Z : Outline of Q&A Session at Investors Meeting

Outline of Q&A Session at the Briefing on FY2022 Q2 Business Results (Held on November 2, 2022)

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1. The revenue of LINE's display ads turned to a negative YoY growth. I understand that this was partly due to the impact of market environment and absence of the positive impact derived from the enlargement of ad slots conducted last year. But what were the reasons for this negative growth? Until when do you think this trend will continue?

1. One of the reasons is the weak ad demand due to the deteriorated market. In terms of services, we are in the process of switching the content of LINE VOOM from still images to short-form video. KPIs such as video viewing time are trending favorably, but from the standpoint of advertising, there have been changes in the advertising clients, which has resulted in one-time drop in CPM. We recognize that business conditions will continue to be difficult, but we expect a certain level of demand expansion in Q3 due to the year-end sales season. We have revised the guidance for LINE display ads, and the outlook is weaker than in the past.

1. You mentioned that you are aiming to achieve the adjusted EBITDA guidance for this fiscal year by implementing cost reductions, but which items will you control? Also, what is your approach to cost control for the next fiscal year? Do you expect costs to increase in the next fiscal year as a result of cost reductions in the current fiscal year?

1. Three major initiatives are being considered in terms of cost optimization for FY2022 H2. First, more efficient sales promotional expenses for Yahoo! JAPAN Shopping in line with the integration of the sales platforms. Second, efficiency in acquisition cost in the fintech business which belongs to the Strategic segment. Third, control of personnel expenses, mainly in recruitment. Other costs will also be optimized in a manner most suited to the business environment, and we expect this to generate an effect of about JPY30.0 billion. The management expects that the business environment will continue to be difficult in FY2023. Therefore, in H2, we believe that it is necessary to continue cost optimization mainly in fixed costs, and we would like to take this opportunity to transform our earnings structure into a more muscular one. Furthermore, losses in the start-up businesses included in the Strategic segment is scheduled to decrease in FY2023, so we plan this to contribute to income increase.

1. In the past, some impacts deriving from LINE's display ad distribution system took about 1-2 years to resolve. Will LINE VOOM's impact on revenue continue for about a year? Can we regard that LINE VOOM will contribute to the re-acceleration of advertising revenue thereafter?

1. Content and introduction of videos in the display ads of LINE and Yahoo! JAPAN are challenges but we are making adequate progress to overcome the challenges. Service KPIs are steadily improving, and we are in the stage of finding the right balance between ads and content. Also, we are in the stage of developing a plan for re-growth.

1. In LINE's display ads, are LINE NEWS and Talk Head View maintaining positive growth although LINE VOOM's revenue experienced a negative YoY growth? Based on the H1 result and the full-year guidance, I calculate that the H2 revenue of LINE advertising will be almost flat to around +10% growth compared to the same period last year. What is your expectation by advertising products?

1. There is a decreased demand in each service of LINE's advertising, but we are maintaining the same level as last fiscal year. However, LINE VOOM is going through a structural change, thus is showing a special dynamic. Although the breakdown of guidance is not disclosed, we assume a mixture in which account ads are expected to grow in the upper 10% YoY because LINE Official Accounts are strong, but display ads will not grow as much as account ads.

1. In order to achieve the adjusted EBITDA guidance for the next fiscal year, you would need a YoY income increase of around JPY50-60 billion. How do you intend to achieve this? Through a mix of elements such as cost optimization in the existing business, improved profitability of loss-making businesses, increase or decrease in investment amount, and performance outlook of PayPay Corporation? Are you also considering streamlining the businesses?

1. Since the outlook for H2 is still uncertain, we will explain again at another time. Since income growth from top-line growth is difficult to predict, optimization of fixed costs and reduction of losses in the Strategic segment are expected to be the main factors for income growth. In terms of business reorganization, we will be selling the livedoor business in the near future. We are also discussing the prospect of improving our earnings structure and will continue to work on this in FY2023.
   The management is determined to achieve the adjusted EBITDA guidance for the next fiscal year. If significant growth cannot be expected from existing services or if losses continue, we will take the initiative in making decisions to streamline the business and achieve the guidance for the next fiscal year under the leadership of the Co-CEOs. On the other hand, since business conditions are becoming increasingly uncertain, we will make appropriate announcements when market conditions cause major changes in the top line and will manage the company with determination.

1. For Commerce Business, the guidance for the transaction value remains unchanged, but there is an upward revision in adjusted EBITDA. What is the background behind your belief that you can maintain growth in transaction value even with restrained investment? Also, will restraining investment in the current fiscal year affect growth in the next fiscal year?

