istyle Inc.
3660 Tokyo Stock Exchange First Section
Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

11-Oct-13
Important disclosuresand disclaimers appear
at the back of thisdocument.

FISCO Ltd. Analyst
Yuzuru Sato

■Operates Japan’s largest word-of-mouth portalsite for cosmetics and beauty products, raising
growth potential by diversifying profit sources
istyle Inc. operates the “ @cosme ” portal site for cosmetics and beauty,
which is the largest such site in Japan, having gained the greatest recognition
and trust of women in Japan, particularly women in their 20’s and 30’s. The
company recently completed the assignment of identification numbers to allusers of its websites. At the end of June 2013, the number of members of allcompany websites totaled 2.54 million people, 31.6% more than the number atthe end of June 2012. The company ’ s main source of sales and profit isadvertising fees paid by cosmetics companies.
In the fiscal year through June 2013, i.e., in FY6/13, istyle Inc. ’ sconsolidated sales grew by 43.9% year-on-year (y-o-y) and its consolidated
operating profit increased by 20.1%. The company ’ s media business, which
derives most of its sales and profits from advertising fees paid by corporate
customers, prospered in FY6/13. As the number of members of the“@cosme” portal site grows, the value of this site as an advertising media
increases each year. The company’s store business and e-commerce businessalso fared well in FY6/13. Thus, sales grew enough to more than offset
increases in the costs of personnel and software system development, and thecompany earned respectable profits.
For FY6/14, the company projects a 16.7% y-o-y rise in its consolidated
sales, but a 20.5% y-o-y fall in its consolidated operating profit. It foresees a
profit decline because it will invest heavily in creating a beauty platform. Thus,
the costs of personnel and software system development will rise again. The
company will also build up its overseas business.
In FY6/15, however, the company foresees profit growth. It projects
continued double-digit sales growth for its media business, and it foresees asubstantial profit contribution from its “ispot” website. The business modelfor the “ ispot ” site will be revamped in FY6/14, which should enable it to
expand its share of the Japanese market for hair salon services.
In October 2013, istyle Inc. plans to start offering a service for“prosumer” (professionals + consumers) or freelancers, thereby diversifying
its sources of profit in the beauty market and achieving greater synergy
among its businesses. This initiative should increase the company ’ s growthpotential over the medium-to-long term.

■Check Points
・With dominant customer reach, the “@cosme” portal site is gaining in value
as an advertising media
・In FY6/13, the company achieved record-high consolidated profits, as sales
in each main business grew by double digits
・The company aims to increase its share of Japan’s Internet advertisingmarket, which has ample room to achieve further growth
We encourage readers to review our complete legal statements on “Disclaimer” page.

1

11-Oct-13

istyle Inc.

Consolidated Sales and Operating Profit (\mn),
FY6/11-FY6/14E
（\mn）

Sales

（\mn）

Operating Profit

10,000

1,000

738

8,000
615

800
587

6,000

600
427

4,000
6,410
2,000

3,832

7,478

4,455

400

200

0

0
FY6/11E

FY6/12

FY6/13

FY6/14E■Business Outline
With dominant customer reach, the “@cosme” portal site isgaining in value as an advertising media
Founded in 1999, istyle Inc. operates the “ @cosme ” portal site, where
members can post their opinions about cosmetics and other beauty products.
The company also compiles databases of these opinions and provides thisinformation to users of the site who are non-members free of charge.
Users of the “ @cosme ” portal site cherish the opinions expressed on thesite as more objective than information provided by makers of cosmetics andother beauty products. They use this information to guide their purchases ofsuch goods. istyle Inc. was the first Japanese company to implement thisconcept, and it has benefited from its leadership position. At the end of June
2013, the number of members of all company websites totaled 2.54 million
people, 31.6% more than the 1.93 million members at the end of June 2012. The
company is therefore Japan ’ s largest operator of portal sites, such as“@cosme”.
In FY6/13, the “ @cosme ” portal site attracted an average of about 7.91
million unique users per month, up from 6.14 unique users per month in FY6/12.
Approximately 76% of the site users are women in their 20 ’ s or 30 ’ s. Of
Japanese women in their 20’s, 48.3% use this site, while 34.5% of all Japanesewomen in their 30’s use it. Thus, the site has unrivaled customer reach as anadvertising media, and its value as such a media is growing each year.

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

2

11-Oct-13

istyle Inc.

