COMPANY RESEARCH AND ANALYSIS REPORT

Aeria Inc.
3758
TSE JASDAQ

15-Nov.-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

15-Nov.-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 business............................... ......................................................................................................

05

3. Contents business................................. ......................................................................................................

05

4. Asset management business................. ......................................................................................................

08■Management policy------------------------------------------------------------------------------------------------------------------------------------------------- 08
1. Business philosophy and management stage. .............................................................................................

08

2. M&A strategy and business reorganization. .................................................................................................

09

3. Direction of the contents business...............................................................................................................

09■Results trends--------------------------------------------------------------------------------------------------------------------------------------------------------------- 11
1. 1H FY12/19 results trends...........................................................................................................................

11

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

13■Shareholder return policy---------------------------------------------------------------------------------------------------------------------------------- 14
1. Dividend. . ............................................... ......................................................................................................

14

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

14■Information security------------------------------------------------------------------------------------------------------------------------------------------------ 15

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

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/██Summary
IP business driving growth
Aeria <3758> (hereinafter referred to as “the Company”) has three main business areas - IT services, contents, andasset management. The IT services business handles data services and an affiliate platform, the contents businessdevelops smartphone games and handles related businesses, and the asset management business consists ofreal estate business, leasing management business, and accommodations facility planning and operation. The
Company expanded contents business and asset management business by leveraging M&A supported by stable
income from IT services business in past years. However, contents business growth has taken off thanks to a major
hit in the A3! Smartphone game and the acquisition of CYBIRD Co., Ltd. that owns the Ikemen (Handsome) series.
Game-related business that utilizes intellectual property (IP) rights cultivated by games, such as selling character
goods and various CDs and holding theater performances, is rapidly expanding.
The Company is currently striving to improve growth in IP business. It also promotes initiatives in new markets,
technologies, and other new areas that have synergies with existing businesses. Subsidiary Celebrate MessageCo., Ltd. started a service that lets anyone freely and easily order personal messages for birthdays, weddings, andother events from celebrities, famous people, and other CASTs (video message providers) who have many fans. In
the fast-growing VTuber* (Virtual YouTuber) market, a male bilingual YouTuber comments on content enjoyment,
subculture, and other topics for a global audience.
*	Vtuber: Virtual character that distributes videos and other information on YouTube.

The Company reported 1H FY12/19 results with ¥14,404mn in net sales (+6.3% YoY) and ¥1,846mn in operating
profit (+9.7%). Contents business posted sharply higher sales and profits with ¥8,571mn in net sales (+61.3%) and¥1,490mn in operating profit (+47.4%), driven by continued upbeat income trends in A3! and Soen No Kantai andthe addition of CYBIRD to the Group. However, sales and profits weakened in other businesses with IT services
slipping to ¥2,678mn in net sales (-21.0%) and ¥260mn in operating profit (-16.8%), despite a generally stable
income environment, on decline in affiliate advertising income and asset management dropping to ¥3,155mn(-29.5%) in net sales and ¥102mn in operating profit (-73.3%) due to strengthening risk controls in light of elevatedprices in the real estate market.
In FY12/19 guidance, the Company targets ¥30,000mn in net sales (-4.7% YoY) and ¥3,200mn in operating profit(+70.5%). It lowered net sales by ¥2,000mn and raised operating profit by ¥1,000mn compared to the period-start
outlook. The sales reduction mainly reflects decline in affiliate advertising income in IT services business and theimpact of risk controls in asset management business. The higher operating profit target, meanwhile, factors inhealthy trends in A3! and Soen No Kantai businesses, stronger income at CYBIRD than expected, and distributionof two new game titles. Contents business has emerged as the Company’s earnings driver recently, and we expect
it to continue lifting profits over the medium term too.
Key Points
A3! hit and CYBIRD acquisition strengthened contents business
Stimulating growth through reinforcement of peripheral businesses that utilize its IP• Raised FY12/19 profit guidance on upbeat momentum in contents business••We encourage readers to review our complete legal statement on “Disclaimer” page.

