COMPANY RESEARCH AND ANALYSIS REPORT

Estore Corporation
4304
TSE JASDAQ

20-Apr.-2020
FISCO Ltd. Analyst

Kimiteru Miyata

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

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/■ Index■Summary---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 01
1. Business development in three domains: sales systems, sales promotion services,and sales promotion systems......................................................................................................................

01

2. Working to strengthen analogue strategy with a focus on customer contact points and marketing.............

01

3. As a solution to issues with strengthening sales promotion services and building large-scale orders,
M&A will bring significant growth in the next fiscal year. .............................................................................

01

4. Increased likelihood that FY3/20 operating profit will exceed full-year forecast. ..........................................

02■Business overview---------------------------------------------------------------------------------------------------------------------------------------------------- 03
1. Shifting business focus every seven years...................................................................................................

03

2. Business structure.......................................................................................................................................

05■Medium-term growth strategy---------------------------------------------------------------------------------------------------------------------- 06
1. Recognition of the business environment and target direction.....................................................................

06

2. The sales systems business growth strategy. ..............................................................................................

07

3. The sales promotion systems business growth strategy. .............................................................................

08

4. The sales promotion services business growth strategy. .............................................................................

09

5. M&A aimed at bringing in large companies. .................................................................................................

11

6. Scenario for medium-term growth......... ......................................................................................................

12■Results Trends-------------------------------------------------------------------------------------------------------------------------------------------------------------- 13
1. FY3/20 3Q results.................................. ......................................................................................................

13

2. FY3/20 results outlook.................................................................................................................................

14■Shareholder returns------------------------------------------------------------------------------------------------------------------------------------------------- 16
1. Dividend policy...................................... ......................................................................................................

16

2. Shareholder benefits....................................................................................................................................

17

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/█ Summary
A comprehensive provider of eCommerce (EC) support services
A medium-term strategy of larger-scale orders and strengthened
sales promotion services
Expectations for significant growth in the next fiscal year throughM&A
1. Business development in three domains: sales systems, sales promotion services, and sales promotion
systems
Estore Corporation <4304> (the “Company”) is a comprehensive provider of e-commerce (EC) support services.
Since its founding, it has consistently grown its business in the corporate EC support domain. After starting from the
Systems Business, providing ASP services as a framework for EC, the Company has grown by shifting its focus to in
response to developments and changes in technology and the EC market, expanding into consulting and outsourced
operations management to support revenue growth at client companies. Today, it offers three businesses to support
EC, including sales systems, sales promotion services and sales promotion systems.
2. Working to strengthen analogue strategy with a focus on customer contact points and marketing
The Company has established a structure with three businesses as a comprehensive EC support company; however,its business strategy calls for different levels of focus on each business. Looking ahead, the Company is aiming topursue an analogue strategy, and to strengthen its marketing. Currently, there is an oversupply of information, andthe deflationary economy looks set to continue as the population declines going forward. In such an environment,
customer contact points are a vital key to effectively selling products, which is to say, the Company recognizes theimportance of marketing. Under its business classification, this area comes under the sales promotion services
business centered on the human work-force service including consultation and operations management agency
businesses. A distinctive characteristic of the Company’s operating strategy is that it seeks to attract not only its
existing customers (companies that already have Shopserve contracts), but also large-scale orders from other large
customers.
3. As a solution to issues with strengthening sales promotion services and building large-scale orders, M&A
will bring significant growth in the next fiscal year
In January 2020, the Company made Commerce21 Corporation (“Commerce21”) a consolidated subsidiary, followedin March 2020 by WebCrew Agency Inc. (“WebCrew Agency”), which was also made a consolidated subsidiary.
Commerce21 provides EC systems for large companies, while WebCrew Agency has a wide-ranging backgroundworking primarily with major corporations to develop marketing strategies and branding. These M&As have thepotential to solve two issues for the Company: strengthening sales promotion services, and building large-scaleorders. Both Commerce21 and WebCrew Agency also present very clear synergies, with expected benefits that
include expanded orders for sales promotion services. The Company is thus expected to experience significant
growth in FY3/21, and could see annual sales leap to in excess of ¥10,000mn.