Monthly Number of Members of All istyle Websites,
July 2011-June 2013

■Business Outline(people)Source: Company

Proportions of Japanese Women Who Used the@cosme Portal Site in June 2013 by Age Group
48.3%

50%

40%
34.5%
30%

20%

10%

14.9%

5.8%
1.0%

0%
10's

20's

30's

40's

Above 50

Source: Calculated by istyle Inc. based on the number of unique user visits to the @cosme portalsite in June 2013 and on population statistics compiled by Japan’s Ministry of Internal Affairs
and Communications

istyle Inc. operates the media business, which mainly comprises the sale ofadvertisements on the “@cosme” portal site, and subsidiaries operate the ecommerce business, the store business, and other businesses. On a consolidated
basis, therefore, the company operates four businesses. The e-commerce andstore businesses sell cosmetics and other goods, but their main role is toenhance the value of the “@cosme” portal site as an advertising media. The
business currently included in the category of other businesses is the operationof the “ ispot ” website, on which to search for and make reservations atesthetic salons. This business is conducted by ispot Co. Ltd., which was made asubsidiary in May 2012. In 2012, istyle Inc. established four overseas
subsidiaries, one each in Shanghai, Hong Kong, Singapore, and Indonesia. Thesesubsidiaries are part of the media business, and all but the Hong Kong subsidiary
are consolidated.

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

3

11-Oct-13

istyle Inc.

■Business Outline

In FY6/13, the media business supplied main sources of sales and profit for
istyle Inc. with 51.5% of consolidated sales and 65.0% of its consolidated
operating profit. Although, e-commerce business, store business, and otherbusinesses were profitable, this is one of a characteristic business model ofistyle Inc.

Business Contributions to Consolidated Sales andOperating Profit in FY6/13
Sales

Operating Profit by Business
Interbusiness
5.5%

Other
10.5%

Store
29.2%

Media
51.5%

Other
8.6%

Store
13.7%
Media
65.0%

E-commerce
7.1%
E-commerce
8.8%

Sells advertising space on the “@cosme” portal site andprovides solution services(1) Media Business
The media business has three subdivisions: media services (Internet
advertising), solution services, and services for premium members. Media
services provide most sales, which are advertising fees paid by corporateclients. Sales in the media services subdivision and in the media business overalltend to be larger in the October-December quarter and the April-June quarter
than in other quarters because sales of new seasonal goods peak during thesequarters, eliciting strong advertising demand.
Media services
The media services subdivision sells space on the “ @cosme ” portal site,
primarily for brand ads, but also for response (display) ads and affiliate ads.

(*1) Tie-up ad
Tie-up ads are ads produced byadvertisement writers, theoperator of an advertising
medium and other parties tointroduce the products orservices of a client company inlanguage that is easy tounderstand.

The brand ad service supplies visuals, such as graphs, illustrations andphotographs, to improve the images of client brands in tie-up ads (*1) . This
service also uses the results of member surveys and of analyses of word-ofmouth data to produce highly distinctive ads. The fee charged for a brand ad isbased on the cost of producing it and the time period it is run.
Banner ads, text ads and mail ads are all response ads. The fee for a
response ad reflects many factors, including the location of the ad space, itssize, its impression ,number and the number of times it is sent by email. Affiliate
ads direct Internet users to the e-commerce sites for cosmetics or other beauty
products.

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

4

11-Oct-13

istyle Inc.

■Business Outline

Data on the @cosme Portal Site for June 2013
・Page views: 240 million
・Unique users: 7.9 million
・Cumulative no. of premium
members: 2.2 million
・Cumulative mail magazine
circulation:
450,000 copies forcomputers
60,000 copies for mobile
・Cumulative no. of productopinions posted: about 10.7

million・Cumulative no. of brands
discussed: 25,000
Source: Company

Solution services
The solution services subdivision provides services to assist the marketing
efforts of companies producing cosmetics and other beauty products. These
services include a “ brand fan club ” service, previously called a “ brandcommunity service”, a research and consulting service, and a data application
service. All of these solution services use the databases derived from the“@cosme” portal site.
For a fixed fee, the brand fan club service allows client brands to customize
their top pages on the “ @cosme ” portal site. These pages can contain thelatest information about each brand, blogs operated by each brand, store
information, and other public relations information, thereby establishing direct,
long-term communications with customers or potential customers. This service
also charges a monthly usage fee based on the number of functions applied. The
service aims to facilitate the formation of fan clubs for each brand and is one of
the leading “@cosme” portal site services being promoted by the company.
The research and consulting service provides big data analysis utilizing the“@cosme” databases and application service provider (ASP) analysis. It also
conducts customized market research.
For a fee, the data application service provides clients the right to use thecompany ’ s previously released ranking information, product reviews on the“ @cosme ” portal site, and the copyrighted “ @cosme ” logo for use inadvertising on media other than the “@cosme” portal site.

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

5

11-Oct-13

istyle Inc.

■Business Outline

Outline of Brand Fan Club Service

Source:Company

Services for premium members
For a monthly fee, plus tax, of \294, premium members of the “@cosme”
portal site can receive several services. Every month, these members receive apremium coupon worth \500 for purchases through the e-commerce site,“cosme.com”, or at a “@cosme store” The rate at which they can redeem
points is increased, and they can view detailed product rankings and conductadvanced searches for information using a smartphone.

