN &WINTER 2019” which will run between January and March 2019 in three cities, Tokyo, Osaka, and Yamaguchi.
Liber Entertainment is also working with Bilibili on plans to start distribution in China during the summer of 2018.
It is also moving quickly to distribute the game in other overseas markets outside of China. It is working with
KOMOE Game Corporation, and since July has been running a closed beta test of a traditional Chinese character
version for the Taiwan, Hong Kong, and Macau markets. It has also signed a licensing agreement with CYBIRD
for an English-language version of the game for worldwide distribution. With the second season in A3! having
only been introduced in February this year, it is unlikely that the popularity of A3! will fade anytime soon and it isquite likely that the game will become an even bigger hit than it already is.
Concept images for A3! (left) and I★Chu (right)

Source: The Company’s results briefing materialsc) Other products from Liber Entertainment
Another game from Liber Entertainment is Soen No Kantai, a realistic naval battle game in which the player is thecommander of a naval battle group that must fight a mysterious opponent. Service for the game was started in
September 2017; free-to-play and charging for in-game items. Pre-registration for Soen No Kantai is said to havecome around 100,000, and the game is expected to maintain popularity at its current pace. Other titles that LiberEntertainment has either developed under contract or development cooperated include Kai-ri-Sei Million Arthur,
Dairansoh Dasshu or Dasshu, One Piece ROMANCE DAWN Dawn of Adventure.

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10 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview(3) Contents segment: other subsidiaries
Aeria has a large number of other subsidiaries that are also involved in developing social games. Aeria Games& Entertainment, Inc. plans, develops, and operates games for smartphones. Most of the titles are for STARLYGIRLS – Hoshi musu –, a next-generation training simulation game. AGE Inc. is in the process of moving fromonline games for PCs to games for smartphones, and has been able to make progress towards stabilizing its
revenue and earnings stream by increasing its contract development work. Major titles from AGE include Astral
Stairways, a classical role playing game, and two pet rearing simulation games, Tenohira Puppy and Tenohira
Kitty. Subsidiary Arithmetic Inc. develops and operates social games, develops and operates game engines andplatforms. Arithmetic titles include 90 Days to Fall In Love with You (a romance simulation game with a YouTuber).
In March 2018 Arithmetic released the romance game app Wolf Toxic–Beware the Wolfman, and also released
an Ameba-version browser game based on the popular BL comic 10 Count, which has already published acumulative total of more than 1.5mn copies. Before the end of this year Arithmetic is also planning to come out
with a 10 Count game app for smartphones (with both Android and iPhone verions) as well as Zodiac Boy: Why
The Cat Was Not Included Among The 12 Animals In The Chinese Zodiac Calendar. Subsidiary Team Zero inc.
distributes two VR rhythm game series, FuluBearVR and Symphony Line VR, and in March 2018 came out witha new puzzle adventure game, 15 Boys on a Floating Island. Going forward, plans call for working together withother group companies to make use of the technology and systems Team Zero developed for its virtual reality
rhythm game series and its character IP in a minpaku setting (i.e., making 3-D imagines of the popular characters
appear within the confines of the minpaku unit).
Aeria also acquired many new subsidiaries involved in game development during 2017. These include Sakuragate
Inc., which designs and develops slot games for online/ land-based casinos, provides gaming-related consulting
services, and designs, developments, and operates social games. It also acquired GOODVISION CORPORATION,
which designs, develops, and operates social games. GOODVISION has a long track record in game development,
including joint development of Hot-Dog PALACE with Kodansha. Another acquisition was eitarosoft, inc., which is
distributing Time Bokan 24 Bokan Meka Battle! under a licensing agreement with Tatsunoko Production; eitarosoft
is also known for Dance Trips, which it co-developed with Otomate and released in March 2018. In 2017 Aeria alsoacquired Xenoverse Inc., the game division of the MAJOR LTD. Group (primarily distributes mobile games in North
America), as well as GG7 Inc., which has expertise in the creation and marketing of character contents. It wasannounced that the game Secret Inn, which GESI Co., Ltd. started service for in May 2017 (with free-to-play andcharging for in-game items) would terminate service no earlier than March 2018. Since in most cases the service
for a title is ended early when it fails to become a hit, the extension of the service this long might be considered
as something that sets GESI apart from other companies.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