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01 17

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

Estore Corporation

20-Apr.-2020

4304 TSE JASDAQ

https://estore.co.jp/investors/

Summary

4. Increased likelihood that FY3/20 operating profit will exceed full-year forecast
The Company’s results for FY3/20 3Q saw net sales decline 2.3% YoY to ¥3,622mn, with operating profit down 3.8%
to ¥378mn. In terms of progress toward the full-year forecast, net sales were at 71.8% (down 3.4 percentage points
YoY), while operating profit reached 109.0%, already exceeding budget. This figure also already incorporates theimpact of the consumption tax increase and of projects sponsored by the Ministry of Economy, Trade and Industry
to provide rebates to consumers for cashless payments, both of which were items of concern. For FY3/20, theCompany anticipates net sales of ¥5,047mn, up 2.3% YoY, and operating profit of ¥347mn, a YoY decline of 32.7%,
but even if upfront costs should arise for securing consulting personnel for its sales promotion services business, it
is increasingly likely that full-year operating profit will end up exceeding this forecast.
Key Points
Aiming for growth with the themes of “analogue strategy” and “marketing”
Operating profit for FY3/20 3Q has already exceeded the full-year forecast• Significant growth expected in FY3/21 as M&A strengthen large-scale orders and sales promotion services••

R e s ul ts t rends
Net sales (left)

（¥mn）
7,000

Operating profit (right)

（¥mn）
700

628
554

6,000
5,000

600

515

500

407
347

4,000
3,000

2,000

400
300

4,660

4,775

5,044

4,932

5,047

200

1,000

100

0

0
FY3/16

FY3/17

FY3/18

FY3/19FY3/20 E

Note: Transitioned to consolidated results from FY3/19
Source: Prepared by FISCO from the Company's financial results

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/█ Business overview
From servers to software, from stock to flow, from systems toservices
1. Shifting business focus every seven years
Since its foundation in 1999, the Company has consistently developed EC support-related businesses. However,in this process, it has grown while shifting its business focus roughly every seven years to reflect the changes in thebusiness environment and the growth of the Company itself. As each business hit its stride and reached the stageof establishing an earnings base, the Company would use these earnings to expand into creating a new businessto contribute to earnings in a repeated cycle. It can be said that the current year of 2020 is in the period to shift
from the third to the fourth cycle.
Estore’s history and the shifts in its business development
Date
February 1999

Event

Business segment

Founded Estore

July 1999

Started providing the shopping cart service storetool

Systems Business

September 1999

Started providing the web hosting service Siteserve

Systems Business

March 2000

Sales partnership with Osaka Yusen Broadcasting Co., Ltd. (currently, USEN
Corporation)

Systems Business / OEM subscriptions

June 2000

Sales partnership with Sony Communication Network Corporation (currently, So-net
Entertainment Corporation)

Systems Business / OEM subscriptions

July 2004

Business and capital partnership with TELEWAVE, INC. (currently, iFLAG Co., Ltd.)

Systems Business / OEM subscriptions

November 2005

Established a business alliance with Yahoo Japan Corp. <4689>

Systems Business / OEM subscriptions

November 2005

Established a business alliance with Kakaku.com, Inc. <2371>

Systems Business / OEM subscriptions

Started providing the Shopserve comprehensive eCommerce support service under its
proprietary domain

Systems Business

January 2006

Launched the product search site Shoppingfeed

Systems Business

June 2011

Converted Precision Marketing, Inc. into a consolidated subsidiaryMarketing Business

July 2012

Established the Sapporo Marketing FactoryMarketing Business

October 2012

Established the shopping site PARK, featuring shopping recommendations issued by“curators” in 34 genres

Marketing Business

October 2013

Started providing the Single Hand simple customer acquisition service

Marketing Business

January 2016

Removed Precision Marketing from the scope of consolidation

Marketing Business

Strengthened the Promotions Business sales force

EC BusinessAugust 2016

Shopserve is compliant with Amazon Pay

EC Business

March 2017

Shopserve includes bitcoin payments as standard (provided to 12,500 stores)