Sells goods that rank highly on the “@cosme” portal site(2) e-commerce Business
Online sales are conducted by subsidiary cosme.com Inc. over a website called“ cosme.com ” . This subsidiary sells cosmetics, health products other than
medicines, health foods, and other beauty products. It uses the productevaluations posted on the “@cosme” portal site to determine which products
are likely to sell well, purchases such products, and sells them. It also jointly
develops item kits of beauty products with makers of these products for
exclusive sale on the “ cosme.com ” website. Thus, it serves as a retailer of
select goods. Consequently, it maintains an operating profit margin of 6-9%, while
many other e-commerce companies struggle for profitability.

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

6

11-Oct-13

istyle Inc.

Outline of the cosme.com Service■Business Outline

Source:Company

Operates six stores, drawing attention as a successful model ofthe online-to-offline marketing(3) Store BusinessSubsidiary cosme next Co. Ltd. operates “@cosme store”. These stores use
the “@cosme” databases to transmit information on various brands, enablingcustomers to choose goods that satisfy their personal needs. At the end of June
2013, this business operated five “ @cosme store ” and one “ @cosme store
switch”, which is located inside a railway station. Through its store business,
istyle Inc. has succeeded in implementing the online-to-offline marketing modelthat has used the Internet to attract more customers in recent years.

An @cosme Store, based on the concept of fun choice

Source:Company

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

7

11-Oct-13

istyle Inc.

■Business Outline

Expanding its beauty business by opening a recruitment website
for the beauty shop industry(4) Other Businesses
The only other business is the operation of the “ ispot ” website forsearching for and making appointments at esthetic salons. This business isconducted by subsidiary ispot Co. Ltd. The business collects monthly fees fromesthetic salons for displaying information about the salons. It also receives a
success fee for every salon customer who makes an appointment through the“ispot” website.
In June 2013, istyle Inc. transferred its online recruitment website for thecosmetics industry, “@cosme Career” , from the media business to ispot Co.
Ltd., and in August 2013, ispot Co. Ltd. launched a similar recruitment website
for the beauty shop industry, “@cosme Career Salon”. istyle Inc. transferred
its online recruitment website to ispot Co. Ltd. to improve operational efficiency
because many industries in which istyle Inc. foresees customer growth, such as
esthetic salons and beauty shops, were already handled by ispot Co. Ltd.

Diagram of ispot Website to Search for Products for Beauty, Healthand Comfort

Source:Company

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

8

11-Oct-13

istyle Inc.

■Business Trends
Record-high profits each year since started reporting
consolidated results(1) FY6/13 Results
On July 26, 2013, istyle Inc. announced its consolidated results for FY6/13.
Sales grew by 43.9% y-o-y to \6,410mn, operating profit increased by 20.1% to\738mn, recurring profit advanced by 16.7% to \713mn, and net profit rose by
15.9% to \429mn. These results were close to the company ’ s original
forecasts, as detailed in the table below. Sales have increased every year since
the company was established, and profits have hit new highs each year since thecompany started reporting consolidated results in FY6/10.
Consolidated Results (\mn) in FY6/12 and FY6/13 versus
Company Forecasts for FY6/13
FY6/12
Sales
Operating profit
Recurring profit
Net profit

FY6/13

4,455
615
611
370

y-o-y

6,410
738
713
429

43.9%
20.1%
16.7%
15.9%

FY6/13
Estimates
6,426
726
702
424

Achievement
rate
99.8%
101.7%
101.6%
101.2%

Sales in the media business grew by 30.8% y-o-y in FY6/13, while sales in the
e-commerce business advanced by 24.0%, and sales in the store businessincreased by 26.9%. In its first year of operation, subsidiary ispot Co. Ltd. had aimpact on sales approximately \600mn and earned an operating profit of adouble digit million yen.
The operating profit margin in FY6/13 was 11.5%, which was 2.3ppts lower
than the margin in FY6/12. The margin fell in FY6/13 mainly because ofincreases in SGA costs to set up ispot Co. Ltd. as a consolidated subsidiary andto establish overseas subsidiaries. For example, personnel costs increased by\676mn y-o-y, the cost of developing the software system rose by \111mn, andthe cost of leasing facilities grew by \133mn. However, gross profit increased
accompanying the strong sales rise, and operating profit grew by 20.1% to\738mn.

Breakdown of Consolidated Sales (\mn) by
Business, FY6/12-FY6/13
（\mn）

Media

e-commerce

Store

Other

7,000
671

6,000
5,000
4,000
3,000

1,872
+26.9%
1,474
457

2,000
1,000

566
+24.0%+30.8%

3,300

2,523

0
FY6/12

FY6/13We encourage readers to review our complete legal statements on “Disclaimer” page.

9

11-Oct-13

istyle Inc.

