Introduction
- * The business risks described below are based on information as of the end of December 2023.
- * Updates reflecting the organizational and business conditions as of January 1, 2025, are scheduled for release in March 2025.
The following describes matters that may be considered risk factors related to the business operations and other aspects of our company and its consolidated subsidiaries (hereinafter collectively referred to as the "Group"). Additionally, even if certain matters do not necessarily qualify as risk factors, they are disclosed below from the perspective of proactive information disclosure to investors, as they are deemed important for investment decision-making.
The Group recognizes the potential occurrence of these significant risks, as well as other minor risks, and undertakes risk control measures such as identifying and assessing management risks, implementing countermeasures, obtaining insurance coverage, conducting credit management, establishing specialized departments, and formulating regulations. These efforts are aimed at both preventing the occurrence of risks and ensuring appropriate responses in the event they materialize. Additionally, any forward-looking statements mentioned in this document are based on the Group's judgments as of the end of the current consolidated fiscal year.
Relationship with GMO Internet Group
Our Position within the GMO Internet Group
Our corporate group is part of the GMO Internet Group, a business group centered around GMO Internet Group, Inc. (hereinafter referred to as "GMO Internet Group"). As of the end of December 2023, GMO Internet Group, Inc. directly holds 9.66% of our voting rights and indirectly holds 47.35%.
GMO Internet Group operates under the corporate slogan "Internet for Everyone" and is engaged in various businesses, including Internet Infrastructure, Online Advertising & Media, Internet Finance, Crypto Assets, and Incubation. Within this structure, our corporate group is positioned as a core company responsible for the Online Advertising & Media business within the GMO Internet Group.
As a result, any changes in GMO Internet Group’s fundamental policies regarding our corporate group could impact our business operations and financial performance.
Transactions with GMO Internet Group
The proportion of our corporate group's consolidated sales to GMO Internet Group, Inc. is relatively high, and we maintain ongoing business relationships with other companies within the GMO Internet Group. Consequently, our business operations and financial performance may be affected by changes in GMO Internet Group’s business strategy, management policies, operating results, and financial condition.
Concurrent Directorships with GMO Internet Group, Inc.
Among our 11 directors (excluding Audit and Supervisory Committee members, consisting of 7 directors and 4 directors who are Audit and Supervisory Committee members), 5 individuals also serve as executives at GMO Internet Group, Inc.. Their positions in our company, their names, and their respective roles at GMO Internet Group, Inc. are as follows:
| Name | Position in Our Company | Position at GMO Internet Group, Inc. |
|---|---|---|
| Makoto Hashiguchi | President and CEO | Group Managing Executive Officer and CBO Head of Group Advertising Division Head of Group Branding, PR and Facility |
| Masatoshi Kumagai | Chairman of the Board (Non-Executive) |
Founder, Chairman and Group CEO President and CEO |
| Toshiaki Horiuchi | Vice President and Director Head of Group CTO Office |
Group Senior Managing Executive Officer Head of Group Engineer Recruitment and Technical PR Head of Next-Generation System Research Office |
| Masashi Yasuda | Director (Non-Executive) |
Director, Group Vice President Executive Officer and CFO Deputy to Group CEO, Head of Group Administration |
| Katsumi Arisawa | Director (Non-Executive) |
Group Senior Managing Executive Officer Head of Group Finance Head of Group International Support Office Group HR Director |
The above two individuals have been appointed to provide advice on the business of our corporate group. However, the management policies of GMO Internet Group may have an impact on our corporate group's business operations and financial performance.
Ensuring Independence from GMO Internet Group, Inc.
In our corporate group's business activities and management decisions, all operations are independently executed and developed based on our own decision-making process. Additionally, the concurrent roles held by executives at GMO Internet Group, Inc. do not hinder our independent management decisions. We consider that our corporate group's management autonomy is fully ensured, maintaining independence from GMO Internet Group, Inc..
Regarding our business transactions, the status of transactions with GMO Internet Group, Inc. is outlined in Section ② above. However, the majority of our corporate group's business transactions are conducted with general companies that do not have capital relationships with our company. Furthermore, when conducting transactions with GMO Internet Group, Inc. or other companies within the GMO Internet Group, we carefully assess the appropriateness of transaction terms by comparing them with those of third-party transactions before execution.
Business Activities of Our Corporate Group
Our corporate group is engaged in the Online Advertising and Media business, aiming to establish a dominant position in the industry. Given the anticipated rapid expansion of the Online Advertising and Media business, we expect our corporate group to continue its steady growth in scale.
However, since the Online Advertising and Media business is relatively more profitable within our corporate group, our financial performance may be affected by fluctuations in advertiser demand due to factors such as domestic economic trends influenced by large-scale disasters, outbreaks of infectious diseases, or other external factors.
For a detailed assessment of risks and countermeasures related to infectious disease outbreaks, please refer to the section titled "Impact of the COVID-19 Pandemic".
Impact of the Advertising Market on Business Performance
Our corporate group expands the number of advertising media we handle to meet the diverse needs of advertisers while also focusing on media development by feeding back advertiser needs to media providers. However, if the media we handle fail to adapt to new technologies in a timely manner or provide services that diverge from user preferences, the number of users on these platforms may decline, potentially affecting the sales of our advertising inventory.
Additionally, if online advertising media operators, which are among our corporate group’s business partners, are involved in so-called "ad fraud" (advertising fraud), advertisers affected by such incidents may reduce their advertising exposure. As a result, our corporate group’s advertising transaction volume may decline, which could impact our business performance.