Past major titles and future pipeline
Date

Producer/
Distributor

May 2003

Gamepot

Began distributing game contents thru BREW mobile phone handset from KDDI

August 2004

Gamepot

Began distributing online golf game, Sukatto Golf Pang Ya

PC

March 2006

Gamepot

Began distributing Kunshu MMORPG (Massively Multiplayer Online Role-Playing Game)PC

December 2006

Gamepot

Began distributing Fantasy Earth Zero MMORPG

PC

February 2007

Aeria Games

Began distributing Last Chaos MMORPG in US and Canada

PC

April 2008

ACQUIRE

Public website opened for "Sword, Magic, and School Story"

PS/PSP/3DS

Description

Platform<Japan debut on iPhone (SoftBank Mobile)>

July 2008
January 2009

Aeria Games

Began distributing "Shin Megami Tensei IMAGINE" MMORPGPC

May 2009

Aeria Games

Officially started service for "Shin Megami Tensei IMAGINE" MMORPG in GermanyPC

May 2009

Aeria Games

Officially started service for "Grand Fantasia: Spirit Legend" MMORPG

PC

June 2009

Aeria Games

Officially started service for "Shin Megami Tensei IMAGINE" MMORPG

PC<Japan debut on Android OS smartphones (NTT DoCoMo)>

July 2009
September 2009

Aeria Games

Officially started service for "Mystic Stone: Runes of Magic" MMORPG

PC

November 2009

Aeria Games

Officially started service for "Grand Fantasia: Spirit Legend" MMORPG on Hangame

PC

January 2010

Aeria Games

Officially started service for "Grand Fantasia: Spirit Legend" MMORPG on GungHo games

PC

January 2010

Aeria Games

Officially started service for "Mystic Stone: Runes of Magic" MMORPG on hangame

PC

February 2010

Aeria Games

Started of sales of "Grand Fantasia: Spirit Legend" as packaged software product by CyberFront Corp.

PC

February 2010

Aeria Games

Started of sales of "Mystic Stone: Runes of Magic" as packaged software product by CyberFront Corp.

PC

February 2010

Aeria Games

Started channeling service for "Mystic Stone: Runes of Magic" on Hangame

PC

Aeria Games

Officially started service for "Shin Megami Tensei IMAGINE" MMORPG by Ningbo Success Multimedia
Communication Co., Ltd.

PC

April 2010
June 2010

Aeria Games

Officially started service for "Rappelz" MMORPG by China’s Ningbo Success Multimedia
Communication Co., Ltd.

September 2010

Aeria Games

Officially started service for self-developed title "Guillotine House"

October 2010

Aeria Games

Officially started service for "Nine Tail Online: Spirit Legend Side-story"

October 2010

Aeria Games

Began offering "Let’s Build Kitty Town II" on GREE platform

June 2013

Aeria Games

Officially started service for "Dragon’s Prophet" MMORPG

July 2013

Aeria Games

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

iPhone/Android

November 2013

Aeria Games

Officially started service for "Blacksmith and Dragons" RPG

iPhone/Android

December 2013

Aeria Games

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

iPhone/Android

April 2014

Aeria Games

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

iPhone/Android

June 2015

Liber
Entertainment

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

iPhone/Android

December 2016

Aeria Games

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

iPhone/Android

January 2017

Liber

Officially started service for A3!, Handsome actor training game

iPhone/Android

May 2017

GESI

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

iPhone/Android

July 2017

Team-0

Released first game in "Fulu Beat VR" VR rhythm game series

iPhone/Android

September 2017

Liber

Officially started service for "Soen No Kantai" realistic navel battle game

iPhone/Android

December 2017

AGE

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

iPhone/Android

January 2018

Team-0

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

iPhone/Android

Undecided

eitarosoft“Dance Trips” had a booth at the Tokyo Game Show 2017 to accept advance registrations

