Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/change-inc" target="_blank" data-smartkarma-citation="entities:27414:1" rel="noopener">Change Inc (3962 JP)</a>  reported its 2QFY09/2021 results today where the company’s revenues increased 82% YoY while operating profit more than tripled to JPY701m compared to JPY156m in the same quarter a year ago. The strong performance for the quarter was primarily driven by the company’s Publitech business whose revenues grew more than 100% during the quarter.

Change Inc (3962 JP)  reported its 2QFY09/2021 results today where the company’s revenues increased 82% YoY while operating profit more than tripled to JPY701m compared to JPY156m in the same quarter a year ago. The strong performance for the quarter was primarily driven by the company’s Publitech business whose revenues grew more than 100% during the quarter.

Change 2QFY21: PubliTech and M&A to Drive Earnings; Current Multiples Offer Good Buying Opportunity

Japan Specialist

Mark Chadwick

<ul style="list-style-type: disc;" role="list">
<li role="listitem" data-leveltext="" data-font="Symbol" data-listid="1" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><a href="https://www.smartkarma.com/entities/chatwork-co-ltd" target="_blank" data-smartkarma-citation="entities:28295:1" rel="noopener">Chatwork Co Ltd (4448 JP)</a>  is Japan’s leading business chat app provider with a ¥50bn market capitalization.  </li>
<li role="listitem" data-leveltext="" data-font="Symbol" data-listid="1" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">With 35% topline growth, the company's future lies in conquering the SME market and then using that as a platform to launch additional value-added services.  </li>
<li role="listitem" data-leveltext="" data-font="Symbol" data-listid="1" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Chatwork dominates within the SME chat market and competes head to head with <a href="https://www.smartkarma.com/entities/slack-technologies-inc" target="_blank" data-smartkarma-citation="entities:27904:1" rel="noopener">Slack Technologies Inc (WORK US)</a>  in Japan.  </li>
</ul>


Chatwork Co Ltd (4448 JP)  is Japan’s leading business chat app provider with a ¥50bn market capitalization.  
With 35% topline growth, the company's future lies in conquering the SME market and then using that as a platform to launch additional value-added services.  
Chatwork dominates within the SME chat market and competes head to head with Slack Technologies Inc (WORK US)  in Japan.  


Small Cap Growth: Chatwork (4448) – It’s Good to Chat.

In our previous insight on Chatwork <a href="https://www.smartkarma.com/insights/chatwork-ipo-good-revenue-growth-potential-but-limited-room-for-margin-expansion" target="_blank" data-smartkarma-citation="insights:32305" rel="noopener">Chatwork IPO: Good Revenue Growth Potential but Limited Room for Margin Expansion</a> , we covered the company’s IPO and in this follow-up insight, we take a look at the company’s most recent earnings release to assess if anything has changed since we last wrote on the company. Chatwork’s 3Q2019 results show significant growth in revenue however, we have observed that the revenue growth has been slowing down on both QoQ and YoY bases. At the same time, the company’s paid customer base too is growing at a declining rate alongside average revenue per paid customer. As we discussed in our previous insight, we mentioned that the company has limited room for expanding its margin due to its large non-paying customer base. During 3Q2019, Chatwork reported an OPM of 1.5% compared to 8.5% reported for the previous quarter and according to the company’s guidance, it expects an OPM of 1.0% for 4Q2019E and 3.7% for full-year 2019E. We believe, the company’s freemium customer base places significant pressure on its margins and we don’t expect the company to make excessive profits over the next 2-3 years. Chatwork’s current valuation multiples are at a hefty premium to its Japanese internet peers.We discuss the details below.

In our previous insight on Chatwork Chatwork IPO: Good Revenue Growth Potential but Limited Room for Margin Expansion , we covered the company’s IPO and in this follow-up insight, we take a look at the company’s most recent earnings release to assess if anything has changed since we last wrote on the company. Chatwork’s 3Q2019 results show significant growth in revenue however, we have observed that the revenue growth has been slowing down on both QoQ and YoY bases. At the same time, the company’s paid customer base too is growing at a declining rate alongside average revenue per paid customer. As we discussed in our previous insight, we mentioned that the company has limited room for expanding its margin due to its large non-paying customer base. During 3Q2019, Chatwork reported an OPM of 1.5% compared to 8.5% reported for the previous quarter and according to the company’s guidance, it expects an OPM of 1.0% for 4Q2019E and 3.7% for full-year 2019E. We believe, the company’s freemium customer base places significant pressure on its margins and we don’t expect the company to make excessive profits over the next 2-3 years. Chatwork’s current valuation multiples are at a hefty premium to its Japanese internet peers.We discuss the details below.

