Company Research and Analysis Report
FISCO Ltd.
http://www.fisco.co.jp

Interspace
2122 TSE Mothers

26-Jan.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato伪伪Increases in sales and profits forecast for FY9/16
and is once again entering a growth phase
Interspace <2122> (hereafter, also “the Company”) operates an Internet Advertising (Affiliate)
Business with a focus on affiliate advertising and a Media business, centered on the child-care
support site “mamastadium.” In addition, the Company has launched affiliate service businesses inSoutheast Asian countries such as Indonesia, Thailand, and Vietnam, and plans to continue to focus
on its overseas business in the future.
The consolidated FY9/15 results saw a 19.5% year-on-year (y-o-y) increase in sales to ¥20,065mn
and a 55.4% decrease in operating profit to ¥348mn. The mainstay affiliate advertising achieved
growth mainly in the finance and EC categories and once again achieved a record high for net sales.
But affiliate advertising was affected by the higher costs to strengthen personnel and for advertisingwith an eye to growth in the future, and also by the slump in the game business, and as a result
operating profit was down for the first time in six fiscal periods. But the results slightly exceeded
the forecasts announced in August in the revised Company plan, and looking on a quarterly basis,
operating profit in Q4 (July to September 2015) increased by double digits y-o-y, by 14.6%, andbased on these results the Company can be said to have once again entered a growth phase. The
background to this is thought to be the major results of the cost adjustments, including the reduction
in costs in the slumping Media Business, and these results can be highly evaluated.
The outlook for FY9/16 is for increases in both sales and profit, with net sales forecast to increase
8.8% y-o-y to ¥21,826mn and operating profit to rise 72.2% to ¥600mn. In addition to the growth inaffiliate advertising, native advertising will be fully launched as a new business. Also, the Company’s
policy is to improve profitability through raising the efficiency of advertising operations and keepingdown one part of SG&A expenses. Further, an unprofitable game subsidiary was sold in the previous
fiscal year, which is expected to increase profits by slightly less than ¥200mn. With regards to theoverseas business, at FISCO we think that although the forward-investment stage is set to continue,
there is still potential for upside in the Company’s conservative results forecasts.
In its medium-term business plan, the Company is targeting net sales of ¥25,000mn and operating
profit of ¥1,500mn. It is aiming to achieve these targets by focusing on maximizing its existing
businesses and improving profitability in the Internet Advertising (Affiliate) Business, maximizing thecontribution to profit of the Media Business, and investing management resources in the overseas
businesses and the native advertising business that have high growth potential.

伪伪Check Point• Sales increased but profits declined in the FY9/15 full year, with net sales achieving arecord high of ¥20bn• The outlook for the FY9/16 results is for an increase in sales and a return to profitability witha major increase in profits• Targets a dividend payout ratio of about 15-20% and the dividend for FY9/16 is expected tobe ¥8.00

We encourage readers to review our complete legal statement on “Disclaimer” page.
1

㼀㼞㼑㼚㼐㼟㻌㼕㼚㻌㻯㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻌㻾㼑㼟㼡㼘㼠㼟(¥mn)

㻿㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕(¥mn)

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻞㻡㻘㻜㻜㻜

㻝㻘㻜㻜㻜㻣㻤㻜㻞㻜㻘㻜㻜㻜

Interspace
2122 TSE Mothers㻝㻜㻘㻜㻜㻜
㻡㻘㻜㻜㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻢㻜㻜

㻡㻥㻞

㻡㻢㻝

㻝㻡㻘㻜㻜㻜

26-Jan.-16

FISCO Ltd. Analyst
Yuzuru Sato

㻤㻜㻜
㻢㻜㻜

㻟㻢㻞

㻞㻜㻘㻜㻢㻡
㻝㻞㻘㻟㻣㻡

㻝㻡㻘㻝㻤㻞

㻞㻝㻘㻤㻞㻢

㻠㻜㻜㻝㻢㻘㻣㻤㻤
㻟㻠㻤
㻞㻜㻜

㻥㻘㻠㻢㻞

㻜

㻜

㻲㼅㻥㻛㻝㻝

㻲㼅㻥㻛㻝㻞

㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻲㼅㻥㻛㻝㻡

㻲㼅㻥㻛㻝㻢㻱



伪伪Business Description
The Internet Advertising (Affiliate) Business is the mainincome pillar, while the affiliate advertising business is being
developed overseas also
The Company’s businesses are divided into the Internet Advertising (Affiliate) Business, focusing
on affiliate advertising, and the Media Business. Looking at sales and operating profit by segment,over 90% of total sales were provided by the Internet Advertising (Affiliate) Business. In addition,
operating profit earned by the Internet Advertising (Affiliate) Business is able to continuously absorb
Media Business losses.
The Interspace Group consists of six subsidiaries, which is one less than the previous fiscal year
following the sale in September 2015 of more games Co., Ltd., which operates a social media
app business. Among the subsidiaries, three are domestic companies–Denno Advertisement Co.,
Ltd., Ciagram Co., Ltd., and Interspace Global Co., Ltd.–and three are overseas companies (inChina, Indonesia, and Thailand). Also, in April 2015 the Company partnered with a local company
in Vietnam to establish an Internet advertising joint-venture company as an equity-method affiliate,(capital contribution ratio, 49%). Among the subsidiaries, the companies in Indonesia, Thailand andVietnam are undertaking affiliate advertising businesses.