■Business Trends

Breakdown of Consolidated Operating Profit (\mn)
by Business, FY6/12-FY6/13
Media

（\mn）

e-commerce

Store

Other

Inter-business

800
40
63

700
600
500

24
36
29

+180.3%+76.9%

100
52

400
300

524
-8.5%

200

480

100
0
FY6/12

FY6/13

Number of clients and their average advertising expenditure
increased
FY6/13 results for each business were as follows.
Media BusinessIn the media business, sales grew by 30.8% y-o-y in FY6/13 to \3,300mn, but
operating profit declined by 8.5% to \480mn. The number of members of the“@cosme” portal site increased by about 30%, increasing the value of the site
as an advertising media. Thus, corporations placed more ads on the site.
At the end of FY6/13, the media business had 775 corporate clients, 44 morethan it had at the end of FY6/12. The average advertising expenditure bycorporate clients in FY6/13 was \4.18mn, which was 27.8% more than the
average expenditure in FY6/12. Therefore, advertising revenue received by the
media business in FY6/13, excluding premium membership fees and reward
sales, rose by 35.5% y-o-y to \3,240mn. The top 15 clients supplied 46.5% of thisrevenue, 0.7ppt higher than the proportion they supplied in FY6/12.
Advertisements placed by foreign-affiliated companies and by Japanesecompanies from industries other than the cosmetics and beauty productindustries, such as pharmaceutical companies, grew especially strongly.
In December 2012, istyle Inc. organized the largest beauty event in Japan of2012, entitled “ BEAUTY STYLE COLLECTION by @cosme 2012 ” . Seventeen
companies displayed 30 brands of beauty products at this event. The event wascovered by 450 newspaper and magazine articles, and the company estimatesthat this coverage raised its recognition among the general public as much as\200mn of advertising would have. In April 2013, istyle Inc. finished assigning
identification numbers to the members of all its websites, including “ ispot ” .
Thus, each site was optimized for use with smartphones and for the assignmentof points, greatly improving the convenience of use.
The media business bore the cost of developing the software system for allcompany websites to handle identification numbers. It also paid for establishingoverseas subsidiaries, and its personnel cost rose. For these reasons, operating
profit in the media business decreased. However, all these costs were in line withcompany expectations, and if the costs were discarded as temporary, operating
profit would have continued double-digit growth in FY6/13.

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

10

11-Oct-13

istyle Inc.

■Business Trends

Customer referrals from the “@cosme” portal site contributed
to strong growth
e-commerce BusinessIn the e-commerce business, sales increased by 24.0% y-o-y in FY6/13 to\566mn and operating profit grew by 76.9% to \52mn. Following themodification of the software system to allow the assignment of identification
numbers to site members and the allocation of points to members, it became
possible for websites from other businesses to refer customers to the ecommerce business. The e-commerce business received a particularly large
number of referrals from the “ otokude @cosme ” site, a sub-site of the“@cosme” portal site. The e-commerce business also promoted its own point
system. These factors supported the business ’ s strong sales and profit
growth.

Introduction of digital signage reinforced growthStore BusinessIn the store business, sales advanced by 26.9% y-o-y in FY6/13 to \1,872mn
and operating profit jumped by 180.3% to \100mn. In April 2012, the business
opened a new store in the Lumine Ikebukuro Building, and in September 2012, itrenovated its store in the Marui Ueno Department Store and increased its floor
space by about 70%. The media business issued more coupons to members of
the “@cosme” portal site to be used for purchases at “@cosme store”, andthe stores aggressively carried out promotions and stocked their shelves withgoods that ranked highly with consumers according to data from the“ @cosme ” portal site. Because of these developments, the number ofcustomers at “@cosme store” increased and the store business improved its
profitability.
As mentioned previously, istyle Inc. has developed its store business based on
the online-to-offline marketing model. The “ @cosme ” portal site collects andanalyzes data on consumer preferences which is used by the stores to stock
their shelves. The “@cosme” portal site also issues coupons to its membersthat can be used to buy goods at the stores. In FY6/13, the store businessintegrated this online-to-offline marketing model by introducing digital signage,
into each of its stores.
Using these digital signage or monitors, customers can view TV commercials,
how-to videos and other advertising materials for the products available at“@cosme store”, and using the touch panel of the monitor, search for desired
brands and products, participate in campaigns and otherwise communicate withcustomers and suppliers interactively.
The introduction of interactive digital signage into the stores created aseamless bond between the online portion of the sales network and the offline
portion. This supported the increases in customer number and sales.

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

11

11-Oct-13

istyle Inc.

■Business Trends

Diagram of Digital Signage

Source:Company

ispot Co. Ltd. turned profitable after becoming a subsidiary of
istlye Inc.
Other Businesses
This business was created in FY6/13. istyle Inc. bought the predecessor of
ispot Co. Ltd. in May 2012, and changed its name to ispot Co. Ltd. in July. Thisis the only company in the other businesses category. ispot Co. Ltd. operates the“ispot” website, which allows users to search for esthetic salons and to makereservations at them. ispot Co. Ltd. also places advertisements on this website.
As mentioned above, in June 2013, istyle Inc. transferred its online recruitment
website for the cosmetics industry, “ @cosme Career ” , from the media
business to ispot Co. Ltd., and in August 2013, ispot Co. Ltd. launched a similar
recruitment website for the beauty shop industry, “ @cosme Career Salon ” .
Thus ispot Co. Ltd. is now in charge of istyle Inc. ’ s recruitment services. In
FY6/13, the advertisement placement service prospered, and the number ofcompanies using the “@cosme Career” website increased. Therefore, ispot Co.
Ltd. recorded sales of \671mn and an operating profit of \63mn in its first year
as a unit of istyle Inc.