Chatwork: Profitability Remains a Concern Despite Good Revenue Potential

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/chatwork-co-ltd/overview" target="_blank" rel="noopener">Chatwork (4448 JP)</a> is a Japanese company that operates a cloud-based chat tool for businesses primarily in Japan. The company offers messaging, task management, file sharing, video call, contact management and user management, all integrated into one simple tool. Chatwork has applied to list its shares on the Tokyo Stock Exchange and has set the IPO price in the range of JPY1,440-1,600 per share which will give the company a valuation of about JPY53-55bn. Our analysis on the company’s business model and the financials reveals that the company operates a strong business model where the company revenues have grown significantly over the past five years. Chatwork has significant potential to grow its revenue while we expect the company’s margins to have limited room for expansion given that the company has a larger non-paying customer base. The company will have to continue to spend on its total customer base irrespective of if the customer is paying or otherwise.The current valuation of the company based on its IPO price of JPY1,440-1,600 per share makes the company shares look expensive. The workplace communication market is currently under penetrated; however, the company will start facing intense competition from international peers such as Microsoft Teams and Slack who have set their eyes on the growing Japanese workplace chat market. Furthermore, the existing shareholders of the company will be offering a majority of the shares (about 93%) at the IPO while the company will receive net proceeds worth JPY899m through the IPO. We don’t believe that the company is in need of huge funding to support its growth as it does not have any debt in its balance sheet and could have obtained funds through debt. Thus, it makes us believe that this IPO is a way to provide its early investors an opportunity to exit the business.

Chatwork (4448 JP) is a Japanese company that operates a cloud-based chat tool for businesses primarily in Japan. The company offers messaging, task management, file sharing, video call, contact management and user management, all integrated into one simple tool. Chatwork has applied to list its shares on the Tokyo Stock Exchange and has set the IPO price in the range of JPY1,440-1,600 per share which will give the company a valuation of about JPY53-55bn. Our analysis on the company’s business model and the financials reveals that the company operates a strong business model where the company revenues have grown significantly over the past five years. Chatwork has significant potential to grow its revenue while we expect the company’s margins to have limited room for expansion given that the company has a larger non-paying customer base. The company will have to continue to spend on its total customer base irrespective of if the customer is paying or otherwise.The current valuation of the company based on its IPO price of JPY1,440-1,600 per share makes the company shares look expensive. The workplace communication market is currently under penetrated; however, the company will start facing intense competition from international peers such as Microsoft Teams and Slack who have set their eyes on the growing Japanese workplace chat market. Furthermore, the existing shareholders of the company will be offering a majority of the shares (about 93%) at the IPO while the company will receive net proceeds worth JPY899m through the IPO. We don’t believe that the company is in need of huge funding to support its growth as it does not have any debt in its balance sheet and could have obtained funds through debt. Thus, it makes us believe that this IPO is a way to provide its early investors an opportunity to exit the business.

Chatwork IPO: Good Revenue Growth Potential but Limited Room for Margin Expansion

Japan

Chatwork Co.,Ltd. develops application software products. The Company produces a commercial communication application called chatwork which provides telephone instead, subsidy diagnosis, email replacement, and other services. Chatwork provides its services throughout Japan.

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Chatwork Co Ltd (4448 JP)

Change 2QFY21: PubliTech and M&A to Drive Earnings; Current Multiples Offer Good Buying Opportunity

Change reported its 2QFY09/2021 results today where the company’s revenues increased 82% YoY while operating profit more than tripled to JPY701m...

Shifara Samsudeen, ACMA, CGMA

Small Cap Growth: Chatwork (4448) – It’s Good to Chat.

$4448 is Japan’s leading business chat app provider with a ¥50bn market capitalization. With 35% topline growth, the company's future lies in...

Mark Chadwick

Chatwork: Profitability Remains a Concern Despite Good Revenue Potential

In our previous insight on Chatwork Chatwork IPO: Good Revenue Growth Potential but Limited Room for Margin Expansion , we covered the company’s...

Shifara Samsudeen, ACMA, CGMA

Chatwork IPO: Good Revenue Growth Potential but Limited Room for Margin Expansion

Chatwork (4448 JP) is a Japanese company that operates a cloud-based chat tool for businesses primarily in Japan. The company offers messaging,...

Shifara Samsudeen, ACMA, CGMA

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