㻿㼍㼘㼑㼟㻌㻯㼛㼙㼜㼛㼟㼕㼠㼕㼛㼚㻌㼎㼥㻌㻮㼡㼟㼕㼚㼑㼟㼟(¥mn)

㻵㼚㼠㼑㼞㼚㼑㼠㻌㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㻔㻭㼒㼒㼕㼘㼕㼍㼠㼑㻕㻌㻮㼡㼟㼕㼚㼑㼟㼟㻹㼑㼐㼕㼍㻌㻮㼡㼟㼕㼚㼑㼟㼟㻞㻝㻘㻜㻜㻜

㻢㻥㻟㻝㻤㻘㻜㻜㻜

㻝㻘㻟㻝㻠㻝㻡㻘㻜㻜㻜
㻝㻞㻘㻜㻜㻜

㻝㻘㻜㻝㻡㻤㻠㻠㻝㻥㻘㻟㻣㻝

㻥㻘㻜㻜㻜
㻢㻘㻜㻜㻜

㻝㻝㻘㻡㻟㻝

㻝㻠㻘㻝㻢㻣

㻝㻡㻘㻠㻣㻟

㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻟㻘㻜㻜㻜㻜㻲㼅㻥㻛㻝㻞

㻲㼅㻥㻛㻝㻡

We encourage readers to review our complete legal statement on “Disclaimer” page.
2

■■Business Description㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻌㼎㼥㻌㻮㼡㼟㼕㼚㼑㼟㼟(¥mn)

㻵㼚㼠㼑㼞㼚㼑㼠㻌㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㻔㻭㼒㼒㼕㼘㼕㼍㼠㼑㻕㻌㻮㼡㼟㼕㼚㼑㼟㼟㻹㼑㼐㼕㼍㻌㻮㼡㼟㼕㼚㼑㼟㼟

㻝㻜㻜㻜
㻤㻜㻜

Interspace㻢㻜㻜2122 TSE Mothers㻠㻜㻜

26-Jan.-16

㻣㻠㻞

㻣㻞㻡

㻤㻝㻡
㻠㻠㻝

㻞㻜㻜
㻜

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

㻙㻝㻢㻠

㻙㻝㻡㻜

㻙㻟㻠

㻲㼅㻥㻛㻝㻞

㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻙㻥㻞

㻙㻞㻜㻜



㻲㼅㻥㻛㻝㻡



Internet advertising business accounts for a major share of
the affiliate advertising market(1) Internet Advertising (Affiliate) Business
The Company’s Internet Advertising (Affiliate) Business is mainly engaged in affiliate advertising,and in addition to offering listing advertising, and DSP*1 advertising, it recently started offering native
advertising*2. With most of its sales coming from affiliate advertising, the Company has become amajor player in the affiliate service provider.
Affiliate advertising uses pay-per-click-based Internet advertising that enables advertisers tocompensate operators for the number of final product purchases, document requests and other sales
from advertisements posted on its websites (partner sites), email magazines and other electronic
media. In affiliate advertising, the Company provides affiliate programs in its role as an intermediary
between advertisers and website operators. The Company records advertising fees provided byadvertisers as sales. These include commission fees received by the Company’s partner sites, which
are posted as sales costs.

We encourage readers to review our complete legal statement on “Disclaimer” page.
3

■■Business Description

Affiliate AdvertisingInterspace
2122 TSE Mothers

26-Jan.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato
Source: Company materials

Affiliate programs are easy-to-use tools provided by companies that enable operators to placeadvertisements on their own websites. The Company developed “ACCESSTRADE” in 2001 andas of the end of September 2015, it was being used on more than 430,000 partner sites and washandling around 16,000 advertising programs.
Also, one of the characteristics of the Company is that Store Front Affiliates (SFA) account for
approximately 20% of net sales in the Internet Advertising (Affiliate) Business. SFA is an affiliate
advertising service marketed to brick-and-mortar stores. Provided primarily to mobile phone retail
outlets, SFA services enable sales staff to recommend advertiser-provided content apps and services
to mobile phone purchasers, for which commissions are paid when these apps are downloaded orservices commenced. The ability of sales staff to offer products directly to customers makes SFA ahighly cost-effective advertising service for advertisers. The Company’s services form an industry
leading network with about 13,000 stores contracted. It should be noted that SFA sales are closely
correlated with sales trends of mobile phones.

The Media Business is managed by the Company itself, suchas its community site for mothers(2) Media Business
The Media Business is comprised of the media advertising business that sells advertising spaceon the company-operated community site for mothers, “mamastadium,” and the social media app
business that develops and sells game content. The Company sold its social media app businesssubsidiary, more games Co., Ltd, but it rehired some of this company’s staff and is continuing thisbusiness for some developed game titles. By refraining from developing new content in-house, theCompany is reducing business risk and it is purchasing content for which demand is expected forits previously released mobile-phone games and has converted its business model to focus on
smartphones. The Company is also developing native apps.