(*2) Retail sales included grosssales of affiliate service by the
media businessIn its last fiscal year, through October 2011, ispot Co. Ltd. ’ s predecessor
generated sales of \547mn but suffered an operating loss of \27mn. Afterbecoming a subsidiary of istyle Inc., this company saw a marked improvement in
its profitability. Most likely, it benefited from the “ @cosme ” portal site ’ soverwhelming access to young Japanese women.
In FY6/13, retail sales (*2) of cosmetics and beauty products by the store
business, the e-commerce business and the affiliate service of the media
business grew by 32.0% y-o-y to \3,049mn. As shown in the following bar chart,
all three of these units increased their sales.

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

12

11-Oct-13

istyle Inc.

■Business Trends

Retail Sales (\mn) by Units of istyle Inc., FY6/11FY6/13（\mn）

e-commerceStore

Affiliate (Media Business)

3,500
3,049

3,000

580
2,500
2,000

2,310
364

1,925
189

1,890

1,500
1,000

1,485

1,300

500
436

461

579

FY6/11

FY6/12

FY6/130

Improved due to profit growth and capital increase(2) Financial Condition
Istyle Inc. ’ s balance sheet improved in FY6/13. For example, cash anddeposits grew strongly y-o-y, reflecting profit growth and the issuance of newshares. The company’s current ratio and equity ratio increased y-o-y. Interestbearing debt increased y-o-y because the company added several new
consolidated subsidiaries. However, the debt-to-equity ratio remained low at 16%.
Net cash (cash and deposits minus interest-bearing debt) expanded by \685mn
y-o-y to a comfortable level.
ROA, ROE and the operating profit margin all declined y-o-y in FY6/13. The
drops in ROA and ROE reflected the impact of the capital increase, while thedownturn in the operating profit margin was largely due to the fall in the margin
in the media business.
Summary Consolidated Balance Sheet (\mn)
at FY6/12 and FY6/13
FY6/12

FY6/13

Change

2,597
1,653
792
3,389
986
138
261
1,125
2,263
2,233
3,389

4,009
2,707
1,513
5,523
1,135
403
630
1,538
3,984
3,936
5,523

1,412
1,054
721
2,133
148
264
369
413
1,720
1,703
2,133

Current ratio(current assets ÷ current liabilities)

263.2%

353.1%

Equity ratio(total equity ÷ total assets)

65.9%

71.6%

Debt-to-equity ratio(Interest-bearing debt ÷ total equity)

11.7%

16.0%

21.2%
19.8%
13.8%

16.0%
13.9%
11.5%

Current assets
Cash and deposits
Fixed assets
Total assets
Current liabilities
Fixed liabilities
Interest-bearing debt
Total liabilities
Total equity
Shareholders' equity
Total liabilities & equity

Reasons for change
Increase in cash and deposits (+294)
Stock issuance (+1,258)
Increase in software (+164), Securities investments (+283)
Short-term borrowings (+107)
Long-term borrowings (+261)

Stock issuance (+1,258), Retained earnings (+430)

Financial stability ratios

Profitability ratios
ROA
ROE
Operating profit margin

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

13

11-Oct-13

istyle Inc.

■Company Forecasts
Double-digit sales growth, led by media business(1) Company Forecasts for FY6/14
For FY6/14, istyle Inc. forecasts a 16.7% y-o-y increase in consolidated sales
to \7,478mn, but a 20.5% fall in operating profit to \587mn, a 20.2% drop inrecurring profit to \569mn, and a 40.8% plunge in net profit to \254mn.
Consolidated Results (\mn), FY6/10-FY6/14E
Sales
Operating profit
Recurring profit
Net profit
EPS (\)DPS (\)

FY6/10
3,257
238
240
156
2,755.30
0.00

FY6/11
3,832
427
432
259
23.15
0.00

FY6/12
4,455
615
611
370
32.50
0.00

FY6/13
6,410
738
713
429
32.26
0.00

FY6/14E
7,478
587
569
254
17.58
0.00

y-o-y
16.7%
-20.5%-20.2%-40.8%-

Note: The company made a 100-for-1 stock split in December 2011 and a 2-for-1 split in July 2012. The EPS
figures for all years except FY6/10 have been adjusted to reflect these splits.