EC BusinessStarted providing Estore Compare sales promotion system

Marketing Systems

Started providing Estore Query sales promotion system

Sales promotion systems

August 2018

Established CrossTrust, Inc. and made it a consolidated subsidiary

EC Business

January 2020

Made Commerce21 Corporation a consolidated subsidiary

Sales systems

Made WebCrew Agency Inc. a consolidated subsidiary

Sales promotion services

November 2006

April 2016

July 2017
September 2017

March 2020

Note: S egment names are the segment names on the corresponding dates. Currently, the former Systems Business and EC Business have beenchanged to sales systems business, and the Marketing Business has been changed to the marketing services business.
Source: Prepared by FISCO from Company materials(1) 1999–around 2006
The Company’s business first started from shopping cart services. After that, it started the provision of rental
servers that are needed in order to establish a website, and the rental server business became the main support
for the Company’s early days. While retaining the rental server business as its core operation, the Company rolled
out a series of services needed for conducting EC in addition to its shopping cart services. These paved the way
for the Shopserve ASP service providing comprehensive EC support, launched in 2006.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Business overview(2) 2006–2012
Over the seven years from 2006, the EC systems business in the form of the Shopserve ASP service providing
comprehensive EC support became an earnings source for the Company. Shopserve is an ASP service thatprovides, as a single service, management of elements such as the store’s website, domain, email, payments,
ordering, and customers. In terms of its revenue, the Company collects monthly fees for the usage of the ASP
service from customers, so it can be said to be a so-called recurring-revenue type business model. Recurring
revenue is very effective for stabilizing the management foundation. The Shopserve customer base has steadily
expanded and contributed significantly to the Company’s growth and management stabilization.
Once the EC systems business hit its stride, in terms of supporting the growth in sales at its customer companies,
the Company began a parallel project of supporting the growth in sales at customer companies and expanding
revenue by collecting a fixed percentage of net sales from customers (revenue from fees linked to the sales scale)as payment agency commissions (via store websites on Estore’s Shopserve). This business structure is describedas flow-type revenue and is distinguished from the monthly fees from Shopserve (recurring revenue) in revenue
management, even though the revenue comes from the same customers.
(3) 2012–2018
The net sales from existing customers (EC system customers) expanded steadily, with a good compositionalbalance between recurring revenue and flow revenue. Meanwhile, the Company began strengthening theMarketing Business with an eye to developing it as the core business for contributing to earnings. This involved
commercializing the Company’s sales promotion support expertise for effectively expanding customers’ net
sales. The two main points were 1) acquiring fees from consulting and operations management agency services
by commoditizing its sales promotion support expertise and policies, and 2) selling these services to customers
other than existing customers (EC system customers).
The Marketing Business initially consisted of two businesses, the sales promotions business, which provided
consulting and operations management agency services, and the media business, which managed the park EC
shopping mall. The Company has positioned the sales promotions business as the business domain it should
focus on the most. It distinguishes it from the marketing systems business described below and it currently calls it
the sales promotion services business (or marketing services business). Also, it has positioned the media businessas a non-focus business, because it has powerful rivals, like Amazon, and it has fulfilled a certain purpose. As aresult, the Company ended the media business on September 30, 2018.
(4) From 2018 to the present day
The sales promotion services business includes a human work-force service that is costly and difficult to operate
in general. Therefore, the Company has sought to provide sales promotion services through a system insteadas the next growth driver, and has been working to develop this system. As a result, in autumn of 2017, theCompany started providing two software packages: Estore Compare and Estore Query (in some cases, they arecollectively referred to as the Back Store Group). This sales promotion systems business is called the marketingsystem business (or the sales promotion systems business), and in 2018 the Company started full-scale efforts
to expand sales of the above two software packages.
After passing through the above-described transition, the Company had only one business segment: the EC
business. But the Company divided it into three segments according to the target of the service provision (“sales”
or “sales promotions”) and the provider and the method of provision (“machinery and software” or “work-force
services”). These three categories include sales promotion services, sales promotion systems, and sales systems
businesses. Also, there is an electronic certification (e-certification) business.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Business overview

Business shifts and objectives

Source: Prepared by FISCO from Company materials and interviews

Businesses categorized on two axes—sales and sales promotion,and systems and services—function three-dimensionally and in
multiple layers according to their relationship with one another
2. Business structure
As noted above, the Company started the sales promotion systems business in 2017, completing a three-businessstructure comprising the sales system (EC system) business, the marketing services (sales promotion service)business, and the sale promotion system (marketing system) business. These three businesses are presented inthree quadrants created from two axes: the sales and sales promotion (marketing) axis and the systems (machineryand software) and work-force services axis.
Business domains so far

Source: Prepared by FISCO from Company materials and interviews

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Business overview

The Company’s growth strategy is, of course, to grow earnings in the three quadrants of the business domains. But
the key point is that each of the businesses does not exist separately (independently) from each other on the sameplane, but rather they relate to each other in various ways, such as having causal, substitution, and complementary
relations, and they have a three-dimensional and multilayered existence according to their relationship with one
another. Therefore, in order for the Company to grow earnings, of course the various businesses must work together
to pursue synergies, but it is also necessary for the Company to deal with its customers by combining businesses
and modifying their relations according to changes in the market environment and the changing times.