We encourage readers to review our complete legal statement on “Disclaimer” page.
4

■■Business Description

Interspace

At the end of September 2015 on a consolidated basis, the Company had 359 employees, which
is an increase of 22 people y-o-y. Within this increase, the number of employees in the Company
itself increased by 70 people, but of these 20 people were transferred from more games Co.,
Ltd. Therefore, the actual increase in the Company was 50 employees. Employee numbers haveincreased at a rate of around 20 people per year in the last few years, but in FY9/15 the Company
actively recruited new employees in order to increase its medium-term growth potential, which is thereason for this greater-than-usual increase. The recruitment plan for FY9/16 is expected to return tothe previous pace and between 20 to 30 people to be recruited.

2122 TSE Mothers㼀㼞㼑㼚㼐㻌㼕㼚㻌㻱㼙㼜㼘㼛㼥㼑㼑㻌㻺㼡㼙㼎㼑㼞㼟㻔㼚㼛㻚㻌㼛㼒㻌㼜㼑㼛㼜㼘㼑㻕26-Jan.-16㻵㼚㼠㼑㼞㼟㼜㼍㼏㼑㻰㼛㼙㼑㼟㼠㼕㼏㻌㼟㼡㼎㼟㼕㼐㼕㼍㼞㼕㼑㼟㻻㼢㼑㼞㼟㼑㼍㼟㻌㼟㼡㼎㼟㼕㼐㼕㼍㼞㼕㼑㼟

㻠㻜㻜
㻟㻠

㻞㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻟㻜㻜

㻢㻞
㻢㻜

㻣㻞
㻞㻜㻜

㻠㻞
㻟㻞㻡

FISCO Ltd. Analyst
Yuzuru Sato

㻝㻜㻜

㻝㻥㻢

㻞㻝㻟

㻞㻟㻟

㻞㻡㻡

㻲㼅㻥㻛㻝㻝

㻲㼅㻥㻛㻝㻞

㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻜㻲㼅㻥㻛㻝㻡
㻔㻱㼚㼐㻌㼛㼒㻌㼜㼑㼞㼕㼛㼐㻕伪伪Results Trends
Sales increased but profits declined in the FY9/15 full year,with net sales achieving a record high(1) Results for FY9/15
The consolidated results for FY9/15 announced on November 10 were an increase in sales but
a decrease in profits, with sales of ¥20,065mn, up 19.5% y-o-y, operating profit of ¥348mn, down
55.4%, recurring profit of ¥346mn, down 56.2%, and net profit of ¥302mn, down 21.6%.
FY9/15 Consolidated Results
FY9/14
Ratio toCompany
Result
sales
plan
Sales
16,788100.0%
18,630
Cost of sales
13,47580.3%
15,470
SG&A expenses
2,531
15.1%
2,836
Operating profit
780
4.7%
323
Recurring profit
790
4.7%
340
Net profit
386
2.3%
348
Note: the Company plan was as of August 2015

Result20,065
16,661
3,055
348
346
302

FY9/15
Ratio tosales
100.0%
83.0%
15.2%
1.7%
1.7%
1.5%

(Unit: ¥mn)
y-o-y
19.5%
23.6%
20.7%
-55.4%-56.2%-21.6%

Ratio to plan
7.7%
7.7%
7.7%
7.7%
1.8%
-13.2%

We encourage readers to review our complete legal statement on “Disclaimer” page.
5

■■Results Trends

Interspace
2122 TSE Mothers

Net sales trended strongly in affiliate advertising and achieved a record high, but operating profit
declined for the first time in six fiscal periods due to the increases in HR costs to strengthen personnel(up ¥258mn) with an eye to medium-term growth and in advertising costs (up ¥102mn), and also
because of the higher financial burden from the launch of an overseas business and the downturn inthe game business. However, each of net sales, operating profit, and recurring profit slightly exceeded
the targets announced in August in the revised Company plan, and on a quarterly basis also, operating
profit in Q4 (July to September 2015) increased 14.6% y-o-y. So it can be said that results are once
again on a growth track. Only net profit was below the target, but this was mainly due to the recordingof an extraordinary loss of ¥61mn, which included a loss on the valuation of investment securities andan impairment loss. The results trends by business segment are shown below.

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻌㼎㼥㻌㻿㼑㼓㼙㼑㼚㼠㻌㻔㻽㼡㼍㼞㼠㼑㼞㼘㼥㻕26-Jan.-16(¥mn)

㻵㼚㼠㼑㼞㼚㼑㼠㻌㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㻔㻭㼒㼒㼕㼘㼕㼍㼠㼑㻕㻌㻮㼡㼟㼕㼚㼑㼟㼟㻹㼑㼐㼕㼍㻌㻮㼡㼟㼕㼚㼑㼟㼟㻟㻡㻜

Important disclosuresand disclaimers appear
at the end of this document.