Trends of Competitors
The Online Advertising and Media market is a growing industry with many existing competitors, and as the market expands, it continues to attract new entrants. In this competitive landscape, our corporate group strives to differentiate itself by developing services, strengthening sales capabilities, and enhancing technological expertise. However, if intensifying competition leads to a decline in the competitiveness of our products and services compared to other companies, it may impact our corporate group's business performance.
Dependence on Specific Business Partners
In the Online Advertising and Media business, our corporate group includes companies that serve as authorized agencies for Yahoo Japan Corporation and Google, Inc., with a significant portion of our consolidated revenue derived from products and services offered by these two companies. Additionally, we maintain a close business relationship with Yahoo Japan Corporation in the Online Advertising and Media business, including the provision of advertising inventory.
While we maintain a strong relationship with these business partners, changes in their business policies, contract renewal terms, or industry trends could lead to a reduction in transaction volume, which may impact our corporate group's business performance.
Business Activities with Overseas Entities
To keep up with technological advancements in the Online Advertising and Media business, our corporate group is actively pursuing business partnerships with overseas entities.
These partnerships comply with local laws and regulations; however, factors such as regulations on service imports and exports, taxation policies including tariffs, the establishment or amendment of local business laws, mergers or dissolutions of local entities, and unexpected changes in government policies or administrative procedures may impose restrictions on business operations, potentially affecting our corporate group's financial condition and business performance.
Additionally, social and political unrest caused by factors such as wars, terrorism, conflicts, riots, or other disruptions could impact our overseas business partners, which in turn may affect our corporate group's business activities.
Information Security
Our corporate group, through its business activities, handles sensitive information from business partners as well as personal information. We recognize that maintaining a robust and appropriate information asset management system is a critical priority.
However, in the event of a leakage of sensitive business partner information or other critical data from our corporate group, our social credibility may be significantly damaged, which could have a serious impact on our business performance and continuity.
System Management
Our corporate group specializes in Internet-related services and, in some cases, outsources critical operations such as Internet connectivity and data center maintenance.
As a result, if system failures occur in areas beyond our control, such as unauthorized access by malicious third parties, hardware or software defects (including bugs), or disruptions in outsourced services, part or all of the network systems used in our business may malfunction. This could lead to data loss or corruption, unauthorized access to sensitive information, or transaction disruptions.
Such incidents could not only result in lost revenue opportunities but may also expose our corporate group to significant claims for damages from third parties, administrative guidance from regulatory authorities, business suspension orders, or other legal sanctions, potentially having a severe impact on our business operations and financial performance.
Maintaining Compliance Systems
Our corporate group recognizes the need for continuous enhancement of comprehensive risk management and is committed to ensuring compliance across the entire organization. To achieve this, we implement various measures, including:
- Raising compliance awareness throughout the corporate group - Operating the Internal Audit Office, which reports directly to the President & CEO - Managing the internal whistleblowing system (GMO Helpline System) - Maintaining internal control systems under the Financial Instruments and Exchange Act - Establishing and operating internal control systems in accordance with the Companies Act
Through these initiatives, we strive for the continuous reinforcement of our compliance framework.
However, if rapid business expansion or a sharp increase in personnel outpaces the development of a sufficient compliance management system, it may become difficult to completely prevent compliance risks, including individual or organizational misconduct. In the event of a violation of laws and regulations, our corporate group’s business performance may be adversely affected.
Talent Acquisition and Development
As our corporate group expands, the increasing workload in the Online Advertising and Media business makes the recruitment and development of highly skilled personnel a critical management priority. To address this, we are actively strengthening our business planning and management structures, conducting proactive hiring, and enhancing organizational development and talent training through education and training programs.
However, changes in the employment environment and labor market conditions may require revisions to existing business strategies, a slowdown in business expansion, and diversification of recruitment methods, potentially leading to increased costs. These factors could impact our corporate group’s business performance and financial condition.
New Business Development and Business Investment
Our corporate group may establish new companies, invest in existing companies, or develop joint ventures as a means of business expansion and growth. These investment activities are carefully reviewed by internal expert committees, where the profitability and risks are assessed before making investment decisions, ensuring proper oversight.
However, it is challenging to accurately predict the impact of investment targets and new businesses on our corporate group. If unforeseen factors arise?such as the discovery of undisclosed liabilities, the occurrence of contingent liabilities, or if investment activities or new business ventures do not progress as planned?there could be significant difficulties in recovering investments, which may have a major impact on our corporate group's business performance.
Organizational Reform
Our corporate group is committed to continuously reviewing the functions of existing organizations, while also implementing measures such as cost optimization and asset reduction. Depending on the progress of these initiatives, if significant temporary expenses arise due to the restructuring of existing organizations, businesses, or operations, it may impact our corporate group's business performance and financial condition.
Impact of the COVID-19 Pandemic
Since our corporate group’s primary source of revenue comes from advertising placements by advertisers, our business performance may be affected by the economic environment and advertisers' financial conditions, which influence decisions on whether to spend on advertising and how much to allocate.
The global outbreak of COVID-19 has significantly impacted advertising communication activities, which connect advertisers with consumers. Some industries and business sectors have experienced severe financial difficulties due to these effects.
While our corporate group maintains a diversified portfolio of advertisers across various industries, rather than relying on a specific sector, if advertisers are negatively impacted by public measures such as emergency declarations, our corporate group's business performance and financial condition may also be affected.
As part of our COVID-19 response measures, our corporate group prioritizes the safety of customers, business partners, and employees. We are actively implementing strict health monitoring at office entry and exit points, travel restrictions, adjustments to work styles, and enhancements to remote work environments to prevent and control the spread of infections.