01 15

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

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Source: Prepared by FISCO from the Company's financial results██Company profile
Promotes businesses accompanying advances in the network
society
1. Company profile
The Company has three main business areas - IT services, contents, and asset management. The IT services
business handles data services, system development business, and an affiliate* platform that specializes in online
electronic publications. The contents business develops, distributes, and operates smartphone and tablet games,
sells drama CDs, voice CDs, and character goods, and holds theater performances and other events. The asset
management business consists of real estate business, leasing management business, accommodations facility
planning, operation, control, and management business, consulting business related to these areas, and investments
in domestic and overseas companies. The Company aims to “become an essential presence, similar to air, inthe network society” by moving in the direction of network society advances and harnessing Internet and mobile
technologies. With this spirit, it has taken on challenges in many businesses since being founded.
*	Affiliate: An advertising technique wherein a blogger receives compensation from the seller if the write-up of the productleads to a sale.

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

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Company profile

M&A-driven expansion → Reorganization and pursuit of synergies →Expansion of peripheral businesses
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 promoting businessreorganization with emphasis on options and focus in pursuit of synergies after exhaustion of recent M&A activities
aimed at future growth and synergies. Furthermore, since it has successfully cultivated game characters and other
IP into a major income source, the Company is also moving forward in expansion of peripheral businesses thatutilize its IP.
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

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

03 15

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Company profile
Date

Event

August 2017

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

September 2017

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

October 2017
November 2017

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

April 2019

Established Celebrate Message Inc. that lets users submit an offer to famous CASTs that requests a personal message*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
3 Effective portfolio that consists of three main businesses
1. Business description
In IT services business, mainstay AIR Internet Service Co., Ltd. and First Penguin Inc. are sustaining stable growth.
In contents business, Liber Entertainment Inc. has steadily delivered smartphone game hits with A3! and Soen No
Kantai and started receiving income contributions from acquired CYBIRD. In asset management business, while
one-time income quickly expanded after the launch in 2017, the Company has been applying stricter risk controls
recently in light of real estate market conditions. While segment net sales composition in FY12/18 consisted of IT
services at 20.0%, contents at 47.0%, and asset management at 33.0%, the mix changed to 18.6%, 59.5%, and21.9% respectively in 1H FY12/19 due to differences in the various business environments. We think Aeria has put
together an effective business portfolio for dealing with business risks.

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

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

04 15

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Business overview

Stable income source supporting the Company’s new initiatives
2. IT services business
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. AIR Internet Service provides various internet services for businesses, including its cloud-based email
solutions service (All in One Mail), a cloud-based reservations management system (Reserve Keeper) for restaurants,
proprietary WEBooth hosting services (which comes with its own online storage service), and ISP services fordomain registration and other website-related services. With the bulk of its business stemming from its data center
operations, AIR Internet Service generates an exceptionally steady stream of revenues and earnings. 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. 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 itself is the product, such as guides on asset management andself-improvement guides that have been screened through rigorous examination). The infotop site has over three
million cumulative registered sellers, buyers, and introducers and sells more than 80,000 materials. This site stably
generates strong income. While the business model has some resemblance to Rakuten, infotop significantly differs
in terms of its handling of single-category information materials, management of commercial flow, and the presenceof introducers (affiliate partners).

Releasing two proprietary titles in 2H
3. Contents businessIn contents business, the Company has supplied various games to the market for the platforms of each era, includingPCs, mobile phones, and smartphones. Smartphone games are currently the most popular offerings. While theCompany has developed smartphone games for some time, it has delivered a succession of major hits in recent
years. It also acquired CYBIRD with the Ikemen Series, a major offering. The Company has established a holding
entity for contents business with the aim of promoting interaction of personnel and knowhow among the various
companies and improving game development speed, quality, and profitability. Furthermore, the Company is shifting
this business from simple fee income to an IP business that utilizes characters cultivated in these titles in otherareas 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.