㻞㻤㻣

㻟㻜㻜
㻞㻡㻜

㻞㻝㻟
㻝㻣㻞

㻞㻜㻜
㻝㻡㻜

FISCO Ltd. Analyst
Yuzuru Sato

㻝㻡㻝

㻝㻠㻞

㻝㻝㻤

㻝㻜㻜
㻡㻜

㻝㻝㻤

㻡㻠
㻝㻤

㻞

㻟

㻜

㻙㻝㻤

㻙㻡㻜

㻙㻟㻣

㻙㻟㻟

㻙㻞㻣

㻙㻟㻢

㻽㻠㻌㻞㻜㻝㻠

㻽㻝㻌㻞㻜㻝㻡

㻽㻞㻌㻞㻜㻝㻡

㻽㻟㻌㻞㻜㻝㻡

㻙㻝㻜㻜㻽㻝㻌㻞㻜㻝㻠

㻽㻞㻌㻞㻜㻝㻠

㻽㻟㻌㻞㻜㻝㻠

㻽㻠㻌㻞㻜㻝㻡

○ Internet Advertising (Affiliate) BusinessIn the Internet Advertising (Affiliate) Business, sales increased 25.2% y-o-y to ¥19,371mn andoperating profit fell 45.9% to ¥441mn. Net sales in the main affiliate advertising business greatly
increased by 38.4%, mainly for sales for the e-commerce, finance, and service categories, andonce again a record high was achieved. Looking at sales trends by client category, net sales for
e-commerce increased by 77%, mainly for cosmetics and health foods; increased by 19% for finance,
primarily for FX and card loans; increased by 47% for services, mainly for beauty and HR services;
and increased by 14% for entertainment, primarily for video distribution services. So net sales grewby double digits in each of these categories.

㻵㼚㼠㼑㼞㼚㼑㼠㻌㻭㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㻔㻭㼒㼒㼕㼘㼕㼍㼠㼑㻕㻌㻮㼡㼟㼕㼚㼑㼟㼟㻌㻾㼑㼟㼡㼘㼠㼟(¥mn)

㻞㻝㻘㻜㻜㻜

㻭㼀㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻻㼠㼔㼑㼞㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻿㻲㻭㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕
㻤㻝㻡

㻣㻠㻞

(¥mn)

㻥㻜㻜

㻝㻘㻝㻢㻤
㻟㻘㻡㻡㻝

㻝㻠㻘㻜㻜㻜

㻤㻠㻠

㻣㻝㻞

㻠㻘㻜㻠㻢

㻟㻘㻞㻜㻢

㻢㻜㻜
㻠㻠㻝

㻝㻠㻘㻢㻡㻟

㻣㻘㻜㻜㻜㻟㻜㻜㻝㻜㻘㻡㻤㻟

㻝㻜㻘㻞㻠㻤

㻜㻜㻲㼅㻥㻛㻝㻟
㻲㼅㻥㻛㻝㻠
㻲㼅㻥㻛㻝㻡
㻭㼀㻦㻌㻭㻯㻯㻱㻿㻿㼀㻾㻭㻰㻱㻌㻔㼜㼍㼥㻙㼜㼑㼞㻙㼏㼘㼕㼏㼗㻙㼎㼍㼟㼑㼐㻌㼍㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㼍㼒㼒㼕㼘㼕㼍㼠㼑㼟㻌㼒㼛㼞㻌㻼㻯㼟㻌㼍㼚㼐㻌㼟㼙㼍㼞㼠㼜㼔㼛㼚㼑㼟㻕㻿㻲㻭㻦㻌㻿㼠㼛㼞㼑㻌㻲㼞㼛㼚㼠㻌㻭㼒㼒㼕㼘㼕㼍㼠㼑㻌㻔㼜㼍㼥㻙㼜㼑㼞㻙㼏㼘㼕㼏㼗㻙㼎㼍㼟㼑㼐㻌㼍㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㼒㼛㼞㻌㼟㼠㼛㼞㼑㼟㻕㻻㼠㼔㼑㼞㻦㻌㼟㼍㼘㼑㼟㻌㼛㼒㻌㼛㼠㼔㼑㼞㻌㼍㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻌㼜㼞㼛㼐㼡㼏㼠㼟㻌㻔㼘㼕㼟㼠㼕㼚㼓㻌㼍㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻘㻌㻭㻰㻺㼃㻘㻌㼑㼠㼏㻚㻕We encourage readers to review our complete legal statement on “Disclaimer” page.
6

