Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

Internet Initiative Japan / Equity Bottom-Up

IIJ has fired its salvo in the pricing wars with c. 10-40% reductions in consumer mobile plans although a shift in bundle sizes could minimize the impact as subscribers are upsold. Unsurprisingly, there are no sub 1GB plans since Rakuten is giving that away but the 2GB/¥780 plan is competitive (Rak: 1-3GB for ¥980) whilst IIJ is adding tiers higher than 12GB for the first time. On the aggregate, other businesses including Enterprise Mobile are generating sufficient growth that consumer mobile erosion is unlikely to have a material impact on consolidated numbers. Meanwhile, an impending announcement of mobile wholesale rates for FY20 is meaningful especially if costs are less than expected.

IIJ has fired its salvo in the pricing wars with c. 10-40% reductions in consumer mobile plans although a shift in bundle sizes could minimize the impact as subscribers are upsold. Unsurprisingly, there are no sub 1GB plans since Rakuten is giving that away but the 2GB/¥780 plan is competitive (Rak: 1-3GB for ¥980) whilst IIJ is adding tiers higher than 12GB for the first time. On the aggregate, other businesses including Enterprise Mobile are generating sufficient growth that consumer mobile erosion is unlikely to have a material impact on consolidated numbers. Meanwhile, an impending announcement of mobile wholesale rates for FY20 is meaningful especially if costs are less than expected. 

Internet Initiative Japan - New Pricing Plans Are Competitive and Impact Is Manageable

There are two stories in the Q3 20 results report from IIJ. The first is the positive B2B story as corporate demand driven by digitization accelerates. Sales to enterprise customers remain robust (mobile +6%, cloud +11%, security +12%) and that upside is easier to see with IIJ than other telecom companies with a larger consumer base. The second is confidence in potential margin improvement as higher revenue is layered over a fixed cost base. Q3 revenue grew 6% and whilst that is the best in four quarters, it is the corresponding EBITDA (+34%) and operating profit (+80%) growth that catch the eye.  The end result is a second management upgrade to the full-year outlook in as many quarters.

There are two stories in the Q3 20 results report from IIJ. The first is the positive B2B story as corporate demand driven by digitization accelerates. Sales to enterprise customers remain robust (mobile +6%, cloud +11%, security +12%) and that upside is easier to see with IIJ than other telecom companies with a larger consumer base. The second is confidence in potential margin improvement as higher revenue is layered over a fixed cost base. Q3 revenue grew 6% and whilst that is the best in four quarters, it is the corresponding EBITDA (+34%) and operating profit (+80%) growth that catch the eye.  The end result is a second management upgrade to the full-year outlook in as many quarters. 

Internet Initiative Japan Q3 20 Results: A Second FY20 Guidance Upgrade Highlights Margin Confidence

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

Growth as a style has been the “norm” for years, is the “norm” about to end? The continued strategies by Central Bank’s towards a “lower for longer stance around interest rates”, extended the underperformance of value for most of 2020. However, with the value/growth investment style ratio at 20-year lows, we present 27 names which hold characteristics worthy of further review.

Growth as a style has been the “norm” for years, is the “norm” about to end? The continued strategies by Central Bank’s towards a “lower for longer stance around interest rates”, extended the underperformance of value for most of 2020. However, with the value/growth investment style ratio at 20-year lows, we present 27 names which hold characteristics worthy of further review. 

Screening the Silk Road: Q1 2021 All Cap Screening - Free Cashflow (FCF)

<a href="https://www.smartkarma.com/entities/internet-initiative-japan" target="_blank" data-smartkarma-citation="entities:10444:1" rel="noopener">Internet Initiative Japan (3774 JP)</a>  soundly beat expectations for the second straight quarter leading to increases for company guidance, a higher dividend and a 2:1 share split. Consolidated revenue growth of 4% includes slower one-time system integration (SI) and consumer mobile sales which masks accelerating growth in recurring enterprise sales. The latter is broad-based thanks to contributions from mobile, cloud and security services. The upgrade to guidance lends confidence that growth can continue whilst a corresponding increase in the dividend delivers a tangible reward to shareholders.

Internet Initiative Japan (3774 JP)  soundly beat expectations for the second straight quarter leading to increases for company guidance, a higher dividend and a 2:1 share split. Consolidated revenue growth of 4% includes slower one-time system integration (SI) and consumer mobile sales which masks accelerating growth in recurring enterprise sales. The latter is broad-based thanks to contributions from mobile, cloud and security services. The upgrade to guidance lends confidence that growth can continue whilst a corresponding increase in the dividend delivers a tangible reward to shareholders. 

Internet Initiative Japan - Q2 20 Results: Profitability Beat Drives Guidance Upgrade, Dividend Hike

Thematic (Sector/Industry)

The Ministry of Internal Affairs and Communications (MIC, the regulator) should announce policy changes by the end of the month that make it easier for users to switch mobile carriers. That probably leads to modestly higher customer churn although service bundles/loyalty plans mute the impact. It is also an implicit recognition that the lower pricing levels found at MVNOs and Rakuten are acceptable and that improving the ability to change carriers is what is important. As a result, greater clarity on regulator intensions and near-term price reductions led by Softbank should be enough to ease recent political/regulatory pressure. A proposal to move to eSIMs is of special benefit to Rakuten which developed its provisioning systems with technologies like that in mind.

