Z Holdings Earnings: On Track to Achieve EBITDA Guidance With Cost-Cutting Measures Underway

Z Holdings’ 4689 cost-cutting efforts over the past few months have paid off, as it reported the highest quarterly adjusted EBITDA of JPY 99 billion in history, 15.6% up from last year’s June quarter. During the earnings presentation, management continues to emphasize its commitment to profitability, which supports our view that while its full-year revenue guidance of JPY 1.9 trillion seems a bit ambitious given the reduction in promotional spending this year, Z Holdings is likely to generate enough cost-savings for the rest of the year to achieve its full-year adjusted EBITDA guidance of JPY 356 billion–JPY 366 billion. Therefore, we broadly maintain our fiscal-year 2023 and midterm revenue and profit projections, keeping our fair value estimate at JPY 440. We believe the shares are fairly valued currently.

Although Yahoo and Line display advertising revenue declined by 4.3% and 9.7% from the previous year, respectively, both were within our expectations. However, we agree with management’s view that the worst should be over as their clients should prioritize allocating more budget to digital ads amid the economic slowdown, and together with our solid midteens percentage growth in Line account advertising, we maintain our full-year revenue growth estimate of low-single digits for the media segment. Meanwhile, we are somewhat concerned about the year-on-year decline in monthly log-in users for Yahoo Japan (54.39 million vs 54.87 million last year). We think the ID integration between Yahoo, Line, and PayPay starting in October should bring younger users from Line and PayPay to Yahoo Japan, and coupled with improved ad accuracy, the integration should help drive ad revenue growth in the longer term. However, we have not fully factored the impact into our forecasts as revenue growth depends on the pace of ID integration.