■■Results Trends

Interspace
2122 TSE Mothers

26-Jan.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Conversely, SFA net sales slumped, down 12.2% y-o-y, because of the effects of the declines insales of mobile phones. However, the Company has been improving its relations with mobile phone
stores, increasing the rate of operations for projects and reviewing the commission fee, and also
further expanding its sales network, including into regional areas, and consequentially in Q4, theresults recovered and increased 13% y-o-y. Moreover in other advertising services, in addition toincreases in sales from listing advertising and ad network advertising, the newly launched native
advertising contributed to the results and net sales increased 38.4%.
Overseas in the affiliate business, the businesses launched in 2013 in Indonesia and Thailand
contributed combined net sales of ¥27mn and they are achieving steady growth. In addition, in
April 2015 in Vietnam, the Company launched a joint-venture company (equity method affiliate) with
MWORK CORPORATION, which has the largest advertising network in Vietnam. Recently, the jointventure company’s sales on a stand-alone monthly basis have overtaken those of the Indonesiansubsidiary and its business is expanding faster than anticipated. As of the end of September 2015, thetotal number of affiliate partner sites for these three companies was approximately 8,000 sites, andthe number of advertising programs they were handling was slightly less than 160. The advertisingclients are mainly from the finance and e-commerce categories.
There were several overlapping reasons why profits declined despite the increase in sales, including
the reduction in the gross profit margin due to the raising of the partner commission by some partners,
for example in the finance category; the rise in HR costs following the strengthening of the personnel
structure; the higher advertising costs in order to support partners; and the greater financial burden
for the launch of an overseas business. Among these items, the loss in the overseas business (thetotal for the overseas subsidiaries) is considered to have grown from approximately ¥40mn in FY9/13
to around ¥90mn.
○ Media BusinessIn the Media Business, net sales declined 47.3% y-o-y to ¥693mn, and the operating loss was¥92mn (compared to a loss of ¥34mn in the previous fiscal year). Breaking down net sales, media
advertising sales slumped, falling 1% y-o-y to ¥312mn. The Company expanded content on themainstay “mamastadium” site, such as columns by celebrities, and also focused on delivering
articles to partner media and partnering with SNS. As a result, net sales continued to increase y-o-yalongside the improvement in its media value, including that the number of unique users exceeded
3.5 million people in September. However, results in Q3 were impacted by the temporary fall in sales
following changes to the advertising delivery regulations and also by a decline in revenue from othermedia sites.
Conversely, in social media apps, as was previously explained the subsidiary more games Co., Ltd.
was sold so the business contracted in scale, and therefore income greatly decreased, by 56% y-o-y.
In addition, net sales of content to mobile carriers also declined significantly, by 68%. Looking solely
at these game-related businesses, the operating loss was around ¥180mn.

㻿㼍㼘㼑㼟㻌㼠㼞㼑㼚㼐㼟㻌㼎㼥㻌㻹㼑㼐㼕㼍㻌㻮㼡㼟㼕㼚㼑㼟㼟㻌㼟㼑㼞㼢㼕㼏㼑
(¥mn)
㻝㻘㻠㻜㻜

㻿㼛㼏㼕㼍㼘㻌㼙㼑㼐㼕㼍㻛㼍㼜㼜㼟㻹㼑㼐㼕㼍㻌㼍㼐㼢㼑㼞㼠㼕㼟㼕㼚㼓㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕

㻤㻜㻜

㻜

㻙㻟㻠
㻝㻜㻟

㻝㻘㻞㻜㻜
㻝㻘㻜㻜㻜

㻯㼛㼚㼠㼑㼚㼠㻌㻔㼛㼒㼒㼕㼏㼕㼍㼘㻛㼟㼠㼍㼚㼐㼍㼞㼐㻌㼣㼑㼎㼟㼕㼠㼑㼟㻕
㻻㼠㼔㼑㼞
(¥mn)

㻙㻥㻞
㻟㻝㻡

㻙㻝㻜㻜

㻝㻡㻜
㻙㻝㻡㻜

㻝㻤㻢

㻙㻝㻡㻜
㻠㻞㻢

㻢㻜㻜
㻟㻠㻞

㻟㻠

㻙㻞㻜㻜

㻟㻝㻞

㻠㻜㻜
㻞㻜㻜

㻙㻡㻜

㻙㻞㻡㻜
㻠㻣㻝

㻟㻟㻣

㻝㻟㻤

㻙㻟㻜㻜

㻞㻜㻤

㻜

㻙㻟㻡㻜
㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻲㼅㻥㻛㻝㻡

We encourage readers to review our complete legal statement on “Disclaimer” page.
7

■■Results Trends

Financial position is sound, with no interest-bearing debt anda high current ratio(2) Financial position and management indicators

Interspace
2122 TSE Mothers

26-Jan.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

The Company’s financial position at the end of September 2015 was that the balance of total assets
increased by ¥748mn from the end of the previous fiscal year to ¥6,343mn. Within this amount,current assets increased ¥557mn, with the main reason being that the increases in sales receivablesof ¥523mn and income tax receivable of ¥156mn exceeded the decrease in cash and deposits of¥135mn. Fixed assets rose ¥191mn compared to the end of the previous fiscal year, primarily due toan increase in investments and other assets, particularly investment securities, of ¥165mn.
Total liabilities increased ¥473mn compared to the end of the previous fiscal year to ¥3,321mn. Whileon the one hand accounts payable rose ¥772mn, on the other hand interest-bearing debt becamezero following the sale of the subsidiary, and in addition corporate tax payable declined ¥226mn.
Additionally, net assets rose ¥274mn to ¥3,021mn, mainly because of increases in retained earnings of¥248mn and in total accumulated other comprehensive income of ¥22mn, which included a valuationdifference on other available-for-sales securities and a foreign currency translation adjustment.
Looking at the management indicators, the equity ratio fell slightly, from 49.1% to 47.6%, because of
the increase in accounts payable following the expansion in the scale of sales up to the end of the
fiscal period. But based on the fact that the Company has zero interest-bearing debt and a current
ratio of more than 100%, it can be judged to be continuing to maintain a sound financial position.
But on the other hand with regards to profitability, due to the decline in profits each of the indicatorsof ROA, ROE, and operating profit margin worsened. But if results recover from FY9/16 onwards,
profitability can be expected to once again improve.
Balance Sheet (Consolidated)