Undecided

eitarosoft

Exhibited "Magical Days" magic puzzle and adventure game at Tokyo Game Show 2017

Undecided

Arithmetic

Started pre-release registration for "10 count" BL game

Undecided

ASGARD

Started pre-release registration and promotional gift campaign for new title "DYNAMIC CHORD
JAM&JOIN!!!!"

Undecided

eitarosoft

Notification of postponement of start of service for "Dance Trips"

Undecided

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

Undecided

Arithmetic

Start pre-release registration campaign for "Etokare: Why the Cat Was Left Out of the Chinese Zodiac
Calendar"Undecided

eitarosoft

Working together with Mobcast, co-develop new game based on characters from popular television
anime series "Yu•Yu•Hakusho"

Undecided

Liber

PC
browserPC
PC

Beautiful girl training program (name undecided) under development, A3! for men

Source: Prepared by FISCO from the Company’s website* As of the end of February 2018

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12 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

Collaborative efforts begin soon after startup of asset managementbusiness in 2017
4. Asset management segment
Aeria started building up its asset management business in the latter half of 2017, acquiring four real estate-relatedcompanies in quick succession, Twist Inc. in July, Impression inc. in August, Total Management Corporation in
November, and Seisyou Co., Ltd. in February 2018. Impression’s strength lies in its investment property sales capabilities, based on which it has branched out into investment condominium development, residential real estate sales,
and residential property renovation. Total Management’s strength lies in real estate development (both single-family
homes and income properties), but it also involved in pre-owned condominium renovation, real estate sales, andconsulting. Total Management is distinguished by its unusual focus of low-risk properties, many of which people haveinherited. Seisyou Co., Ltd. started out in the cleaning business, specializing in cleaning pachinko parlors. Seisyou
still has its cleaning business but has also branched out into facilities maintenance and inspection (including electricalsystems and fire extinguishing systems), environmental hygiene management, and building security services. One of
Seisyou’s most rapidly growing businesses at this time is contract cleaning services for printing equipment; it alsosees promising growth prospects in the manufacture and sale of custom-order cleaning equipment. Because mostof the companies in the asset management segment already had a relatively solid revenue and earnings stream at
the time they were acquired, Aeria’s asset management business got off to a quick start and was able to contributeto earnings from the beginning in FY12/17.
Among the companies in the asset management segment, Twist is already engaged in the minpaku business,overseeing minpaku property operations in the capacity of an agent, serving both individual and companies. Twist
primary serves as the operations manager for Airbnb in Japan, but has also established itself as a one-stop shop
for all minpaku-related services, with highly profitable properties primarily in Tokyo and Kyoto, offering a selectionof properties promising good returns, interior makeovers by professional designers to create a property suitable forshort-term rentals, 24-hour multi-lingual support services, and property cleaning and management. Twist has also
started listing its minpaku properties on Agoda, Asia’s largest online reservation website for lodging.
In 2017 Japan saw inbound tourist traffic jump 19.3% YoY to 28.69mn visitors. With help from government policies
aimed at making Japan more tourist friendly, inbound tourism is expected to continue rising in the years ahead as weapproach the 2020 Tokyo Olympic and Paralympic Games. At the same time, Japan still finds itself desperately shortof lodging accommodations to handle all these tourists, leading to the rise of minpaku arrangements to fill the gap.
The previous prohibition on minpaku lodging was effected lifted by the passage of the Private Residential Lodging
Act (i.e., the new minpaku law) that went into effect in June 2018. While the new law is aimed fostering the growthof minpaku lodging facilities, at the same time it also established clear restrictions on minpaku operations, including
limiting the number of days in operation to 180 days a year, and requiring the operator to register and verify theidentity of all guests. In addition to the restrictions at the national level, a growing number of local governments are
imposing their own restrictions to alleviate the concerns of people in the surrounding neighborhoods about excessive
noise, trash disposal, ill-manner behavior, and use of minpaku for illicit purposes. As a result of this temporary surge
in regulations, in the near term we expect to see the number of unauthorized minpaku operators decline sharply
while the number of registered minpaku operators increases, leading to a change in the type of operator involvedin the minpaku business. Still, we see this as an essential step towards establishing an environment that will allow
the minpaku business as a whole to grow and prosper over the medium to long term.