1. In H2, we will restrain expenditures, especially point-provision cost, and will operate with an awareness on the profit and loss statement. While we were able to grow about YoY +15% in H1, the full-year transaction value guidance is set based on the expectation that H2 will be weaker than H1. We are now in the process of scrutinizing investments for the next fiscal year based on the profit and loss statement of the whole company. We do not expect the slowdown in the transaction value in H2 to have an immediate impact on next fiscal year, but we will explain again when the outlook for the growth of transaction value becomes clearer as we make disciplined investments.

1. For LINE advertising and Yahoo Japan advertising, how much do you expect business conditions to deteriorate from the current level? If business conditions deteriorate more than expected, do you intend to maintain the guidance by further optimizing costs?

1. We expect the growth rate of LINE advertising to slow down slightly compared to Q2. We have revised the full-year guidance to reflect a certain degree of likelihood that the growth of Yahoo! JAPAN advertising will be even lower than in Q2. Yahoo Japan advertising includes shopping-related advertising; thus we have also factored in the negative effect derived from shopping. If business conditions deteriorate further, we would like to disclose information in a timely and appropriate manner.

1. You explained that you expect an income decrease of JPY30.0 billion due to revenue decrease in the Media segment and consolidation of PayPay. Please explain the impact by item. I think the list on page 30 of the financial results presentation material is guidance based on cost reductions, and I would like to understand it by segment.

1. The impact of PayPay consolidation is a little more than JPY20.0 billion and the impact of revenue decrease in the Media segment is the rest; i.e. a little less than JPY10.0 billion.

1. What is the impact of PayPay consolidation on major financial items? Will the reduction in equity in losses of associates and joint ventures be recorded as net income? Also, to what extent will interest bearing liabilities and other liabilities be recorded on the balance sheet?

1. We have made an upward revision in the revenue guidance of the Strategic segment and this is mainly due to the consolidation of PayPay Corporation. Meanwhile, we have maintained the revenue guidance for the whole company because we have factored in the downward revision in advertising revenue. We are still discussing with the auditing firm, but the basic idea is to record about JPY148.0 billion of gain from remeasurement (equivalent to our 33% stake) in Q3 operating income, thus it will also affect net income.
   As for the balance sheet, we would like to give a more detailed explanation in the Q3 earnings result announcement, but we expect about JPY700.0 billion or more to be added to assets as of the end of September. But more than half of this addition will be recorded as cash and equivalents. This is because the amount topped up to PayPay app by users is recorded as cash and equivalents. In addition, deposits received is expected to be recorded in liabilities as an offset to this cash and equivalents.

1. Have you not factored in the anticipated impact of cost savings in your guidance for the Media segment? Do you expect to reduce fixed costs in the Media segment in the future, if necessary?

1. We will reduce a certain amount of costs, but unlike the Commerce segment, structurally, the Media segment does not involve a lot of costs such as acquisition costs. However, there is room to revise cost for procuring content, such as content provider fee. We would like to make confirmations and work toward reduction.

1. If your company, which holds 33% of PayPay Corporation's shares, records a gain on remeasurement of around JPY148.0 billion, then I understand that overall, there will be a gain on remeasurement of around JPY450.0 billion. I get the impression that this size is different from what I have heard from SoftBank Corp. What is the mechanism behind this?

1. Please check with SoftBank Corp. for its guidance. The idea is as explained in the presentation material. We have evaluated the current fair value of PayPay Corporation through a company specializing in valuation. We have also adjusted the book value of the portion of our investment to date

factoring in the losses of PayPay Corporation. The difference between the fair value and book value is calculated to be around JPY148.0 billion.

1. Did the gain on remeasurement largely increase in the last six months simply because the original outlook was conservative? Did it change because of operational improvement, etc.?

1. We do not know the details of the logic behind the guidance of SoftBank Corp. Please ask them for details.

1. The YoY growth rate of shopping business transaction value is +9%, but I think it may be weaker if you exclude LINE GIFT, etc. How do you evaluate the result, considering the impact of the reopening of the new sales platform on overall e-commerce, and the recent moves of the competitors?

1. The reopening has had a certain amount of impact, but user purchases, which we had built up from before, continued to come out strongly. Various campaigns were also successful. In addition, essential service improvements, such as blue-ribbon delivery, are gradually bearing fruit, enabling the company to achieve growth in transaction value even in this environment. Please refer to each company's financial results for the status of the competitors.
   The disclosed shopping business transaction value and its growth rate do not differ largely even if we exclude LINE GIFT. LINE GIFT is expanding but the absolute value of Yahoo! JAPAN Shopping and PayPay Mall in the shopping business transaction value is large, thus these mall businesses have a larger impact on the overall transaction value.