█ Medium-term growth strategy
Respond to a surfeit of information and deflation with a strategy
rooted in relationships with existing customers at just the right
distance
1. Recognition of the business environment and target direction
After starting with the sales systems business (rental serves, comprehensive EC support service Shopserve, etc.),
recently the Company has released its sales promotion systems (E Store Compare and E Store Query) as it makes
used of IT and digital technology in its businesses. At the same time, however, the company has positioned its“analogue strategy” at the heart of its growth strategy. This may be out of the blue, but realizing how the Company
perceives its own current status is necessary to understand this focus.
The Company’s analysis shows that while the march of the IT society will continue unchecked, the demand side(consumers) has become sated (full) with IT (more precisely, with the volume of information provided as a result of
the adoption of IT). Given this situation, the Company considers that predicting demand using big data and AI will
have only limited effectiveness. By contrast, the Company believes that an analogue strategy of building comfortable
relationships with its corporate customers and consumers, with just the right amount of distance, will prove effective.
Another very important factor influencing the Company’s growth strategy is Japan’s deflationary economy. The
nation suddenly finds itself a society with a shrinking population, and the generation that experienced the collapseof Japan’s asset bubble is rapidly aging. The Company recognizes that the deflationary economy is therefore going
to continue. This is expected to propel a transition from a consumer society that consumes physical things, to asustainable society that makes physical things last longer. Since it is more difficult to sell products in a sustainable
society, it will probably be important for the Company to pursue sales strategies based on relationships with existing
companies.
The Company also considers that the deflationary economy will put pressure on companies to change their sales
methods. To pursue sales strategies based on relationships with existing companies, the Company predicts thatcompanies will need to shift to sales strategies that do not rely on central locations such as malls, that is to say,direct sales.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Medium-term growth strategy

Given the above understanding of the situation and the future outlook, it is clear that among its three current businesssegments, the domain the Company will focus particularly on is the services business. A system-driven approach
is of course important, but among sales systems, Shopserve is gradually becoming a non-focus business as it
becomes crowded with competition. Sales promotion systems are expected to help make sales promotion services
more efficient, and were expected to become a field of focus alongside sales promotion services. However, today
the Company’s sales promotion systems are often judged to be premature, and the Company appears to haveadopted a policy of not pushing them too hard. Meanwhile, it is vital for the Company to expand work-force services
on both the sales promotion and sales sides if adding services that involve people better capture the subtleties ofconsumer needs.
To date, the Company has gradually changed the direction of its own growth to stay aligned with changes in social
conditions. Given the above situation, however, the Company is shifting the size of its target companies from theprevious focus on small and medium-sized firms to large companies. In addition, in terms of revenue, the Company
is also shifting from customer sales corresponding to sales system flow revenue (revenue from fees linked to scaleof sales) to fee revenue from consulting in its sales promotion services business. That said, the goal of consulting is
to expand customer net sales, ultimately leading to expanded revenue from fees linked to scale of sales, making it
possible for the Company to increase customer net sales along with consulting revenue. Meanwhile, because it isdifficult to pay consulting fees without a certain scale of business, the strategy of shifting consulting to target large
companies makes sense.
Conceptual diagram of growth direction for Estore

Source: Prepared by FISCO from interviews

Switching from recurring revenue to flow revenue by shifting to large
customers
2. The sales systems business growth strategy
As described in the business overview section, the sales systems business revenues are classified into two types.
The first is revenue from the Shopserve ASP service, which provides comprehensive EC support. This is a stock-typebusiness model in which the Company receives monthly usage fees. The other type of revenue is collected as afixed percentage of net sales conducted via Shopserve as a result of supporting for sales expansion of customer
companies (revenue from fees linked to sales scale). This is described as a flow-type business model. The Company
manages and discloses its recurring revenue and flow revenue separately.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Medium-term growth strategy

The Company’s recurring revenue continues on a declining trend. This is because, as competition grows more intense
as the number of companies offering similar services grows, the Company is shifting toward larger customers, evenas it maintains its management stance of not pursuing customer numbers. The result is an ongoing situation inwhich new contract acquisitions fall below the steady rate of contract cancellations (mainly individual stores andsmall and medium-sized companies acquired in the past). Meanwhile, growth in flow revenue did not continue, andactually dropped in FY3/19. This is because even as new acquisitions of large customers have fallen below plan, theCompany has been unable to make up for the impact of a drop in the number of Shopserve contracted customers.
On the other hand, as the Company expected, net sales per store have generally increased. This rise in per-store
sales can be divided between an increase in sales among the same customers and a change in customer composition with the shift to large companies. The Company is currently focusing on the latter, and under the slogan of“shift to good products, good stores,” it is pushing ahead with that shift to large customers in its acquisition of newcontracts. Under the policy of not pursuing customer numbers, acquisition of new large customers will not lead toan increase in recurring revenue. In terms of flow revenue, however, a change in sales composition with the shift tolarge customers, which have significant per-store sales, is expected to lead to expansion, though currently the effectis limited. This can also be seen as an effort to switch from recurring revenue to flow revenue.
Amount of commercial activity per store