The company foresees double-digit sales growth in FY6/14, led by the media
business. However, it projects profit declines stemming from several factors. It
forecasts another increase in cost of developing its software system as new
capabilities are added to its various websites. It sees another rise in personnel
cost, reflecting the staff increase in FY6/13. In FY6/13, the company hired
more engineers to increase its in-house production and reduce its reliance on
subcontractors. The company foresees a modest increase in its total personnel
cost in FY6/14, i.e., in its own personnel cost plus its outsourcing cost. The
other businesses segment will invest in business expansion and in thedevelopment of a new service, and the media business will build up its overseas
business.
In the first quarter of FY6/14, i.e., in the July-September 2013 quarter, thecompany relocated its head office, incurring estimated costs of \50mn. Thus, thecompany foresees losses that quarter. For the full fiscal year, the company
estimates the cost of this move at \100mn.

Company Forecasts of Factors Contributing toOperating Profit (\mn) in FY6/14

-202
-105

+651

-151
-336

738

FY6/13587

Gross profit

Personnel
cost

SystemInvestment Other cost
related cost in overseas
business

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

FY6/1414

11-Oct-13

istyle Inc.

■Company Forecasts

Planning to increase number of premium members and launcha new service
For FY6/14, istyle Inc. has three main objectives: 1) to increase the numberof premium members of the “@cosme” portal site, 2) to strategically change
the business model for the “ ispot ” site, and 3) to launch a “ prosumer ”
service.
Increase the number of premium members of the “@cosme” portal site
To increase the number of premium members of the “@cosme” portal site,
the company will overhaul its processes for the enrollment and disenrollment ofsmartphone users and improve the content of the “@cosme” portal site.
To improve the content, in June 2013, the company concluded a business andequity agreement with an unlisted Japanese company called byBirth inc., which
operates the GODMake. website, the largest site in Japan offering information on
makeup through videos. istyle Inc. took a 33.4% stake in byBirth inc. Now, istyle
Inc. and byBirth inc. are jointly developing and using videos.
New business model for “ispot” website
Until recently, most of the revenue collected for the use of the “ ispot ”
website came from fixed monthly fees. Most of the companies using this site aresmall, employing about 10 people. For small companies, fixed fees are a burden,
prompting some companies to stop using the site. Therefore, over the course of
FY6/14, the website will increase its revenue from customer referrals, thereby
lowering the revenue weighting of fixed fees.
The “ispot” website has been collecting success fees for customer referrals,
but in order to receive these fees, the salons and shops had to complete a form
verifying that the customer had been referred by the “ ispot ” website.
Sometimes, the salons and shops failed to complete these forms, so successfees collected were smaller than expected. Consequently, ispot Co.Ltd. hasdeveloped an online appointment registry system for users of the “ ispot ”
website that can also be used for customer referrals. This system facilitates
customer management for the salons and shops using the “ ispot ” site, sothese salons and shops will probably adopt the system enthusiastically.
ispot Co. Ltd. also plans to increase the number of users of the “ ispot ”
website. At the end of FY6/13, about 3,800 shops used the site. Of these, about
3,000 were esthetic salons, and the remaining 800 or so were hair salons orother kinds of beauty business. The site therefore serves about 30% of theesthetic salons in Japan, with a higher share in western Japan, but it serves lessthan 1% of the hair salons in Japan. Hereafter, ispot Co. Ltd. plans to use
external sales resources to increase the number “ ispot ” website users,
particularly the number of hair salons using the site.

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

15

11-Oct-13

istyle Inc.

■Company Forecasts

ispot Co. Ltd.’ s two main competitors are Recruit Lifestyle Co. and Starts
Publishing Corp. (7849). Recruit Lifestyle Co. is strong in serving hair salon
proprietorships, while Starts Publishing Corp. is strong in serving esthetic salonsin hotels. To increase the number of users of the “ ispot ” website, ispot Co.
Ltd. plans to target hair salons with 10 or fewer employees, especially those inGreater Tokyo.
To change the fee structure of the “ ispot ” website and to attract moreusers to this site, ispot Co. Ltd. estimates that it will have to increase its
operating costs by about \100mn in FY6/14, relative to costs in FY6/13.
Therefore, the company foresees profit declines in FY6/14, even though it
projects sales growth. From FY6/15, however, ispot Co. Ltd. ’ s profitability
should improve substantially.
New “prosumer” service
In autumn 2013, istyle Inc. plans to start offering a new “prosumer” service
in the media business. “Prosumer” is a word derived from the words producer
and consumer. The term “prosumer” here, service being planned by istyle Inc.
will target independent proprietorships offering beauty services such as nailtreatments and yoga. Initially, this service will offer a schedule management tool
to these proprietorships for a fee. In the future, the service may refer customers
to these proprietorships from istyle Inc.’s service sites.
As shown in the diagram below, based on istyle Inc.’s beauty platform, thecompany currently targets manufacturers, small and medium-sized service
companies, and individual consumers for its services. Among the services
offered by istyle Inc. are advertisement marketing, store introductions, customer
referrals, retailing, and premium memberships. The “ prosumer ” service will
target proprietorships, which have not been targeted previously. This service is
expected to yield monthly fees of about \3,000 per customer, which would fall
between the monthly fee of about \300 for individual consumers and the fee ofabout \30,000 for small and medium-sized service companies. Led by the“@cosme” portal site, istyle Inc.’s websites attract about 8.13 million uniqueuser visits per month. Access to such a large potential customer base should
appeal to many proprietorships providing beauty services.