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

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Business overviewa) A3!
This is an Ikemen training game in which the player assumes the role of director at a run-down theater on theverge of 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 with free basic play and item charges in January 2017. Leveraging its success with I★Chu, the Company
attained a massive hit that was at six and a half million downloads as of September 2019. As an IP business, it
has launched numerous products, including CDs and comic anthologies. Also, it developed the stage version
MANKAI STAGE A3! from June 2018, and this event has been well received. The Company has decided to createa third segment of the main story and develop animation in 2020. This game is becoming a very long seller throughsynergies with IP business. Furthermore, it is eagerly promoting overseas rollout, including distribution starts ofthe traditional-Chinese version (Taiwan, Hong Kong, and Macau) and an English version distributed globally andthe launch of a simplified-Chinese version (China) in November 2019.
*	2.5D: Original works and concepts from “2D” anime and video games converted into “3D” live stage productions.

Concept image for A3! (left) and a picture of the A3! event (right)

Source: The Company's results briefing materialsb) Other products from Liber Entertainment
I★Chu is a love rhythm adventure game in which the player is a teacher and producer who trains the “Ichu,” anidol egg, to become a full-fledged idol. It began official service in June 2015 and generates income from item
charges. Basic play is free. Downloads are still rising and are currently at 1.3mn. Real-world products have done
well too because of this success. The Company supplies music CDs, comic anthologies, short stories, fan books,
and other items. I★Chu The Stage is a 2.5D* version and has been conducted more than 10 times thus far. The
game is enjoying a very long run, including collaboration events with Hello Kitty and the possibility of a new series.
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. It was the Company’s first hit with male players.
Service started with free basic play and item charges in September 2017. It is steadily attracting interest and has
surpassed one million downloads. 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.
Images for I★Chu, (left) and Soen No Kantai (right)

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

15-Nov.-2019https://www.aeria.jp/ir/

Business overview(2) Contents business besides Liber Entertainment
The 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 25 million
cumulative downloads and 13 distributed titles. It provides a large income base in the game market for women andalso offers synergies in overseas rollout and contents promotion for the Company’s other games and charactersin light of CYBIRD’s robust track record in overseas business and character IP management. The Company also
owns numerous well-received products, including Arithmetic Inc.’s DYNAMIC CHORD.
Ikemen Sengoku Toki Wo Kakeru Koi (left)
and traditional-Chinese Ikemen Vampire Ijintachi to Koi no Yuuwaku (right)

Source: The Company's results briefing materials(3) New titles in 2H
The Company has increased hit titles over the past few years and released two new titles in 2H. CYBIRD started
distribution of Ikemen Genjiden Ayakashi Koi e nishi in August. This is a female-oriented romance simulation gamein which the player, a pharmacist that has obtained the power of a fox, fights rebel forces led by Minamoto no
Yoshitsune in response to a request of cooperation from Minamoto no Yoritomo. A major work that commemorates the seventh anniversary of the Ikemen series, it attracted over 100,000 pre-release registrants. CUE! is amale-oriented beautiful voice actress training game developed by Liber Entertainment as its fourth self-developed
title. This game offers excellent entertainment features that facilitate enjoyment transcending the real and virtual
divide through recruitment and training of a new voice actress. The Company hopes to quickly expand peripheralbusinesses. Pre-registration ultimately exceeded 300,000 people, and distribution started on October 25, 2019.
I★Chu Etoile Stage is an idol training game that is the next release in the I★Chu series and provides qualities tomake the I★Chu world even more enjoyable by redoing visuals and conducting a full voice version and full rewritingof the main story. While this title will not contribute to 2H because the Company changed the launch of distribution
from fall 2019 to spring 2020, we expect an income boost in FY12/20 with pre-registrants totaling over 70,000
people and a decision to make an animated version. We think these titles have potential to become big hits.
New titles from the Group companies(From the left, Ikemen Genjiden Ayakashi Koi e nishi, CUE!, and I★Chu Etoile Stage)

Source: The Company's results briefing materials

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

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Business overview

Strong expectations for synergies and increased demand
4. Asset management business
Asset management business mainly consists of Impression Inc., Total Management Corporation, and Twist Inc.
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. Twist offers minpaku operation agent service to individuals and others. These
companies already generated relatively firm profits, and the Company also aims to implement collaboration with
contents business IP, combine services with IT services business as “real estate tech,” and achieve other synergies.
Furthermore, we think these businesses offer significant potential given the prospect of increase in the number offoreigners visiting Japan even after the 2020 Tokyo Olympics and Paralympics supported by a national policy tostrengthen Japan as a major country for tourism. However, it appears that the Company faces difficult conditionsin the real estate market prior to the Tokyo Olympics and Paralympics.