Source: Posted from the Company's financial results

Newly released software has been found to be effective, butmany have claimed it to be “premature.” For now, the business is
expected to continue developing slowly
3. The sales promotion systems business growth strategy
The sales promotion systems business refers to the development and sales of sales promotion support systems,
which is to say promotion software. The objective of the business is to expand customers’ sales, which overlaps
with that of the sales promotion services; however, the revenue model is made up of fixed basic monthly fees anda pay-for-use charge according to the number of times the services is used.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Medium-term growth strategy

By autumn of 2017, the Company launched two Marketing Automation (MA) tools: Estore Compare (“Compare”) andEstore Query (“Query”). Compare is a tool that helps to increase EC website sales by using A/B comparison testing
for an EC website to determine in real-time which has the higher conversion ratio (CVR), number of conversions,and life time value (LTV). On the other hand, Query is an email marketing tool for business operators who alreadyhave an existing customer base of a certain size. The main feature of the tool is that it can distribute personalized
email through refined customer characteristics.
In the sales promotion systems business, fully fledged sales activities only began from FY3/19. Initial sales targeted
existing Shopserve customers, and the Company planned to expand sales to external customers while monitoring
the status of the initial sales. However, at this stage, sales have been lower than planned. The main factor appears tobe the perception that the product is “premature.” In response to the situation, the Company has been proceeding
slowly while reviewing the sales cost and target customers during FY3/20.
As described above, at this stage, the Company has been compelled to review its initial sales strategy. However,
we believe there is ample potential to review the efficacy of the strategy over the medium to long term since theCompany is confident of its products. In the short term, it seems possible that the sales promotion systems could
be used to improve internal productivity in the sales promotion services business, which requires human input. The
results could potentially be used to promote the tools and create sales in the future.

Strengthening consulting and optimizing the distance between
customers and consumers
4. The sales promotion services business growth strategy
In the sales promotion services business, the Company provides survey, analysis, consulting, and operations
management agency services, among others, to help customers increase their sales. This service is distinguished byits high reliance on the human work force as it requires human input. This has both positive and negative implications,which will be described later.
The Company’s increased focus on strengthening its sales promotion services, in particular consulting, is basedon its understanding of social trends, the business environment and other factors. The three elements required forbusiness to succeed are “good products,” “good markets,” and “good information.” However, the current state ofthese in Japan has degenerated, and we now have “oversupply,” “declining population,” and “information overload,”a situation in which things do not sell. The fundamental strategy for expanding sales in those circumstances is forcustomers to deal with consumers on a one-to-one basis, becoming specialty stores and optimizing the distance
between themselves and consumers. Specifically, it is important to do business as a directly-owned store, throughthe company’s own EC, its main store EC and through specialty store EC. Supporting those stores’ success will be
the Company’s consulting and other sales promotion services.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Medium-term growth strategy

Conceptual diagram of the three elements for a flourishing business and success

Source: Prepared by FISCO from the Company’s Shareholders’ Letter (2018) and its company brochure

In sales promotion services, net sales grew extremely strongly through FY3/18, but slowed sharply beginning in
FY3/19. This reflects factors including stronger seasonal promotions in FY3/18 that led to special demand. It is also
possible that sales aimed at acquiring new customers were affected by a large-scale restructuring undertaken withthe goal of rejuvenating management positions on a Company-wide basis. While per-order prices have recovered
going into FY3/20, current contract growth and scale is still insufficient to increase efficiency in consulting, a service
that is highly dependent on a human workforce. The fact that it is taking time to acquire large customers with annual
contract amounts in excess of ¥10mn is also a major issue.

T r e nds i n n et s al es of s al es p romo tion s ervices
1H

（¥mn）

Full year

1,400
1,200
1,000
800
600
400

200
0
FY3/15

FY3/16

FY3/17

FY3/18

FY3/19FY3/20Source: Posted from the Company's results briefing materials

There are distinctive positive and negative features in services that rely significantly on the human workforce. On thepositive side, it means that the service cannot be easily imitated by other companies. On the negative side, humanresources (consultants) require time for acquisition and training, making it difficult to increase capacity. To be precise,
the Company makes sufficient budget allowance for human resource investment each year in its business plan. Overthe past few years, the Company has not progressed as planned on acquisition and development of consultants, sothat expenses have effectively been lower than envisaged. As a result, we are unable to view the higher-than-planned
profits in a positive light when considering the situation from a long-term perspective.

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Medium-term growth strategy

From a medium- to long-term perspective, we believe it is actually preferable that the Company spend as planned.
The budget calls for an annual increase of 5 to 10 consultants, and if recruitment and training proceed as planned, we
believe the Company will be able to establish the team it is aiming for in two to three years. We hope the Company
will manage to increase its human resources as quickly as possible while maintaining its selection standards.