1. In terms of the impact of the integration of shopping malls, you say in page 18 of the financial results presentation material that "applications to Promotion Package Plan exceeded expectations." Do you think that the take rate will improve from Q3 onwards? You also said that the H2 growth rate of transaction value is expected to be lower than that of H1. Is this due to market conditions, or do you think that the impact of the integration of shopping malls will not be as large as expected?

1. We have promoted the sales of the Promotion Package Plan so that it will not reduce the take rate, and the merchants have appreciated the value of the Plan. We have been able to cover the absence of PayPay Mall's 3% commission and we expect to maintain the take rate in Q2 and Q3. If we can make the Promotion Package Plan effective, we regard that we can uplift the current advertising take rate of around 5%.

1. What kind of impact did the reopening have on KPIs such as purchase frequency and unit price?

1. The impact of reopening is being assessed based on interviews with stores and other surveys. While there has been some impact in certain categories, it has not been on such a large scale and there are no clear impact in the specific KPIs of the entire Yahoo! JAPAN Shopping.

Q: Why is the growth rate of transaction value expected to slow down in H2?

1. In H2, we plan to conduct disciplined sales drives mainly in point-provision. Compared to last fiscal year or H1, we will lower the proportion of marketing cost relative to transaction value. Therefore, we expect this to affect the growth rate of the transaction value.

Q: Please explain again what advantages there are in ID linkage.

1. From the standpoint of users, there will be increased linkage among services such as LINE, Yahoo! JAPAN and PayPay, and the usability will be enhanced. From the operational aspect, increase in usage frequency will increase the opportunities for advertising contact and purchase of goods through e- commerce. From the business aspect, targeting accuracy of LINE Ads will improve because various data will be accumulated through ID linkage. In the medium- to long-term, we aim to have an ID linkage rate of 80% and we think that this will hike the unit price of LINE Ads by 5-15%. It will be easier to provide advertising products for sales promotions linking LINE, Yahoo! JAPAN and PayPay, so we hope to have a revenue size of over JPY100.0 billion in the future. Furthermore, the overlap of data will deepen user understanding which will improve recommendation accuracy. We expect an increase in Yahoo! JAPAN Shopping buyers and purchase unit price as a result. Through this, we hope to double the annual number of Yahoo! JAPAN Shopping buyers. User understanding will also be furthered through the cross use of financial services. We expect to increase the number of users through recommendation of optimum financial products and hope to triple the number of active PayPay Card users. The more IDs are linked, the more effective they will be; thus we expect the synergies from ID linkage to be built up over several years.

1. PayPay Mall has been replaced by Day-to-Day Mall in PayPay app. What is the intention behind this change? Please also explain again the synergies generated from the integration of sales platforms.

1. We want to have as many PayPay users use our e-commerce service as possible. Before, we deployed PayPay Mall as a mini app in the PayPay app. Many PayPay users used PayPay Mall, but to reinforce this initiative, we integrated the malls and decided to cover the items in Yahoo! JAPAN Shopping and provide 5% if the payment is made by PayPay. In addition, we made a sales platform called Day-to-Day Mall in PayPay app, specializing in daily necessities that had been bought frequently by PayPay users in PayPay Mall. For example, this mini app enables us to approach users with best offers for daily necessities such as water. Please consider this as an initiative to increase purchase frequency, and it is aimed at getting as many PayPay users use the service as possible.

1. Why is "Other" in equity in losses of associates and joint ventures shown in page 4 of the financial results presentation material (appendix) increasing in Q2? Also, how do you foresee the income level of items below EBITDA for the next fiscal year?

1. More than half of "Other" is due to the losses in LINE MAN business in Thailand. We are aiming to make it profitable, but the losses are still large. Although there will be some fluctuations due to seasonal factors in the future, we intend to reduce the equity in losses of associates and joint ventures in LINE MAN business, banking businesses in Thailand and Taiwan, and Demae-can, etc. towards the next fiscal year. Since equity in losses of associates and joint ventures has a large impact on adjusted EBITDA and below, it is generally safe to assume that net income will follow the trend of adjusted EBITDA in the next fiscal year and beyond.

1. How do you perceive the market environment of the Japanese Internet advertising market? What companies are you aware of as competitors, and do you think your company's market share is growing among them? What is your outlook for the future?