██Management policy
Solidifying positions in new markets and technologies
1. Business philosophy and management 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 centering on the development of smart phone games 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. In thebusiness cycle of acquiring business assets that generate stable income, aggressively investing in growth markets,
bolstering its foundation in growth markets, and establishing positions in new markets and technologies, we believe
the Company is shifting from a stage of bolstering its foundation through options and focus to establishing positions
in new markets and technologies.

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

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Management policy

Leveraging business assets within the Group
2. M&A strategy and business reorganization
The Company’s M&A strategy aims to not only acquire management resources and teams and boost their motivation,
but also obtain business assets capable of creating synergies. In recent years, the Company acquired multiple
companies, including First Penguin, in pursuit of stable income in the IT services business, and Liber Entertainment
targeting smartphone games, a growth market, in the contents business. It also ramped up an asset managementbusiness through acquisitions as a counterweight to inevitable rise-and-fall of contents business. Confidence hasgrown in games and IP and peripheral businesses as near-term drivers, against this backdrop, thanks to the major
hit with A3! after initial challenges and acquisition of the Ikemen series. The Company is strengthening IP businesswith these successes as catalysts and has been consolidating expanded scope through options and focus. These
efforts prepare it to acquire new markets and technologies. Since 2Q FY12/18, it started reorganizing businesses
with goodwill impairment charges, mergers, and business sales. In the contents business, which has substantiallybroadened scope, the Company established Aeria Contents Holdings (ACH) Co., Ltd., an intermediate holding
company, to support a shift to higher quality game production and establishment of an efficient business modelthat leverages synergies. Furthermore, it established Aeria One Inc. to promote alliances and synergy creation that
capitalizes on business assets within the group, such as IP, IT technology, and real estate.
Conceptual image of Aeria Contents Holdings and synergy effectSource: The Company's results briefing materials

Incorporating new technologies and growth markets
3. Direction of the contents business
The Company, which started to substantially broaden the scope of contents business from games to peripheralbusinesses after reorganizing, is accelerating inclusion of new markets and technologies again with AI, VR/AR,and 5G. These technologies fit well with peripheral businesses, and the Company has already started initiatives as
individual businesses.

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

09 15

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/

Management policy(1) Widening of the contents business
However, the Company’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,
2.5D stage events, and other areas. Furthermore, characters have a longer lifecycle than games and generate highroyalties. Platform changes have less impact on IP than games. With new usage styles due to broad adoption ofsmartphones, 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 shiftedfrom high-volume output aimed at obtaining fee income to careful development with emphasis on IP businesssince the hit with A3! and acquisition of the Ikemen series.
(2) Contents business broadening scope further
The Company established Celebrate Message in April 2019 and started a service in September that lets anyone
freely and easily order personal messages for birthdays, weddings, and other events from celebrities, famous
people, and other CASTs (video message providers) who have many fans. Participating CASTs at this point haveover 70mn total followers and include Japan national team football player Yuto Nagatomo, professional wrestlers
Riki Choshu and Akira Maeda, popular model and talent Yuki Poyo (Yuki Kimura), and American model and singer
Celine Farach. The site provides restricted projects by CASTs, secret VVIP CASTs, and other programs too.
The digital voice assistant market, meanwhile, currently has 2.5bn users with Amazon Echo and Google Home
smart speakers and other devices, and some forecasts project more than three-fold expansion over the next
five years. CYBIRD has ramped up Voice UI business in this market. It is a pioneer in Japan’s Voice UI market
and already supplies 22 digital voice services to a variety of platforms. Management hopes to design attractive
voice experiences as a “voice tech” company using its own IP from the Ikemen series and leading IP from othercompanies in anticipation of a future voice computing era.
(3) Accelerating entry into new areas aimed at 5G potential
In contents business, the Company intends to continue actively adding new markets and technologies. CYBIRD
has already taken the lead in overseas rollout with the Ikemen series, and the Company plans to apply thisknowhow to other businesses within the Group. In A3! business, the Company started distribution in the US andhas plans to begin distribution in China in November 2019. Nevertheless, while scenario-style games, such as
the Ikemen series, are well received in other countries, training games along the lines of A3! are still unknown andmight need additional time. In the fast-growing Vtuber market, CYBIRD started the “I’m Sora Project” in which
a male bilingual (Japanese and English) YouTuber drawn by a popular illustrator discusses content enjoyment,“otaku” news, subculture, and other trendy information geared toward women as a global service. The service
also plans to have a Japanese and English classroom that utilizes its bilingual capabilities and a music distribution
feature. These initiatives are being designed in preparation for the transition to a 5G mobile communications system with high data capacity and speed. We think management expects 5G capabilities to enhance sophisticationand complexity of games and also IP itself and hopes to further segmentize and expand peripheral businesses.
We anticipate fewer game releases for the time being as the Company focuses on game development with higher
quality, but resulting stronger emphasis on development of peripheral businesses.