Solving medium-term issues by strengthening sales promotion
services and building large-scale orders through M&A
5. M&A aimed at bringing in large companies
In January 2020, the Company acquired all of the shares of Commece21 from Z Holdings Corporation (formerly
Yahoo! Japan Corporation). In March 2020, it also acquired all of the shares of WebCrew Agency from NFC Holdings,
Inc. <7169>, a company owned by Hikari Tsushin, Inc. Both acquisitions were made consolidated subsidiaries.
Commerce21 provides a packaged EC integration system that offers a flexible response to the needs of large
companies seeking a high degree of scalability. WebCrew Agency is a certified online ad partner of Google, Yahooand Twitter, and has a record of drafting marketing strategies and providing outsourced management of branding
and promotional operations for a wide range of clients, primarily large companies.
These M&As are expected to offer the Company an opportunity to solve two issues—strengthening its sales
promotion services and building large-scale orders. In addition, they are also expected to improve cost efficiency
by converting outsourcing expenses to internal net sales. By partnering with the Company, both Commerce21 and
WebCrew Agency will also be able to offer larger-scale, stronger sales promotion services. As a result, this will enable
the Company to provide its customers with a comprehensive set of EC solutions.
Future business domains

Source: Prepared by FISCO from Company materials and interviews

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Medium-term growth strategy

Next fiscal year will likely see group grow to exceed ¥10,000mn in
net sales
6. Scenario for medium-term growth
Here we consider a scenario for medium-term changes in revenue taking into account the M&As involving
Commerce21 and WebCrew Agency, and based on the following assumptions: First, in FY3/19, Commerce21
had net sales of ¥2,038mn and operating profit of ¥362mn, while WebCrew Agency posted net sales of ¥3,385mn
and operating profit of ¥59mn; next, in FY3/20, the Company forecasts net sales of ¥5,047mn, with net sales
for Commerce21 at ¥1,700mn and for WebCrew Agency at ¥3,600mn. We also assumed that the M&As will
generate synergies, accelerating large orders for the Company and expanding orders for sales promotion services
for Commerce21 and WebCrew Agency. Net sales will rise rapidly in FY3/21 as a result, and will continue to increaseat a sharper than usual degree on the basis of these synergies. Profits from the two companies will also be added tototal profits, but the transactions will generate amortization of goodwill and other integration costs, so an increasein operating profits will likely follow on a bit later. According to this scenario, there is a strong possibility that theCompany will see annual sales leap significantly beyond ¥10,000mn following the consolidations. Incidentally, it
appears that resignations at new subsidiaries Commerce21 and WebCrew Agency attributable to the M&A were
essentially zero. It seems the transactions were welcomed by the acquired parties both in terms of fit and synergies.
Medium-term growth scenario

Source: Prepared by FISCO from interviews, etc.

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

12 17

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/█ Results Trends
While efforts to strengthen human resources are expected togenerate upfront costs, FY3/20 3Q results still exceeded the full-year
forecast
1. FY3/20 3Q results
In the Company's FY3/20 3Q results, sales and operating profit declined, with net sales of ¥3,622mn (down 2.3%
YoY), operating profit of ¥378mn (down 3.8%), recurring profit of ¥448mn (down 3.9%), and profit attributable toowners of parent of ¥321mn (down 3.3%).
FY3/20 3Q results(¥mn, %)
FY3/19 3Q

Vs. sales

Progress vs.
full-year

Net sales

3,706

100.0%

75.2

3,622

100.0%

-2.3%

71.8%

Gross profit

1,115

30.1%

74.8

1,138

31.4%

2.1%

-

SG&A expenses

722

19.5%

74.1

760

21.0%

5.3%

-

Operating profit

393

10.6%

76.2

378

10.4%

-3.8%

109.0%

Recurring profit

466

12.6%

80.0

448

12.4%

-3.9%

116.7%

Profit attributable to owners of parent

332

9.0%

81.1

321

8.9%

-3.3%

107.8%

FY3/20 3Q

Vs. sales

Rate ofchangeProgress vs.
forecast

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

In FY3/20 3Q, the Company continued to reduce its reliance on its shopping cart business (sales systems business),which faces intensifying competition due to commoditization. At the same time, it made progress in restructuring
to increase the ratio comprising the sales promotion services business, where the market is expanding. While itfocused particularly on strengthening large orders and sales promotion services, and saw a rise in rates per order,
the Company was late to invest in the sales promotion services business, causing a slight delay in restructuring,and causing it to fall somewhat behind in terms of the rate of progress in net sales versus the same period in theprevious year.
Operating profits, meanwhile, fell compared to the same period in the previous year, as the Company reduced its
reliance on the shopping cart business (decline in recurring revenue) and increased sales of its sales promotion
services. Still, the rate of progress in operating profits has exceeded 100% of the Company’s full-year forecast, asolid result. In part, this was due to the fact that the Company made less progress than expected in new consultant
hiring and other human resource investments, which it had planned to pursue aggressively, and curbed the use ofsales ads.
Breakdown of net sales by business(¥mn, %)
FY3/19 3Q