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13 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business overview

In this sense, Twist would seem to be well positioned for growth in the years ahead. That said, because the businessof Twist has a lot in common with the businesses of the group as a whole, we are already seeing synergies emerging
and expect to see more collaboration between Twist and other group companies going forward. By coordinatingwith Twist, other companies in the asset management segment will be able to let their property holdings be rented
out as minpaku. Drawing on the technology of the group’s IT service business, the asset management segment will
also be able to offer more convenient real estate-related services (i.e., "real estate tech"). The Aeria group also has
a lot of character IP under the contents segment that might be put to use in a real estate-related context (the firstcollaborative venture of this sort will be in August). In short, by leveraging the resources of Twist, Aeria should be
able to increase value-added and foster growth across the group as a whole.
Synergies with minpaku,PSUHVVLRQLQYHVWPHQWUHDO
HVWDWH

7ZLVWPLQSDNXDJHQF\VHUYLFH

7RWDO0DQDJHPHQWLQFRPHSURSHUW\GHYHORSPHQW

Synergies withminpaku

6HLV\RXFOHDQLQJ
・inspection・security$HULD,7H[SHUWLVH・ resources

Source: Prepared by FISCO from the Company’s website██Business plan and M&A strategy
How Aeria remains indispensable
1. Business philosophy and management policies
Since its inception, Aeria’s guiding philosophy has been to be as indispensable to a networked society as air is tolife and, towards this end, as always strived to maintain its indispensability as a business by proactively moving into
rapidly growing fields. In an effort to keep pace with the development of a networked society, Aeria has tried its
hand at many businesses, acquiring many companies along the way. Right now it is looking at rapidly developing
new technologies including AI, VR/AR, and blockchain, as well as at growing, low-tech markets.

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14 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business plan and M&A strategy

Aeria is looking to establish collaborative venture among its existing businesses (IT services, contents, and asset
management) and develop new businesses over the medium to long term that make use of new technologies such
AI, VR/AR, and blockchain, and tap into the growing market of foreign tourists visiting Japan. What Aeria is basicallylooking to do is acquire business assets that will generate a stable revenue stream (i.e., become “cash cows”), thenuse those funds to aggressively invest in growth markets, which will in turn strengthen its position in those growthmarkets. To keep this cycle going, Aeria depends on M&A. Because this kind of M&A has always been Aeria’s
modus operandi, nothing much has changed over the years except for the target, which at this time happens to be
blockchain and other new technologies.

M&A to diversify risk and create synergies
2. Strategic goal of M&A
Aeria is active in M&A for a number of reasons. In addition to using M&A to help create synergies among groupcompanies, it also uses M&A to reinforce its earnings structure by reducing risk and expand businesses both
domestically and overseas. At existing IT businesses, Aeria is using M&A to strengthen ties to existing customers
and help stabilize its revenue base, as well as to acquire new technology. At its contents business, Aeria is using
M&A to strengthen its position its target market (young women) and to facilitate moves into overseas markets andalso into new markets such as online gambling. At its asset management business, Aeria is looking to use M&A togrow existing businesses, expand minpaku-related services, and also to help establish ties with its IT services andcontent businesses.
Aeria’s M&A activity has two strategic goals, the first is to increase the size and motivation of the group’s management team. The second is to acquire the business assets that will lead to the creation of synergies among groupcompanies. When Aeria is able to acquire business assets where synergies are likely to be generated, it can leadto the expansion of the revenue base of all segments and can also open up the door for the group to enter new
growth markets. In the contents business, Aeria will work to mutually utilize each companies’ respective genres
and technological strengths. At the asset management business, Aeria is able to use its expertise in IT to enhance
its minpaku services, and also draw on its contents business to create new tourism experiences such as theater
performances and live events and can also lead to the sale of related goods.