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

10 15

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

Aeria Inc.

15-Nov.-2019

3758 TSE JASDAQ

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

Management policy

A3! overseas opportunities

Source: The Company's results briefing materials██Results trends
Contents business driving income
1. 1H FY12/19 results trends
The Company reported 1H FY12/19 results with ¥14,404mn in net sales (+6.3% YoY), ¥1,846mn in operating profit(+9.7%), ¥1,745mn in recurring profit (+13.1%), and ¥1,044mn in profit attributable to owners of parent (+952.2%).
The Internet-related market covered by the Company’s businesses is steadily growing on increase in Internet
user volume with inroads by smartphones and other mobile devices and expansion of the EC market. Contentsbusiness has been continuously expanding with service diversification, but needs to deliver attractive contents
and applications in order to survive. Service content hence is becoming more complicated and sophisticated, andthis puts upward pressure on development costs and personnel expenses and fuels tougher competition among
companies. Given these conditions, the Company has built a foundation that focuses heavily on a niche market
targeting female players leveraging the strengths of its subsidiaries. While the IT services business continued tosecure stable income, the asset management business promoted stricter risk controls due to rising real estate prices.
1H FY12/19 results(¥mn, %)
1H FY12/18

Ratio to sales

1H FY12/19

Ratio to sales

ChangeNet sales

13,555100.0

14,404100.0

6.3

Gross profit

5,247

38.7

6,769

47.0

29.0

SG&A expenses

3,564

26.3

4,923

34.2

38.1

Operating profit

1,682

12.4

1,846

12.8

9.7

Recurring profit

1,543

11.4

1,745

12.1

13.1

99

0.7

1,044

7.2

952.2

Profit attributable toowners of parent

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

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

11 15

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

Aeria Inc.

15-Nov.-2019

3758 TSE JASDAQ

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

Results trends

In the results by segment, the IT services business slipped to ¥2,678mn in net sales (-21.0%) and ¥260mn inoperating profit (-16.8%) due to a decline in affiliate advertising income, despite stable income at First Penguin and
AIR Internet Service. Contents business posted ¥8,571mn in net sales (+61.3%) and ¥1,490mn in operating profit(+47.4%), driven by continued upbeat income trends in A3! and Soen No Kantai smartphone games and the addition
of CYBIRD to the Group. Asset management business dropped to ¥3,155mn (-29.5%) in net sales and ¥102mn inoperating profit (-73.3%) due to strengthening risk controls in light of real estate market conditions.
1H FY12/19 results by segment(¥mn, %)Net sales