Vs. sales

FY3/20 3Q

Vs. sales

Rate of change

2,826

76.2%

2,716

75.0%

Sales promotion services

850

23.0%

880

24.3%

3.4%

Sales promotion systems

10

0.3%

7

0.2%

-22.1%

-

-

17

0.5%

-

Sales systems (shopping cart business)

Electronic certification (e-certification)

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

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

13 17

-3.9%

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

Estore Corporation

20-Apr.-2020

4304 TSE JASDAQ

https://estore.co.jp/investors/

Results Trends

The Company is strengthening consulting in its sales promotion services business and upselling to Shopserve
customers is going well. Sales activities aimed at capturing new large orders are showing lead times to capturing
actual orders that are longer than planned, and given the time required between the receipt of an order and delivery,
the Company is struggling in this respect.
In its sales promotion systems business, the Company has changed how it markets its Estore Compare (AB testtool) and Estore Query (mail marketing tool) systems for sales promotion, disbanding its dedicated sales team andreincorporating the systems as one product handled by the normal sales team. As a result, while the Company views
sales promotion systems as a growth market, it currently takes a natural stance toward sales.
In the sales system business, the Company is moving forward with a structural transformation of its Shopserve
shopping cart business. By working to gain good stores suited to company-owned EC, rather than intentionallyseeking volume, the Company has seen the cumulative number of user stores drop and recurring revenue decline,
but per-store commercial activity increased 10% in FY20/3 3Q on a cumulative basis. In addition, the Company’s
participation in the cashless payment consumer rebate project associated with the increase in the consumption tax
brought a rise in the amount of credit card payments handled and in the ratio of credit card settlements, but rules
regarding business owner responsibility for cost-related portions resulted in a drop in flow revenue. As a result,
recurring revenue was down 3.7% YoY, to ¥1,256mn, while flow revenue fell 4.1% YoY to ¥1,459mn.
The e-certification business was acquired in the previous term (August 2018) with the goal of preventing high-risksites from being displayed in the browser, and protecting stores against a drop in sales and profits. As that goal
has now largely been met, the Company continues to operate the service at a reasonable level, and net sales weregenerally flat.

FY3/20 operating profits likely to exceed the full-year forecast
Will provide momentum for significant growth in FY3/21
2. FY3/20 results outlook
Estore forecasts for a profit decline on increased sales for the full year in FY3/20 with ¥5,047mn in net sales (up2.3% YoY), ¥347mn in operating profit (down 32.7%), ¥384mn in recurring profit (down 34.1%), and ¥298mn in
profit attributable to owners of parent (down 27.2%).
FY3/20 results outlook(¥mn, %)
FY3/19Vs. sales

FY3/20forecasts

Vs. sales

Rate of change

Net sales

4,932

-

5,047

-

2.3%

Gross profit

1,490

30.2%

-

-

-

SG&A expenses

974

19.8%

-

-

-

Operating profit

515

10.5%

347

6.9%

-32.7%

Recurring profit

582

11.8%

384

7.6%

-34.1%

Profit attributable toowners of parent

409

8.3%

298

5.9%

-27.2%

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

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

14 17

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Results Trends

One factor the Company raised at the beginning of the year for a forecasted decline in profits in FY3/20 was upfront
costs for acquiring and training consultant resources for its sales promotion services business, a key focus area.
Over the past several years, the Company has put together similar budgets for these costs, but failed to make theexpected progress in acquiring such personnel, resulting in an ongoing pattern of profits ending up above forecast. A
similar pattern is likely to be seen in FY3/20. Still, progress toward operating profit in FY3/20 3Q has already reached109.0%, exceeding the full-year forecast even accounting for concerns raised with the increase in the consumption
tax. Going forward, even if efforts to acquire consultant resources in the sales promotion services business generate
upfront costs, there is a greater likelihood that full-year results will end up above the Company’s forecast.
Simplified income statement(¥mn, %)
FY3/20 3Q