Using M&A to promote stability and to promote growth
3. Historical trends in M&A
Aeria was consistently profitable in the years following its inception but fell deeply into the red in FY12/08 as theLehman Shock rocked the financial industry, hurting its main client base. By FY12/10 Aeria was back in black asearnings recovered quickly following the shift in its orientation from the financial sector to online games for PCs.
Unfortunately, in FY12/12 Aeria slipped back into the red again as competition intensified in the smartphone gamemarket and, with development costs hard to recoup, stayed in the red as operating losses became the norm. As
more and more competitors moved into the smartphone game market, including large, well-financed game makers
with popular character IP, many good small- and medium-sized game makers either put themselves up for sale orwent out of business. Thanks to the stable source of revenues and earnings provided by its IT services business,
Aeria was not among the victims of the industry shakeout and was able to continue turning out quality games.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business plan and M&A strategy

It was during this rough patch that in 2015 Aeria decided to take a calculated risk with the acquisition of four newcompanies: First Penguin, Liber Entertainment, ASGARD, and GESI. With First Penguin, Aeria was looking foranother cash cow while with Liber Entertainment, ASGARD and GESI it was looking to increase its exposure to thegrowing smartphone game market. Unfortunately, the following year both ASGARD and GESI missed their initialsales target while Liber Entertainment hemorrhaged cash to support the development and promotion of new game
titles. After having to write down goodwill and take other asset impairment charges, Aeria ended up booking an
operating loss of ¥1,605mn in FY12/16 (though with EBITDA of ¥501mn, cash flow was still in the black). The picture
brightened considerably in 2017 as Liber Entertainment launched A3! in January 2017 and it quickly became a major
hit, taking Aeria out of the red and putting it firmly in the black with an operating profit of ¥2,691mn in FY12/17. With
its fortunes rebounding in FY12/17, Aeria stepped up the pace of M&A and, having made no acquisitions during
FY12/16 when it was running large operating losses (as one might expect), acquired a total of nine companies. The
acquisitions have continued in FY12/18, with Aeria already acquiring two more companies as of July. The acquisitions
at this time are aimed at acquiring new technologies like blockchain, AI, VR/AR, and also at increasing the group’s
exposure to the growing market of overseas tourists visiting Japan, both of which have the potential to bring aboutchanges in social infrastructure and platforms.

㻯㼔㼍㼚㼓㼑㼟㻌㼕㼚㻌㼟㼍㼘㼑㼟㻌㼎㼥㻌㼟㼑㼓㼙㼑㼚㼠㻔¥㼙㼚㻕㻵㼀㻌㼟㼑㼞㼢㼕㼏㼑㼟㻯㼛㼚㼠㼑㼚㼠㼟

㻭㼟㼟㼑㼠㻌㼙㼍㼚㼍㼓㼑㼙㼑㼚㼠㻞㻡㻘㻜㻜㻜

㻞㻜㻘㻜㻜㻜

㻝㻡㻘㻜㻜㻜

㻝㻜㻘㻜㻜㻜

㻡㻘㻜㻜㻜㻜㻲㼅㻝㻞㻛㻝㻡

㻲㼅㻝㻞㻛㻝㻢

㻲㼅㻝㻞㻛㻝㻣

㻲㼅㻝㻞㻛㻝㻤㻌㻱Note: FY12/18 forecast based on Company sales projections for individual segments as compiled by FISCO
Source: Prepared by FISCO from the Company’s securities report