Current assets(Cash and deposits)
Fixed assets
Total assets
Current liabilities
Fixed liabilities(Interest-bearing debt)
Total liabilities
Net assets
Main management indicators(Safety indices)
Current ratio
Equity ratio
Interest-bearing debt ratio(Profitability indices)
ROA(recurring profit / total assets)
ROE (net income/ equity)
Operating profit margin

FY9/12
3,928
2,366
616
4,545
2,164
125
100
2,290
2,254

FY9/13
4,098
2,387
810
4,908
2,371
104
86
2,476
2,431

FY9/14
4,670
2,471
924
5,595
2,759
88
58
2,847
2,747

FY9/15
5,227
2,335
1,115
6,343
3,263
58
3,321
3,021

181.5%
49.5%
4.4%

172.8%
49.5%
3.5%

169.2%
49.1%
2.1%

160.2%
47.6%
-

13.7%

12.6%

15.1%

5.8%

7.7%
4.5%

8.4%
3.9%

14.9%
4.7%

10.5%
1.7%

(Unit: ¥mn)
Change
557
-135
191
748
503
-29
-58
473
274

We encourage readers to review our complete legal statement on “Disclaimer” page.
8

伪伪Future Outlook
The outlook for the FY9/16 results is for an increase in sales
and a return to profitability with a major increase in profits

Interspace
2122 TSE Mothers

26-Jan.-16

Important disclosuresand disclaimers appear
at the end of this document.

(1) Company forecast for FY9/16
The outlook for the FY9/16 consolidated results are for net sales to increase 8.8% y-o-y to¥21,826mn, operating profit to rise 72.2% to ¥600mn, recurring profit to grow 73.1% to ¥600mn, andnet profit to increase ¥8.3% to ¥328mn. While the rate of increase of net profit is low, this is due to thenormalization of the tax burden. The Internet Advertising (Affiliate) Business will continue to drive net
sales. In terms of profits, in addition to a rise in gross profit as an effect of the higher sales, the main
reasons why profits will grow is that the increases in HR costs and advertising costs will be stopped
and profits in the Media Business will improve. The increase in the number of employees in FY9/16
will return to the former pace of between 20 to 30 people a year, compared to an increase of 40
people in the current fiscal year. In addition, advertising costs are expected to remain at around thesame level as the previous fiscal year. Overall, we have the strong impression that the Company’s
forecasts are conservative.
FY9/16 Consolidated Results Forecasts

FISCO Ltd. Analyst
Yuzuru Sato

FY9/15ResultRatio to sales
20,065100.0%
348
1.7%
346
1.7%
302
1.5%

Net sales
Operating profit
Recurring profit
Net profit

Company plan
21,826600
600
328

FY9/16
Ratio to sales
100.0%
2.7%
2.7%
1.5%

(Unit: ¥mn)
y-o-y
8.8%
72.2%
73.1%
8.3%

○ Internet Advertising (Affiliate) BusinessIn the Internet Advertising business, net sales are forecast to increase 9% y-o-y to ¥21.2bn. Within
this amount, in affiliate advertising, demand for advertising from the e-commerce, financial, andservices categories is expected to grow and sales to rise 7%. But as these net sales areestimatedby nearly four times compared to the Q4 result in the previous fiscal year, at FISCO we think that if
the results remain on this growth track, then as long as there are no major changes to the market
environment, it is highly likely that the results will exceed the forecasts.
Conversely, for SFA net sales, it is difficult to expect growth in the mobile phones market and also
the competition environment is becoming increasingly severe, so the forecast is for the result to bebasically unchanged y-o-y. However, there are expectations for the contribution of native advertisingin other advertising services. “X-lift (Cross Lift),” whose services were launched in August 2015, is a“content recommendation platform” that creates a database from the targeted articles in the listing
media, as well as from user behavior analysis data, and provides advertising that is harmonized
to each media site (which is known as native advertising). The Company has already introduced
it into its own “mamastadium” site. Compared to conventional display-type advertising, with native
advertising the matching rate between the media and the advertising is high, and users receive theinformation from the advertising with the sense that its content has been harmonized with the site.
So demand for it is rapidly increasing from advertisers as a method of easily increase the effects ofadvertising. It is considered that the Company wants to develop the native advertising market so that
this business becomes its second income pillar after affiliate advertising.
Also, net sales in the overseas business are forecast to increase by more than 3 times y-o-y to ¥90mn.
In this fiscal period, the Company has been looking into establishing subsidiaries and affiliates inother countries, following on from those in Indonesia, Thailand, and Vietnam. In terms of profits, aloss of around ¥80mn is expected to continue in this fiscal year also. The sales scale that will be
the break-even point will be annual net sales of around ¥100mn from Indonesia and Thailand. Also,
sales have not yet reached the point where the HR costs are absorbed. The number of employees insubsidiaries at the end of previous fiscal year was 17 people in Thailand and 22 people in Indonesia.
HR costs are low in Indonesia and if this business makes steady progress, it is possible that it will
become profitable on a stand-alone monthly basis during this fiscal period.
Overseas, the gross margin in affiliate advertising benefits from the fact that the competitiveenvironment is not that severe, and it is around 10% higher than in Japan, so going forward it isexpected to contribute to profits alongside sales growth.