FY3/17full year

FY3/18full year

FY3/19full year

Net sales

4,775

5,044

4,932

3,622

5,047

YoY

2.5

5.6

-2.2

-2.3

2.3

Gross profit

1,548

1,449

1,490

1,138

-

Vs. sales

32.4

28.7

30.2

31.4

-

SG&A expenses

1,141

895

974

760

-

Vs. sales

23.9

17.7

19.8

21.0

-

Operating profit

407

554

515

378

347
-32.7

FY3/20 full year
forecasts

3Q

-35.2

36.1

-6.9

-3.8

Vs. sales

8.5

11.0

10.5

10.4

6.9

Recurring profit

401

582

582

448

384

-36.1

44.9

0.1

-3.9

-34.1

285

411

409

321

298

-32.1

44.1

-0.4

-3.3

-27.2

YoY

YoY
Profit attributable to owners of parent
YoY

Note: The Company transitioned to consolidated results from FY3/19, so the growth rates for FY3/19 are reference values
Source: Prepared by FISCO from the Company's financial results

Simplified Balance Sheet(¥mn)
FY3/16full year

FY3/17full year

FY3/18full year

FY3/19full year

FY3/20 3Q

3,058

3,012

3,568

3,710

4,716

2,385

2,312

2,778

2,977

3,934

Inventories

4

9

7

18

17

Fixed assets

447

480

411

785

846

Tangible fixed assets

82

129

106

106

112

Intangible fixed assets

108

103

74

56

48

Total assets

3,505

3,492

3,979

4,496

5,563

Current liabilities

2,471

2,296

2,490

2,065

2,834

324

-

-

-

-

18

22

26

1,025

1,025

Current assets
Cash and deposits

Short-term interest-bearing liabilities
Fixed liabilities

-

-

-

-

-

Shareholders' equity

1,012

1,173

1,461

1,402

1,700

Net assets

1,015

1,173

1,462

1,404

1,702

Long-term financial liabilities

Note: Non-consolidated results for FY3/17 and FY03/18
Source: Prepared by FISCO from the Company's financial results

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

15 17

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

Estore Corporation

20-Apr.-2020

4304 TSE JASDAQ

https://estore.co.jp/investors/

Results Trends

Cash flow statement(¥mn)
FY3/15full year

FY3/16full year

FY3/17full year

FY3/18full year

FY3/19full year

Cash flows from operating activities

678

613

465

691

-26

Cash flows from investing activities

-122

-163

-88

-39

-349

Cash flows from financing activities

-252

-376

-449

-124

513

1

0

-0

-0

-0

305

74

-72

527

136

Balance of cash and cash equivalents at beginning of year

2,005

2,310

2,385

2,312

2,840

Balance of cash and cash equivalents at end of year

2,310

2,385

2,312

2,840

2,976

Exchange rate adjustments on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents

Note: Non-consolidated results for FY3/17 and FY03/18
Source: Prepared by FISCO from the Company's financial results█ Shareholder returns
FY3/20 dividend expected to be level YoY at ¥29.
1. Dividend policy
The Company basically returns profits to shareholders through dividends. It pays dividends after taking into accounta comprehensive range of factors, including business results, financial position, and the need to retain sufficientinternal reserves to invest in growth. While it does not formulate an official dividend payout ratio, the foundationof Estore’s thinking on the distribution of profits is its basic philosophy of “dividing profits between three groups;
shareholders, customers, and staff.” In the past also, it has a track record of determining the dividend based on thisbasic philosophy. The Company has decided on a dividend of ¥29 for FY3/19, an increase of ¥1 from FY3/18. For
FY3/20, the Company has announced a dividend of ¥29 (year-end only), level with FY3/19.

T r e nds i n E PS , di vi dend p er s hare, and di vi dend payout rati oDividend per share (left)（¥）

Dividend payout ratio (right)
46.4%

50.00

43.4%

40.00

35.1%

36.4%

28.00

29.00

30.5%

30.00

24.00

50.0%
40.0%

29.00

24.00

30.0%

20.00

20.0%

10.00

10.0%

0.00

0.0%
FY3/16

FY3/17

FY3/18

FY3/19FY3/20 E

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

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

16 17

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

Estore Corporation
4304 TSE JASDAQ

20-Apr.-2020
https://estore.co.jp/investors/

Shareholder returns

Shareholder benefits dramatically increased from once-yearly
dividend of ¥500 to twice-yearly dividends totaling ¥2,000
2. Shareholder benefits
In addition to cash dividends, the Company also provides a shareholder benefits program. Recently, the Company
announced that this program will be enhanced. Up until now, shareholders holding at least one trading unit (100shares) as of March 31 each year have been gifted a QUO card with ¥500 of value. Now, this gift will be increased
to a QUO card with ¥1,000 of value, given twice a year to shareholders as of September 30 and as of March 31.
The annual shareholder benefit amount will thus be quadrupled from ¥500 to ¥2,000 per year. This system wasapplied from September 30, 2019.

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

17 17

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.
FISCO and its affiliated companies, as well as the directors, officers and employees thereof,
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