'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Equity Bottom-Up

<div class="content-caption">

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/315/original/2019-02-09_12-04-43.png?1549681495" class="editor-image img-responsive" data-smartkarma-image-id="78315"></figure>
Source: Japan Analytics
</div>
TUMBLING DICE - After <a href="https://www.smartkarma.com/entities/18379" target="_blank" data-smartkarma-citation="entities:18379:1">ZOZO (3092 JP)</a> (-52%) and <a href="https://www.smartkarma.com/entities/27149" target="_blank" data-smartkarma-citation="entities:27149:1">Mercari (4385 JP)</a> (-50%), <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">CyberAgent (4751 JP)</a> is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace <a href="https://www.smartkarma.com/entities/19521" target="_blank" data-smartkarma-citation="entities:19521:1">Furukawa (5715 JP)</a> in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/317/original/2019-02-09_12-52-50.png?1549684397" class="editor-image img-responsive" data-smartkarma-image-id="78317"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the <a href="https://en.wikipedia.org/wiki/Skyscraper_Index" target="_blank">Skyscraper Index</a>. 
<div class="content-highlight">
This Insight will review: - 
<ul>
<li class="">CyberAgent's growth strategy</li>
<li class="">The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins </li>
<li class="">The three main business segments - Internet Advertising, Game Software, and Media</li>
<li class="">Cash Flow and Valuation</li>
</ul>
We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/318/original/2019-02-09_13-06-39.png?1549685220" class="editor-image img-responsive" data-smartkarma-image-id="78318"></figure>
<div class="content-caption">Source: CyberAgent Way 2018</div>
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 
<center><iframe src="https://www.youtube.com/embed/6U8JlcB_BzA" width="963" height="722" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen"></iframe></center>
<div class="content-caption">Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 </div>




Source: Japan Analytics

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in Japan over the last seven months.  The company is the sector's leading foreigner-held stock with over 48% (60%+ of the float) held by institutional investors such as Baillie Gifford (11.9%), JP Morgan AM (6.9%), Tybourne Capital (5.1%) and Blackrock Japan (5.0%). Having outperformed the sector and the market annually over the last nine years by 38% and 25%, respectively, over the seven months since the stock peaked in terms of our Relative Price Score on 13th July, CyberAgent shares have declined by 56%, underperforming the market by 48% and the sector by 37%.
PASSIVE PERILS - We will discuss the 'perils ' of Passive TV in the DETAIL below. However, CyberAgent is yet another good example of the 'perils' of passive investing. On September 5th Nikkei Inc. announced that CyberAgent would replace Furukawa (5715 JP) in the Nikkei 225 index, with the inclusion occurring on October 1st. Since the ¥6050 intraday peak of the week before inclusion in the index, the shares have declined by 49% in 90 trading days.   

Source: CyberAgent Way 2018
SUMMARY - CyberAgent's business has three 'pillars', internet advertising, mobile gaming software, and media. The latter now includes the linear free-to-view AbemaTV business, which helped drive the share price to a post-listing high of ¥6930 in July 2018. Since then, business conditions for two of these 'pillars' have degraded significantly,  while the fledgeling TV business remains in 'up-front' investment mode. To cap what will be a turbulent year for CyberAgent, the company is moving into a new head office building in Shibuya called 'Abema Towers' in March. We shall refrain from making any analogies to the Skyscraper Index. 

This Insight will review: - 

CyberAgent's growth strategy
The company's track profitability track record from the perspective of Net Operating Profit After Tax (NOPAT), Comprehensive Income and Operating Profit margins 
The three main business segments - Internet Advertising, Game Software, and Media
Cash Flow and Valuation

We will also attempt to value AbemaTV and will reverse-engineer some target metrics that would justify the market's current implied ¥41b valuation for this business, a valuation that reached ¥543b only seven months ago. 