Diagram of istyle Inc.’s Businesses

Source:Company

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

16

11-Oct-13

istyle Inc.

■Company Forecasts(2) Company Forecasts for FY6/14 by Businesses
The company’s FY6/14 sales forecasts for each business are highlighted in
the following bar chart and discussed below.

Breakdown of Consolidated Sales (\mn) by
Business, FY6/12-FY6/14E
Media

e-commerce

Store

Other

（\mn）
8,000
820
671

6,000

+22.2%
+8.6%

2,033

1,872
4,000

1,474

566

+20.8%

684

457+19.3%

2,000
2,523

3,300

3,937

0
FY6/12

FY6/13

FY6/14E

To invest heavily in overseas businessMedia Business
For FY6/14, the company projects a 19.3% y-o-y rise in sales at its media
business, but it foresees profit declines for the business stemming from two
factors: 1) an increase in the cost of software system development to improve
its premium membership business, and 2) the build-up of operations in China,
Singapore and Indonesia.
Overseas operations are seen increasing their aggregate sales by \168mn in
FY6/14, but increasing their operating loss by \151mn, which is the operating
profit decline projected for the entire company. However, the business plans totarget companies that are expanding their beauty platforms in Asian countries
other than Japan. Therefore, the heavy investment in overseas business in
FY6/14 is considered strategic.
istyle China Co., Ltd., based in Shanghai, supports the exports, sales andpromotions of Japanese cosmetics companies. In FY6/13, this subsidiary started
terrestrial TV broadcasts and video channel presentations in China of a program
on beauty products, “Taozui cosme”. This program is aired every evening for
15 minutes for 260 days a year and highlights popular product rankings by“@cosme”. It is supported financially by sponsors. This subsidiary also openeda Chinese version of the “@cosme” portal site on China’s largest miniblog
site, “Sina Weibo”. At the end of July 2013, this site had been operational forabout eight months and had more than 330,000 followers.

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

17

11-Oct-13

istyle Inc.

■Company Forecasts(*3) LPO
Landing page optimization(LPO) or conversion rate
optimization (CRO) is an
Internet marketing method toimprove the percentage ofvisitor’s / customer’s
actions such as purchase orregistration in order toincrease revenue of website.

PT. Creative Visions Indonesia engages in the digital marketing of all kinds ofproducts, not just cosmetics. The local staff of this subsidiary markets throughsocial media and undertakes active advertising practices, such as landing page
optimization (LPO, *3). In Indonesia, the use of mobile devices is spreading, theInternet market is growing rapidly, and the demand for marketing throughFacebook and for operating advertising networks is expanding. Thus, thissubsidiary has bright growth prospects.
istyle Global (Singapore) Pte. Ltd. contracts with engineering companies in
Singapore and nearby countries to develop new services for istyle Inc.’s global
operations. It is expected to play an important role in expanding these
operations.
istyle Inc. expects the losses suffered by its overseas operations to gradually
decline, and it expects these operations to turn profitable on a monthly basis
sometime in FY6/15.

Outline of Overseas Operations

Source:Company

Excluding the \168mn sales increase which istyle Inc. projects for its oversea
operations in FY6/14, sales in the media business are seen growing by only 14%
y-o-y. Sales growth will probably be relatively muted because there will be no
event in FY6/14 comparable to the “BEAUTY STYLE COLLECTION by @cosme
2012” event, which increased sales in FY6/13 by an estimated \150mn.
However, the media value of the “@cosme” portal site is growing in Japan,
and the company expects corporate clients to continue to increase theiradvertising on this site. Thus, the company foresees double-digit sales growth
for the media business for many years.

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

18

11-Oct-13

istyle Inc.

■Company Forecasts

Select goods strategy to support sales and profit growth
e-commerce Business
For the e-commerce business, the company projects a 20.8% y-o-y increase insales in FY6/14 to \684mn and a double-digit profit increase. The business willcontinue to offer goods which rank highly in the “ @cosme ” portal site andselect goods developed in tie-ups with manufacturers. The application ofidentification numbers to members of all istyle Inc. ’ s websites has facilitatedthe use of points for purchases, which should benefit the e-commerce business.

To improve advertising effectiveness by linking store
campaigns to campaigns on the “@cosme” portal site
Store Business
For the store business, the company projects an 8.6% y-o-y increase in sales
in FY6/14 to \2,033mn and a profit increase. The business does not plan toopen any new stores in FY6/14, but it plans to continue to modify its existing
stores to increase their appeal to customers based on information obtained fromthe “@cosme” portal site. It also expects to sell more products as a result of
coupons issued by the “@cosme” portal site.
The store business plans to raise the effectiveness of its advertising byconducting store campaigns in conjunction with campaigns conducted on the“@cosme” portal site. It also plans to improve profitability by raising the sales
weighting of promotion revenue.