The Ministry of Internal Affairs and Communications (MIC, the regulator) should announce policy changes by the end of the month that make it easier for users to switch mobile carriers. That probably leads to modestly higher customer churn although service bundles/loyalty plans mute the impact. It is also an implicit recognition that the lower pricing levels found at MVNOs and Rakuten are acceptable and that improving the ability to change carriers is what is important. As a result, greater clarity on regulator intensions and near-term price reductions led by Softbank should be enough to ease recent political/regulatory pressure. A proposal to move to eSIMs is of special benefit to Rakuten which developed its provisioning systems with technologies like that in mind.  

Japan Telecom Sector: Regulator Policy Changes Address Tactics Not Price

Japan

Kakaku.com, Inc provides price comparison services and products information through its website.  The Company also provides Internet advertising services.

mixi, Inc. operates community style website, mixi.  The Company sells advertising spaces on its website.  mixi also runs online recruiting services for IT related positions.

GMO Internet, Inc. provides internet related services to its corporate customers. The company offers domain, server, security and settlement services through its "WEB Infrastructure & EC" business, and assists companies in attracting web users through its "Internet Media" business.

DeNA Co., Ltd. operates social media site, auction and shopping web site such as Mobage-town and Bidders.  DeNA also provides mobile-related services such as mobile game and community site.

DIP Corporation provides matching services through Internet for job agencies and job seekers. The Company also provides matching services for companies and part-time workers as well as companies and job agencies.

SAKURA internet Inc. provides comprehensive Internet service to businesses. The Company operates a data center and leases space to store clients' servers and network equipment.  Sakura Internet also offers web hosting and Internet connectivity services.

SMS CO.,LTD. is a website operator regarding elderly care.  On its websites, the company provides a variety of information contents related to employment placements for senior care assistants and doctors, as well as medical and nursing qualifications.

Gree, Inc. operates a Social Network Service, GREE for PC and mobile users. The website provides online communities and games to its members. The Company also sells advertising space through advertising agencies.

Bengo4.com Inc offers lawyer and tax accountant advisory website services.

Infomart Corporation provides business to business (B2B) e-commerce services for food industry.  The Company offers ordering systems as well as database systems that contain detailed information about food ingredients.

Five9, Inc. provides cloud contact center software. The Company offers real-time and historical reporting, recording, quality monitoring, workforce, and customer relationship management integrations. Five9 serves customers worldwide.

Alarm.com Holdings, Inc. provides interactive security solutions for home and business owners. The Company offers security systems such as image sensor, crash and smash protection, web control, mobile access, and video monitoring. Alarm.com Holdings operates worldwide.

Wangsu Science & Technology Co., Ltd. provides online business solutions in China. The Company also provides Content Delivery Network (CDN), and Internet Data Centers (IDC).

Shanghai Wangsu Science & Technology Co (300017 CH)

Envestnet, Inc. develops and markets computer software for financial advisors. The Company develops Internet-based software that includes risk assessment, investment strategy selection, asset allocation, research and due diligence, portfolio construction, proposal generation, paperwork preparation, model management, account rebalancing, account monitoring, and other features.

Yelp Inc. operates a social networking, user review, and local search web site. The Company provides the site as a guide for online search capabilities for its visitors to find reviews and details about local businesses. Yelp provides listings for businesses throughout the United States and Canada.

Ziff Davis, Inc. operates as a digital media and Internet company. The Company provides portfolio which includes brands in technology, entertainment, shopping, health, cybersecurity, and martech. Ziff Davis serves customers worldwide.

People.cn Company Limited mainly engages in internet advertising, information services, mobile value-added and technical services. The Company's main products include original messages, government information services, public opinion research and consulting, mobile news, and ISP services.

Autohome Inc is an online destination for automobile consumers in China.  The Company delivers comprehensive, independent and interactive content to automobile buyers and owners.

GDS Holdings Limited operates as a holding company. The Company, through its subsidiaries, develops and operates data centers. GDS Holdings offers risk and security management, information technology planing, remote monitoring, cloud hosting, virtualization, disaster recovery, and remote data protection services.

INESA Intelligent Tech Inc. operates in the IT industry. The Company designs and manages cloud servers and big data applications for businesses. INESA Intelligent also manufactures electronic components.

Internet Initiative Japan Inc. provides Internet connection services for businesses.  The Company also provides system integration services and sells system equipments.  Internet Initiative Japan offers a variety of services, including network consulting, security, and Web hosting as well.

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Internet Initiative Japan (3774 JP)

Internet Initiative Japan - New Pricing Plans Are Competitive and Impact Is Manageable

IIJ's new consumer mobile pricing plans are competitive with Rakuten and the financial impact on consolidated results should be immaterial

Kirk Boodry

Internet Initiative Japan Q3 20 Results: A Second FY20 Guidance Upgrade Highlights Margin Confidence

IIJ has posted results ahead of expectations and upgraded its full-year outlook for the second straight quarter driven by both revenue growth (6%)...

Kirk Boodry

Screening the Silk Road: Q1 2021 All Cap Screening - Free Cashflow (FCF)

With the value/growth investment style ratio at 20-year lows, we present 27 names which hold characteristics worthy of further review.

David Lepper

Internet Initiative Japan - Q2 20 Results: Profitability Beat Drives Guidance Upgrade, Dividend Hike

IIJ Q2 results were ahead of expectations for the second consecutive quarter on demand for enterprises. The company raised guidance and the...

Kirk Boodry

Japan Telecom Sector: Regulator Policy Changes Address Tactics Not Price

The regulatory is expected to announce policy updates that address how users change to cheaper priced options. Churn could rise but service bundles...

Kirk Boodry

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