Recent M&A activity
FY12/15
Acquire business assets
expected to generate stablerevenues stream

FY12/16First Penguin

Strengthen position in growthmarketMove into new growth markets

FY12/17

FY12/18

impression
TotalManagement TWIST

Seisyou

Arithmetic, GG7,SAKURAGATE, eitarosoft,
GOODVISION, Xenoverse

CYBIRD(Contents business, overseas expansion)(Minpaku business expansion)(Blockchain business expansion)(AI business expansion)

Liber Entertainment
ASGARD
GESI

Source: Prepared by FISCO from the Company’s securities report, etc.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business plan and M&A strategy

Move into rapidly advancing technology as well as growing, lowtech markets
4. Promising new growth markets(1) Collaborative minpaku services
As discussed previously, one of the ways Aeria is looking to generate synergies among group companies is throughcollaborative efforts between its minpaku and game businesses. The first such effort will be the creation of minpaku
units with decor based on game character IP. Created by Total Management, the character-themed units locatedin the Shimokitagawa area of Tokyo will only be available for rent during the month of August 2018. The bookings
will be naturally be handled by Twist, which has plenty of experience in handling minpaku reservations. This firsteffort will be undertaken in collaboration with ASGARD; other plans include limited edition character goods fromthe ASGARD new band member support game, DYNAMIC CHORD JAM&JOIN!!!! (scheduled for release during
the summer of 2018) as well as limited edition novelty goods (to be used as presents). Depending on the stateof the live theatrical market, ASGARD may also consider running some live events. Near term, the goal is toincrease user satisfaction as this should lead to higher occupancy rates and high room rates. It is also possible,
though, that this collaborative effort could lead to new uses for real estate and more ways to promote content.
In this relation, management noted that in addition to using character IP from Aeria group companies, it will also
consider designing minpaku units based on character IP from other companies as well.
(2) Blockchain technology-based trading card service
On July 18, 2018, Aeria started selling Blockchain Trading Card, a digital trading card service that uses blockchain
technology. (This follows proof-of-concept testing in June by Tech Bureau, Corp. under the name mijin). Insteadof leaving trading cards under the control of the servers used by the companies that operate the games, this newservice will make it possible for people to register, issue, and trade individual cards thanks to its use of blockchain
technology, which makes it almost impossible to create counterfeit cards. This new service is aimed at creating
and increasing the value of digital assets that until now had been difficult to value independently. Initially, the newservice will target the fans of the characters whose images have been licensed from the IP owners, who canthen use then the cards they purchase to play card battle games. Users who play the card games can also get“decorations” for their cards depending on the points scored when they win.
(3) Creative AI research and development
Aeria has also taken an equity stake in DataGrid Inc., which employs deep learning AI technology, and together
with DataGrid is undertaking a project that will use AI technology that will allow users to customize games to suit
their own tastes. The idea is allow AI to learn from individuals, then create images of characters, come up withdifferent storyline scenarios, automatically create voices for characters, and use natural language processing, andthrough this process create a customized game that is truly one of a kind. For example, just through the automatic
creation of characters that are already under development, it might get a core idea on which a game can be
developed, that is not only interesting but can be taken in many applications. Outside of game-related applications,the Company is also looking at possible applications of AI technology at its minpaku business, in reservations, key
transfers and exchanges of lodging rights, and also at possible uses in conjunction with blockchain.