Source: CyberAgent Way 2018
VISION SHIFT? - In previous years, CyberAgent had a clear vision statement - 'To create the 21st century's leading company'. The company's recent performance has led to a change of tone, and CyberAgent is now rather more modestly just 'Aiming to be a company with medium to long-term supporters'.  In the vein of the lyrics from the best song on the best Rolling Stones album, Exile on Main Street, the business has recently been at 'all sixes and sevens and nines'. In the search for new 'supporters', we encourage CyberAgent to just 'keep on rolling', letting the dice fall where they may. 

Exile on Main Street/Tumbling Dice - Jagger/Richards 1972 

Equity Analyst, LightStream Research

Supun Walpola

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.

Thematic (Sector/Industry)

The US SEC rejected proposals for nine Bitcoin ETFs this week.  <a href="https://www.smartkarma.com/entities/25895" target="_blank" data-smartkarma-citation="entities:25895:1">Bitcoin (XBTUSD CURNCY)</a> did not see any major reaction following the news and passed the USD6,500 mark on Friday, but altcoins, including <a href="https://www.smartkarma.com/entities/25896" target="_blank" data-smartkarma-citation="entities:25896:1">Ethereum (ETH BGN CURNCY)</a>, continued to fall against Bitcoin. 
Chinese regulatory crackdown on cryptocurrencies continues as the government decided to block websites of 124 offshore cryptocurrency exchanges in the country this week, while South Korean law makers are currently discussing the possibility to lift its ICO ban. More and more Japanese listed companies are entering the cryptocurrency space with <a href="https://www.smartkarma.com/entities/10928" target="_blank" data-smartkarma-citation="entities:10928:1">Sbi Holdings (8473 JP)</a>, <a href="https://www.smartkarma.com/entities/20414" target="_blank" data-smartkarma-citation="entities:20414:1">Forside Co Ltd (2330 JP)</a>, <a href="https://www.smartkarma.com/entities/15143" target="_blank" data-smartkarma-citation="entities:15143:1">Fasteps Co Ltd (2338 JP)</a> and <a href="https://www.smartkarma.com/entities/22772" target="_blank" data-smartkarma-citation="entities:22772:1">LINE Corp (3938 JP)</a> announcing their plans to expand cryptocurrency business operations this week. 
In the meantime, <a href="https://www.smartkarma.com/entities/27408" target="_blank" data-smartkarma-citation="entities:27408:1">Bitmain Technologies Ltd (1374554D CH)</a> faces some serious credibility issues ahead of its IPO this year.

The US SEC rejected proposals for nine Bitcoin ETFs this week.  Bitcoin (XBTUSD CURNCY) did not see any major reaction following the news and passed the USD6,500 mark on Friday, but altcoins, including Ethereum (ETH BGN CURNCY), continued to fall against Bitcoin. 
Chinese regulatory crackdown on cryptocurrencies continues as the government decided to block websites of 124 offshore cryptocurrency exchanges in the country this week, while South Korean law makers are currently discussing the possibility to lift its ICO ban. More and more Japanese listed companies are entering the cryptocurrency space with Sbi Holdings (8473 JP), Forside Co Ltd (2330 JP), Fasteps Co Ltd (2338 JP) and LINE Corp (3938 JP) announcing their plans to expand cryptocurrency business operations this week. 
In the meantime, Bitmain Technologies Ltd (1374554D CH) faces some serious credibility issues ahead of its IPO this year. 

This Week in Blockchain & Cryptos: A Terrible Week for Bitmain & More TSE Companies Doing Crypto

Japan

Forside Co.,Ltd. plans, produces, and provides Internet contents for cellular phone users. The contents include a variety of ringer melody and pictures.

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Forside Co Ltd (2330 JP)

CyberAgent: Tumbling Dice

TUMBLING DICE - After ZOZO (3092 JP) (-52%) and Mercari (4385 JP) (-50%), CyberAgent (4751 JP) is the worst-performing large-cap Internet stock in...

Campbell Gunn

This Week in Blockchain & Cryptos: A Terrible Week for Bitmain & More TSE Companies Doing Crypto

The US SEC rejected proposals for nine Bitcoin ETFs this week. Bitcoin (XBTUSD CURNCY) did not see any major reaction following the news and...

Supun Walpola

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52-week Range

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