1H FY12/18

IT services business

3,391

25.0

2,678

18.6

Contents business

5,314

39.2

8,571

59.5

61.3

Asset management business

4,475

33.0

3,155

21.9

-29.5

374

2.8

-

-

-

OthersOperating profit before
adjustment

1H FY12/18

Ratio to sales

1H FY12/19

Ratio to sales

Ratio to sales

1H FY12/19

Change-21.0

Ratio to sales

Ratio to sales

IT services business

312

9.2

260

9.7

Contents business

1,011

19.0

1,490

17.4

47.4

384

8.6

102

3.2

-73.3

-4

-1.1

-

-

-

Asset management business
Others-16.8*Others includes cleaning business, chemicals business, etc.
Source: Prepared by FISCO from the Company's financial results

Since the Company aims to strengthen and expand the business foundation by aggressively utilizing M&A, it uses
EBITDA (operating profit + depreciation costs + goodwill amortization costs), which demonstrates cash soundness,
as a profitability indicator. The Company has clearly been sustaining upbeat profitability in recent years in termsof EBITDA. In 1H FY12/19, the ¥2,388mn in EBITDA (+8.8% YoY) and ¥1,401mn in net profit before goodwill
amortization (profit attributable to owners of parent + goodwill amortization costs) were both positive results.

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㻱㻮㻵㼀㻰㻭㻌㼍 㼚㼐㻌㼛㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠㻱㻮㻵㼀㻰㻭

（¥㼙㼚）㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼜㼞㼛㼒㼕㼠

㻠㻘㻜㻜㻜

㻟㻘㻠㻟㻝

㻟㻘㻞㻥㻝

㻟㻘㻜㻜㻜

㻞㻘㻟㻤㻤
㻞㻘㻢㻥㻝

㻞㻘㻜㻜㻜

㻝㻘㻜㻜㻜

㻝㻘㻤㻣㻢

㻝㻘㻤㻠㻢

㻲㼅㻝㻞㻛㻝㻤

㻲㼅㻝㻞㻛㻝㻥㻌㻞㻽

㻡㻜㻝
㻡㻥

㻜

㻙㻣㻤㻞

㻙㻝㻘㻜㻜㻜㻙㻤㻢㻝㻙㻢㻝㻞㻙㻝㻘㻡㻥㻢

㻙㻞㻘㻜㻜㻜
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

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

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

12 15

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

Aeria Inc.

15-Nov.-2019

3758 TSE JASDAQ

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

Results trends

Expectations for two new releases in 2H
2. FY12/19 outlook
For FY12/19, the Company forecasts ¥30,000mn in net sales (-4.7% YoY), ¥3,200mn in operating profit (+70.5%),¥3,000mn in recurring profit (+85.8%), and ¥2,000mn in net profit attributable to owners of parent (vs. a ¥1,380mn
loss in FY12/18). It lowered net sales by ¥2,000mn and raised operating profit by ¥1,000mn, recurring profit by¥1,000, and net profit attributable to owners of parent by ¥600mn, compared to the period-start outlook. The net
sales reduction mainly reflects decline in affiliate advertising income in IT services business and the impact of risk
controls in response to elevated real estate prices in asset management business. The higher operating profit target,
meanwhile, factors in healthy trends in A3! and Soen No Kantai businesses, upbeat income at CYBIRD that wasadded as a consolidated unit in FY12/18, and anticipated contributions from two new game titles released since 3Q.
FY12/19 outlook(¥mn, %)
FY12/18

Ratio to sales

FY12/19 E

Ratio to sales

ChangeNet sales

31,471

100.0

30,000

100.0

-4.7

Operating profit

1,876

6.0

3,200

10.7

70.5

Recurring profit

1,615

5.1

3,000

10.0

85.8

Net profit (loss) attributableto owners of parent-1,380

-4.4

2,000

6.7

-

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

In the FY12/19 segment outlook, while IT services business is likely to continue providing stable income, asset management business cannot readily benefit from passage of the Integrated Resort (IR) Promotion Act and Residential
Accommodation Business Act because expensive prices are creating difficult conditions for buying property
inventory. We expect contents business to strongly drive expansion of the Company’s profits with existing popular
titles and enhancement of peripheral businesses, improved profitability by sharing knowhow and implementing
other activities via the intermediate holding company, and releases of two new titles. Furthermore, while Ikemen
Genjiden Ayakashi Koi e nishi should attract a certain amount of demand as the new release in an existing series,
male-oriented beautiful voice actress training game CUE! might generate more popularity than expected with thenewness of its game system (as well as the large volume of advance registrations). We see a strong prospect ofcontents business, which has moved into a phase of having multiple growth drivers, not only lifting near-term profits,
but also long-term growth.