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Business plan and M&A strategy(4) CYBIRD
Aeria acquired CYBIRD Co., Ltd. on June 28, 2018, making it a wholly owned subsidiary. Known for its long-running Handsome Series of romance games designed to appeal to girls and young women, CYBIRD games havea strong following in mobile game market among young women. While fellow group member Liber Entertainment
can boast of more 5.5mn downloads of its hit game A3! in a single title, CYBIRD also has a very respectable
track record with a cumulative total more than 17mn downloads of its Handsome Series of mobile game. The
addition of CYBIRD to the Aeria group will not only make the women’s game market a huge source of earnings
for the group, CYBIRD’s well-established track record in the marketing of its games and character IP overseas
means Aeria can also expect synergies in the area of game and character marketing overseas as well as in content
promotion. CYBIRD reported solid results for FY3/18 with sales coming in at ¥9,500mn and EBITDA coming inaround ¥600mn.
It will also be interesting to see what steps Aeria takes to move into new growth areas or apply new technologies
to existing business, such as virtual currencies and augmented reality, or deals with a revival browser games if
mobile game apps become too unwieldy.

██Results trends
FY12/18 1Q results in line with plan
1. FY12/18 1Q results trends
For FY12/18 1Q, Aeria reported consolidated sales of ¥6,720mn (+196.1% YoY), operating profit of ¥807mn(+84.9%), recurring profit of ¥692mn (+61.8%), and net profit attributable to parent company shareholders of¥548mn (+138.8%). EBITDA (operating profit + depreciation + goodwill amortization) came to ¥1,076mn andnet profit before goodwill amortization ¥696mn. With the synergies among group companies coming in much as
expected, 1Q results were generally in line with plan.
FY12/18 1Q results(¥mn)
FY12/17 1Q

Ratio to sales

FY12/18 1Q

Ratio to sales

Change (%)

Sales

2,269

100.0%

6,720

100.0%

196.1%

Gross profit

1,304

57.5%

2,744

40.8%

110.4%

SG&A expenses

868

38.3%

1,937

28.8%

123.2%

Operating profit

436

19.2%

807

12.0%

84.9%

Recurring profit

427

18.8%

692

10.3%

61.8%

Net profit attributable to parent company shareholders

229

10.1%

548

8.2%

138.8%

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

The IT services segment reported sales of ¥1,667mn (+77.3% YoY) and operating profit of ¥122mn (+20.3%), withgrowth underpinned by the steady growth in revenues and earnings at First Penguin and AIR Internet Services. The
contents segment continued to grow at a rapid pace thanks to the ongoing popularity of A3! (the hit smartphonegame for young women), reporting 1Q sales of ¥2,738mn (+102.1% YoY) and operating profit of ¥432mn (+26.5%).
The newly created asset management segment just got its minipaku business up to speed but, thanks strong
demand for investment properties, was able to book 1Q sales of ¥2,327mn and an operating profit of ¥263mn.

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

18 21

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

Aeria Inc.

17-Aug.-2018

3758 TSE JASDAQ

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

Results trends

FY12/18 1Q results by segment(¥mn)
Segment sales

FY12/17 1Q

Ratio to sales

FY12/18 1Q

Ratio to sales

Change (%)

IT services

931

41.0%

1,667

24.8%

77.3%

Contents

1,337

59.0%

2,728

40.6%

102.1%

-

-

2,327

34.6%

-

FY12/17 1Q

Margin (%)

FY12/18 1Q

Margin (%)

Change (%)

IT services

101

10.9%

122

7.3%

20.3%

Contents

341

25.5%

432

15.8%

26.5%

-

-

263

11.3%

-

Asset management
Operating profit before adjustment

Asset management

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

Bullish forecast for FY12/18 still looks a bit conservative
2. FY12/18 outlook
For FY12/18, the Company is forecasting sales of ¥23,000mn (+44.9% YoY), an operating profit of ¥4,000mn(+48.6%), recurring profit of ¥4,000mn (+44.9%), and net profit attributable to parent company shareholders of¥3,000mn (+44.2%). At the IT service segment, the Company is looking to expand dealings with existing clients andadd new clients. At the contents segment, the Company is looking to adapt games so they can played on different
platforms, upgrade existing titles, and also develop new titles and content. At the asset management business, theCompany plans to make a full-scale push into real estate leasing, sales, and minpaku services.
FY12/18 outlook(¥mn)
FY12/17