We encourage readers to review our complete legal statement on “Disclaimer” page.
9

■■Future Outlook○ Media BusinessIn the Media Business, the forecast is for net sales to fall 9% y-o-y to ¥630mn. This is because
although an increase in sales is expected from media advertising, the scale of the social media
app business will continue to contract. Operating profit of around ¥10mn is forecast, meaning thebusiness will be profitable. It seems entirely possible that this level will be achieved, as profits of¥3mn were already recorded in Q4 of the previous fiscal year.

Interspace
2122 TSE Mothers

26-Jan.-16

The results will be centered on revenue from media advertising, particularly from “mamastadium,”
which is the largest child-care support site in the industry. The number of “mamastadium” monthly
unique users is 3.5 million people, but as there are 8 million households with children aged from 0
to 9 years, there still remains room for this number to grow. In fact, the number of unique users in
October reached 4 million people and going forward, advertising revenue is expected to continue toincrease alongside the rise in its media value.
Number of “mamastadium” users

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Source: Company materials

The Company is also developing new media. From this summer onwards, it has been releasing“Grouta” which is a news-curation app, “mofmo” which is a curation app targeting dog and catlovers; and “KOIMEMO” which is a romance-based curation app. As these apps have practically nodevelopment costs, if their number of unique users increase, they can start contributing to profits at
any early stage. Sales of native advertising through these media sites are also expected to increase.

We encourage readers to review our complete legal statement on “Disclaimer” page.
10

■■Future Outlook

The medium-term business targets are net sales of ¥25bn andoperating profit of ¥1.5bn(2) Medium-term business planInterspace

The Company’s medium-term business targets are consolidated sales of ¥25bn and operating profitof ¥1.5bn. We believe that if the Company continues its current growth, it will achieve them in 3 to
4 years.

2122 TSE Mothers㻹㼑㼐㼕㼡㼙㻙㼠㼑㼞㼙㻌㻼㼘㼍㼚㻌㼀㼍㼞㼓㼑㼠㼟㻿㼍㼘㼑㼟㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕(¥mn)

26-Jan.-16㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㻼㼞㼛㼒㼕㼠㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕㻞㻡㻘㻜㻜㻜

(¥mn)

㻞㻡㻘㻜㻜㻜

㻞㻘㻜㻜㻜㻞㻝㻘㻤㻞㻢
㻞㻜㻘㻜㻢㻡

Important disclosuresand disclaimers appear
at the end of this document.

㻞㻜㻘㻜㻜㻜FISCO Ltd. Analyst
Yuzuru Sato㻝㻜㻘㻜㻜㻜

㻝㻘㻡㻜㻜

㻝㻘㻢㻜㻜

㻝㻢㻘㻣㻤㻤
㻝㻡㻘㻝㻤㻞

㻝㻡㻘㻜㻜㻜

㻝㻘㻞㻜㻜
㻣㻤㻜
㻤㻜㻜

㻢㻜㻜

㻡㻥㻞
㻟㻠㻤

㻡㻘㻜㻜㻜

㻠㻜㻜

㻜

㻜
㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻲㼅㻥㻛㻝㻡

㻲㼅㻥㻛㻝㻢㻱

㻲㼅㻥㻛㼄㼄

The driving force behind the Company’s revenue is the domestic Internet Advertising (Affiliate)
Business, and in addition to increasing its market share in affiliate services by strengthening sales,
the Company will expand its business by strengthening new services such as native advertising.
In addition, in the Media Business, the Company aims to continue to develop and grow new media
following on from "mamastadium" while building a stable earnings structure.
With regards to the overseas business, it is considered that the Company is aiming to acquire thenumber one market share in each country where it provides affiliate services and that its current goal
is for this business to become profitable within three years. The e-commerce market in South East
Asia is expected to achieve high growth in the future, so affiliate advertising has significant growthpotential. Problems include developing client companies and affiliate partners at the same time as
implementing fraud-prevention measures, but the Company already has experience of addressingthese problems in Japan, so we think it will be able to overcome them. While currently the scale ofthis business is still small, in the medium- to long-term it is expected to grow to become a major
business that will drive the Company’s earnings.

伪伪Comparison with Industry Peers and Policy of
Returning Profits to Shareholders
The difference in profitability with industry peers, each ofwhich have their own respective features, is expected togradually become smaller(1) Comparison with industry peers
There are four other major affiliate management companies besides Interspace: F@N
Communications, Inc. <2461>, Adways Inc. <2489>, ValueCommerce Co., Ltd. <2491>, and
LinkShare Japan K.K. (unlisted, a subsidiary of Rakuten <4755>.) Their sales are around ¥10bn to¥40bn. These five companies, including Interspace, hold an industry market share of about 60%.

