■ Comparison of Interspace <2122> with Peer Companies

Major companies in the affiliate operation sector include Fan Communications, Adways, ValueCommerce, LinkShare Japan Co. (a subsidiary of Rakuten <4755>), and Rentrax, making a total of five companies. While the revenue scale varies among companies due to other business operations, the market share of affiliate services for the total of six companies, including the subject company, is approximately 60%, with the subject company accounting for just under 10% of that share. Factors affecting the performance in the 2023 fiscal year vary among the companies, but all five reported a double-digit decrease in operating profit. Additionally, while Rentrax is projected to have increased profit in their company plan for the 2024 fiscal year, the subject company as well as three other companies are estimated to decrease profits. Although the internet advertising market continues to expand, it is believed that the diversification of advertising methods has had an impact.

In examining the characteristics of competitors, Fan Communications had approximately 3.5 million partner sites and 3,431 active advertiser IDs for "A8.net" as of September 2024, making it the largest in the industry for partner site numbers. They have a long history of providing advertising business for small to medium-sized enterprises, focusing on a wide range of advertising projects primarily in the e-commerce sector. Their performance has been on a declining trend in recent years due to a reduction in the Smart Phone advertising service "nend", and they withdrew from the business in March 2024. The advertising handling volume for "A8.net" also increased by 8.3% year-on-year in the July-September 2024 period, marking a recovery after three quarters of decline.

Adways operates in the ad platform business (ad network advertising service, affiliate advertising service) and the agency business (advertising agencies domestically and internationally). They have a high ratio of mobile services and are strong in the gaming and electronic comic sectors. In recent years, their performance has been boosted by the growth of the Smart Phone ad network advertising service "UNICORN" through machine learning, but they experienced a decline in earnings due to a decrease in advertising from gaming and electronic comic sectors and a stagnation of "UNICORN" in the fiscal year ending December 2023. For the period from January to September 2024, a significant drop in earnings was also noted due to weak advertising in the finance and gaming sectors along with struggles in overseas business, which led to a downward revision of their full-year performance.

ValueCommerce mainly operates in the marketing solutions business (affiliate services) and the e-commerce solutions business. In terms of industry-specific revenue composition for the marketing solutions business, the finance sector accounts for the highest proportion at 38%, and they handle a wide variety of industries in a well-balanced manner. As of the end of September 2024, the number of partner sites was 790,000, and the number of advertisers (ID count) was 688. Although revenue for this business segment in the July-September 2024 period rose by 7.2% year-on-year, led by the finance sector, it remains at just under 80% of the level from two years ago, indicating that they have not yet recovered from the slump since 2023.

Rentrax mainly operates in the performance-based advertising service sector and the used construction machinery marketplace. The revenue composition by industry for the performance-based advertising service sector (for the April-September 2024 period) shows that finance accounts for the highest proportion at 37%, followed by esthetic clinics at 12%, real estate at 10%, and automobile purchases at 8%. Although the number of partner sites as of the end of September 2024 is low at 59,000, they have implemented a "closed-type" system that selects sites with high attractivity, contrasting with the "open-type" of competitors, thereby acquiring advertisers through service differentiation.

In terms of stock price indicators, the subject company's stock price (as of November 26, 2024) has an estimated P/E ratio for the fiscal year ending September 2025 of 14.4 times, which is considered average compared to the other four companies, which are evaluated at levels ranging from 8 to 27 times. However, the EV/EBITDA is -0.4 times, making it the only one among the major five companies to have a negative value. EV/EBITDA is a simplified indicator of how many years of earnings (operating profit plus depreciation) it would take to recover the acquisition cost (market cap plus interest-bearing debt minus cash and deposits) in the case of a company acquisition, and a lower ratio means that acquisition costs can be recovered in a shorter period, which suggests low growth expectations in the stock market. The negative value of this indicator implies that the market cap is currently being surpassed by net cash (cash and deposits minus interest-bearing debt), indicating that purchasing all shares at the current stock price would yield surplus funds. Given that there are no particular concerns regarding financial aspects, it is believed that once the currently promoted business strategy leads to performance growth, the evaluation in the stock market will also change.

(Written by FISCO guest analyst, Jo Sato)