Ratio to sales

FY12/18 E

Ratio to sales

ChangeSales

15,871100.0%

23,000100.0%

44.9%

Gross profit

8,155

51.4%

-

-

-

SG&A expenses

5,463

34.4%

-

-

-

Operating profit

2,691

17.0%

4,000

17.4%

48.6%

Recurring profit

2,760

17.4%

4,000

17.4%

44.9%

Net profit

2,080

13.1%

3,000

13.0%

44.2%

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

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

19 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://www.aeria.jp/ir/

Results trends

There are an increasing number of new business areas (such as minpaku, and AI and blockchain technology) thatlook promising over the medium term, but the Company is still looking to its contents business as the main growth
driver in FY12/18. As before, Aeria is looking to be the top game maker both domestically and overseas in the nichemarket of smartphone games for young women, but also sees sales of A3! related products as well as earnings
contributions from other sources (such as 2.5D productions) gaining momentum. Furthermore, hit smartphonegames are expected to remain popular for the next three years, and profits are expected to move from the second
year onward due to sales from associated products, and real-life stage performances and events. We also notethat bilibili, which is scheduled to begin distributing A3! in China this year, is well-versed in the operation of games
from Japan, as it is already operating the Chinese-language version of a large number of other hit titles (including
I★Chu) from Japanese game makers. This, together with the fact that romance simulation games are becoming
increasingly popular in China, makes it likely that A3! will be a hit in the Chinese market as well. In addition to thegrowing number of titles on the market from Aeria group subsidiaries, consolidated results in FY12/18 will also geta boost from the addition of CYBIRD and other companies that its has recently acquired. The acquisition of CYBIRD
was not anticipated when Aeria put together its initial forecast for FY12/18, and the Company expects the addition
of CYBIRD to consolidated results at the start of 3Q to add another ¥5,000mn to full-year sales and ¥200mn tooperating profit. Taking into further consideration the strong trends at the contents business, and we believe theCompany’s forecast for FY12/18 is still overly conservative.

██Shareholder return policy
Company has been paying stable annual dividend of ¥10 per share,
but has not yet set dividend for FY12/18
The Company recognizes that returning profits to shareholders is an important management concern but is also
looking to build up internal capital reserves to help fund future growth initiatives and further strengthen its businessposition. The Company also plans to draw on internal reserves to help fund M&A and other capital alliances, R&D
spending, and investment spending (especially on new businesses). With regard to dividends paid out of retained
earnings, based on its policy of maintaining a stable dividend, in FY12/17 the Company paid an annual dividend of¥10 per share (with no interim dividend) and as an additional reward to shareholders sent QUO Cards (gift cards)
for the popular ASGARD title DYNAMIC CHORD JAM&JOIN!!!! (the number of cards being based on the size ofindividual shareholdings). With regard to the dividend in FY12/18, although the strong earnings trends bode well fora dividend this year, the Company has not yet set the dividend for this year.

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

20 21

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

Aeria Inc.
3758 TSE JASDAQ

17-Aug.-2018https://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㻔¥㻕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

㻝㻞㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜

㻝㻜㻚㻜
㻤㻚㻜

（％）

㻤㻚㻝

㻝㻜㻚㻜

㻝㻜㻚㻜

㻡㻚㻜
㻜㻚㻜

㻙㻤㻚㻥

㻙㻡㻚㻜

㻙㻣㻚㻜

㻢㻚㻜

㻙㻝㻜㻚㻜

㼀㻮㻰

㻙㻝㻢㻚㻝

㻙㻝㻡㻚㻜

㻙㻞㻜㻚㻜
㻠㻚㻜

㻙㻞㻡㻚㻜
㻙㻟㻜㻚㻜

㻙㻟㻝㻚㻞

㻞㻚㻜

㻙㻟㻡㻚㻜

㻜㻚㻜

㻙㻠㻜㻚㻜
㻲㼅㻝㻞㻛㻝㻟

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██Information security
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.

21 21

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
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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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FISCO Ltd.