We encourage readers to review our complete legal statement on “Disclaimer” page.
11

■■Comparison with Industry Peers and Policy of Returning Profits to Shareholders

Interspace
2122 TSE Mothers

26-Jan.-16

Important disclosuresand disclaimers appear
at the end of this document.
FISCO Ltd. Analyst
Yuzuru Sato

Looking at the features of each company, F@N Communications is the largest industry player with
about 2 million affiliate sites. It has been engaged for many years in the advertising business for
SMEs and its dependence on e-commerce is relatively high. Adways is about 50% dependent on
the mobile Internet (compared to domestic advertising sales) and is strong in games. Because of
its heavy dependence on the mobile Internet, its profit margin is relatively low. ValueCommerce, asubsidiary of Yahoo! <4689>, obtains an overwhelmingly high percentage of its sales from the PC
advertising business at around 70% (on a project basis), and while on a category basis its services forfinance constitute nearly 50% of sales. Alongside F@N Communications, it remains highly profitable.
The reason that Interspace has a lower profit margin than the above listed companies is that, in
addition to the low profitability of the Media Business, the Company has high staff levels for partner
sites and advertiser development, even in the Internet Advertising (Affiliate) Business, so personnel
expenses as a percentage of sales are relatively high. However, in the Media Business it has set its
sights on improving earnings, such as through the sale of a subsidiary, and in the Internet Advertising(Affiliate) Business also, the effects of its strengthening of the HR structure will be felt in the future.
Therefore, we forecast that the difference in profitability between the Company and its industry peers
will gradually become smaller.
Comparison with Industry Peers(Unit: ¥mn, %, Multiple)
Growth Recurring Growth
RP
EPS
DPS
PER
rate
profitrate
marginFY9/1520,065
19.5
346
-56.2
1.7
44.7
8.0
Interspace Co., Ltd.
<2122>
FY9/16E
21,826
8.8
600
73.1
2.7
48.4
8.0
16.7
31,990
40.8
5,948
44.2
18.6
47.1
15.0
F@N Communications Inc. FY12/14<2461>
FY12/15E 36,500
14.1
6,570
10.4
18.0
54.4
17.0
12.8
FY3/1535,890
13.9
1,197
42.4
3.3
16.8
3.36
Adways Inc.
<2489>
FY3/16E
13,373
11.3
1,647
8.3
12.3
28.9
11.0
ValueCommerce Co., Ltd. FY12/14<2491>
FY12/15E 15,900
18.9
1,590
-3.5
10.0
31.0
10.0
15.8
Note: Forecast PER was calculated based on the closing price on January 7, 2016, and forecasts for Adways for
FY3/16 have not been published.
FY

Sales

The Company targets a dividend payout ratio of about 20%,and the dividend for FY9/16 is expected to be ¥8.00(2) Policy of returning profits to shareholders
The Company determines dividends by taking into account factors such as earnings trends, financing
needs and internal reserves for future business development in a comprehensive manner. The
Company targets a dividend payout ratio (consolidated) of about 20%, and the dividend for FY9/16
is expected to be ¥8.00, the same as in the previous fiscal year.

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼍㼚㼐㻌㻰㼕㼢㼕㼐㼑㼚㼐㻌㻼㼍㼥㼛㼡㼠㻌㻾㼍㼠㼕㼛㻌㻔㼏㼛㼚㼟㼛㼘㼕㼐㼍㼠㼑㼐㻕(¥)

㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼑㼞㻌㼟㼔㼍㼞㼑㻌㻔㼘㼑㼒㼠㻌㼍㼤㼕㼟㻕㻝㻜㻚㻜㻰㼕㼢㼕㼐㼑㼚㼐㻌㼜㼍㼥㼛㼡㼠㻌㼞㼍㼠㼕㼛㻌㻔㼞㼕㼓㼔㼠㻌㼍㼤㼕㼟㻕

㻝㻢㻚㻜㻌
㻤㻚㻜

㻞㻜㻚㻜

㻝㻣㻚㻥㻌

㻝㻣㻚㻝㻌

㻝㻢㻚㻡㻌
㻝㻢㻚㻜

㻝㻠㻚㻜㻌

㻢㻚㻜

㻝㻞㻚㻜

㻠㻚㻜
㻞㻚㻜

（㻑）

㻤㻚㻜㻌

㻤㻚㻜㻌

㻤㻚㻜㻌

㻡㻚㻜㻌

㻠㻚㻜㻌

㻤㻚㻜
㻠㻚㻜

㻜㻚㻜

㻜㻚㻜
㻲㼅㻥㻛㻝㻞

㻲㼅㻥㻛㻝㻟

㻲㼅㻥㻛㻝㻠

㻲㼅㻥㻛㻝㻡

㻲㼅㻥㻛㻝㻢㻱

We encourage readers to review our complete legal statement on “Disclaimer” page.
12

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