Producing Distinctive StoresSource:Company

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

19

11-Oct-13

istyle Inc.

■Company Forecasts

Recruitment websites to contribute to sales growth
Other Businesses
For the other businesses segment, the company projects a 22.2% y-o-yincrease in sales in FY6/14 to \820mn but a profit decline. As mentioned
previously, the “ispot” website will be revamped and will seek new customers.
Thus, it should increase its sales. Furthermore, the recruitment websites“ @cosme Career ” and “ @cosme Career Salon ” will contribute to sales.
However, operating costs in the other businesses segment will increase, causinga drop in operating profit.

Sales, Operating Profit (\mn) and Operating Profit Margin (%)
by Business, FY6/11-FY6/14E
FY6/11

FY6/12

FY6/13

FY6/14E

y-o-y

Sales
media businesse-commerce businessstore businessother businesses

2,105

2,523

3,300

3,937

19.3%

432

457

566

684

20.8%

1,294

1,474

1,872

2,033

8.6%

671

820

22.2%

3,832

4,455

6,410

7,478

16.7%

Media business

344

524

480

e-commerce business

39

29

52

Store business

12

36

Total

-

-

Operating profit

Other businesses
Inter-business
Total

-

100
-

63

30

24

40

427

615

738

Operating profit margin
Media business

16.4%

20.8%

14.6%

e-commerce business

9.1%

6.5%

9.3%

Store business

1.0%

2.4%

5.4%

-

-

9.5%

11.2%

13.8%

11.5%

Other businesses
Total

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

20

11-Oct-13

istyle Inc.

■Company Forecasts

Internet advertising market to grow, and company should raise
its share of this market(3) Medium-term Prospects
Although istyle Inc. projects profit declines for FY6/14 stemming from onetime expenses, including heavy investments in new businesses and the cost of
relocating the head office, it foresees a return to profit growth in FY6/15. It
forecasts continued double-digit growth of domestic sales by the media businessand smaller losses in the overseas media business. It also projects a return toprofit growth in the other businesses segment, reflecting the segment’s initialsales policy, and contributions by the “ prosumer ” service of the media
business newly launch in autumn 2013.
As the company diversifies profit sources in its beauty platform, it is likely torealize synergy among its businesses, contributing to higher growth potential
over the medium-to-long term. The overseas business could remain a drag on
profits, but the company should be able to expand its domestic operations
enough to maintain overall profit growth.
In 2012, Japan’s cosmetics industry spent about \610bn on advertising. Of
that, \89.9bn was spent on Internet advertising. Internet advertising is expected
to raise its share of the overall advertising market, and istyle Inc. ’ s media
business will probably raise its share of the market for Internet advertising by
the cosmetics industry from 3.7% as its advertising value increases. Already, one
in three Japanese women in their 20’s or 30’s use the “@cosme” portalsite each month.

Illustration of Media Business’s Growth Potential
in Japanese Market\2,276.9bn

Internet Advertising (\89.9bn)\610.0bn\3.3bnCosmetics market in 2012
based on sales

Advertising expenditure bycosmetics companies

Media business sales in
FY6/13

Sources: Fuji Keizai Management Co., Dentsu Inc.
Note: Amount of Internet advertising is estimated by istyle Inc.

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

21

Disclaimer
FISCO Ltd. (the terms “ FISCO ” , “ we ” , mean FISCO Ltd.) has legal
agreements with the Tokyo Stock Exchange, the Osaka Securities Exchange, andNikkei Inc. as to the usage of stock price and index information. The trademark
and value of the “JASDAQ INDEX” are the intellectual properties of the Tokyo
Securities Exchange, and therefore all rights to them belong to the Tokyo
Securities Exchange.
This report is based on information that we believe to be reliable, but we do notconfirm or guarantee its accuracy, timeliness, or completeness, or the value of the
securities issued by companies cited in this report. Regardless of purpose,
investors should decide how to use this report and take full responsibility for suchuse. We shall not be liable for any result of its use. We provide this report solely
for the purpose of information, not to induce investment or any other action.
This report was prepared at the request of its subject company using
information provided by the company in interviews, but the entire content of thereport, including suppositions and conclusions, is the result of our analysis. The
content of this report is based on information that was current at the time thereport was produced, but this information and the content of this report are
subject to change without prior notice.
All intellectual property rights to this report, including copyrights to its text anddata, are held exclusively by FISCO. Any alteration or processing of the report or
duplications of the report, without the express written consent of FISCO, isstrictly prohibited. Any transmission, reproduction, distribution or transfer of thereport or its duplications is also strictly prohibited.
The final selection of investments and determination of appropriate prices forinvestment transactions are decisions for the recipients of this report.