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

13 15

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/██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. Despite raising profit guidance during the period, the Company has not decided
the FY12/19 dividend yet.

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）

㻝㻞㻚㻜

㻝㻢㻚㻜
㻤㻚㻝

㻝㻜㻚㻜

㻤㻚㻜

㻟㻚㻤

㻤㻚㻜

㻜㻚㻜
㻙㻣㻚㻜

㻢㻚㻜
㻝㻜㻚㻜

㻝㻜㻚㻜

㻠㻚㻜

㻝㻜㻚㻜

㻙㻤㻚㻜
㻝㻜㻚㻜
㻙㻝㻢㻚㻜

㻙㻝㻢㻚㻝

㻞㻚㻜
㻜㻚㻜

㻡㻚㻜

㼀㻮㻰

㻲㼅㻝㻞㻛㻝㻤

㻲㼅㻝㻞㻛㻝㻥㻌㻱㻙㻟㻝㻚㻞㻲㼅㻝㻞㻛㻝㻠

㻙㻞㻠㻚㻜
㻙㻟㻞㻚㻜

㻲㼅㻝㻞㻛㻝㻡

㻲㼅㻝㻞㻛㻝㻢

㻲㼅㻝㻞㻛㻝㻣

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 understanding of its
businesses and encouraging share ownership over the longer term. It sends the benefit with notification of resolutions
for the general shareholder meeting typically mailed in late March to shareholders on the ledger as of the shareholder
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 ormore. This is not decided yet for FY12/19.

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

14 15

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

Aeria Inc.
3758 TSE JASDAQ

15-Nov.-2019https://www.aeria.jp/ir/██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 their personal information, including 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 obtain any
personal information through sales made at the App Store or Google Play.

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

15 15

Disclaimer
FISCO Ltd. (“FISCO”) offer stock price and index information for use under the approval of theTokyo Stock Exchange, the Osaka Stock Exchange and Nikkei Inc.
This report is provided solely for the purpose of offering information, and is not a solicitationof investment nor any other act or action.
FISCO prepared and published this report based on information which it considered reliable;
however, FISCO does not warrant the accuracy, completeness, fitness nor reliability of thecontents of this report or the said information.
The issuers’ securities, currencies, commodities, securities and other financial instruments
mentioned in this report may increase or decrease in value or lose their value due to influence
from corporate activities, economic policies, world affairs and other factors. This report does
not make any promises regarding any future outcomes. If you use this report or any information
mentioned herein, regardless of the purpose therefor, such use shall be made based on yourjudgment and responsibility, and FISCO shall not be liable for any damage incurred by you asa result of such use, irrespective of the reason.
This report has been prepared at the request of the company subject hereto based on theprovision of information by such company through telephone interviews and the like. However,
the hypotheses, conclusions and all other contents contained herein are based on analysis
by FISCO. The contents of this report are as of the time of the preparation hereof, and are
subject to change without notice. FISCO is not obligated to update this report.
The intellectual property rights, including the copyrights to the main text hereof, the data
and the like, belong to FISCO, and any revision, reprocessing, reproduction, transmission,
distribution or the like of this report and any duplicate hereof without the permission of FISCO
is strictly prohibited.
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may currently or in the future trade or hold the financial instruments or the securities of issuersthat are mentioned in this report.
Please use the information in this report upon accepting the above points.

◾ For inquiry, please contact: ◾

FISCO Ltd.
5-11-9 Minami Aoyama, Minato-ku, Tokyo, Japan 107-0062
Phone: 03-5774-2443 (Financial information Dept.)
Email: support@fisco.co.jp