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UUUM (TSE: 3990), Japan’s largest multi-channel network of online content creators – H.E.R.O. Innovators Insights from CEO Kazuki Kamada| H.E.R.O. HeartWare | 24 September

“What do you want to be when you grow up?” – This is the one question we asked our young kids most.

Becoming a “YouTuber” was the third most popular career choice in the Sony Life Insurance survey in 2017 among elementary school students in Japan. Young Japanese kids were inspired by the success of top “YouTubers” like HIKAKIN and Hajime who have millions of subscribers for their YouTube channels watching their performances for entertainment, lifestyle & hobbies content, beauty and finance knowledge, etc. Japan’s top YouTubers earn more than 100 million yen ($890,000) a year. Risa Sekine, a full-time nurse who became the first beauty creator in Japan to reach 1 million subscribers on YouTube, has attracted brand companies such as home fashion giant Nitori to craft entertainment content around their products to reach consumers.

HIKAKIN, Haiime and Risa Sekine – or an overwhelming presence with 8 out of the top 10 creators and 37 out of the top 100 by the number of subscribers in Japan – all belong to UUUM (TSE: 3990), Japan’s largest multi-channel network (MCN) of online content creators. UUUM has 6,570 YouTube channels, exclusive contracts with 270 creators, and generates over 4 billion monthly video views with over 300 million hours viewed and over 160 million subscribers as at Aug 2018 (vs 3 bn monthly video views in Aug 2017 and 2bn views in Aug 2016). With a strong focus on content development, UUUM has also created the most viewed kids brand on YouTube in Japan called “Bom2TV”.

With content creators at the center of the business model as the driving force for growth, UUUM generates multiple co-sharing revenue streams with the content creators and has produced growing profitability at ROE (= EBIT/ Equity) of 39.7% and positive free cashflow, and without the billions of content investment risk of the Netflix/iQiyi-type of business model characterized by negative free cashflow. UUUM’s revenue streams include (1) Adsense advertising revenue from YouTube (56.9% of sales, +65.7% yoy), (2) tie-up ad revenue from clients looking for effective ways to reach consumers, working with over 500 brand companies from fashion, cosmetics, F&B to Games & App to craft entertainment content around products (31.2% of sales, +66.2% yoy), (3) original merchandise revenue, including official ecommerce site MUUU selling “treasures” of popular creators (https://muuu.com); (4) event revenue (ticket sales and sponsorship revenue), including Japan’s most attended digital influencer event “U-FES” with over 10,000 paying fans; (5) fan club membership fee; (6) video and movie production revenue, including original programs in full-scale drama and animation (e.g. Bonbon TV jointly operated with Kodansha Co, Video Pizza operated through partnership with Jukin Media); and (7) gaming revenue (ad sales and billing sales of game applications), including publishing in-house games such as the highly successful “Ao-Oni 2”; as well as expansion into potential new businesses such as ecommerce based around videos. UUUM portal provides content management tools and infrastructure support, such as daily news, music or graphic assets, and tutorials, as well as host regular events, workshops, and collaborations to support the YouTube and Instagram community, essentially providing an environment where creators can focus on daily creative activities and shine, expand business activity areas, and produce large-scale content.

While YouTube is the most dominant player whose market share in the online video market is over 77.6% (2016), UUUM’s growing profitability and positive free cashflow (for three consecutive years) is a rare stand-out in the MCN industry which has been plagued with bad reputation as most are low value-added middleman businesses which are persistently-loss-making after YouTube and the creators take their share of revenue, and many VC-funded firms overpay big-name creators, or add as many small content creator channels as possible, in order to meet the smoke-and-mirrors appearance of profitless high view counts to raise further VC money.

“セカイにコドモゴコロを (Sekai ni kodomogorokoro wo) – This is UUUM’s corporate philosophy, and embodies our desire to create unprecedented enjoyment through ideas that embrace a childlike spirit and bring new experiences to people. UUUM is a company that started in June 2013 with the encounter with Japan’s #1 YouTuber HIKAKIN, but now it has developed into the largest creator network in the country. The top class content creators have millions of subscribers, and the individual became the media. On a daily basis, we take on the challenge of delivering new experiences to the largest audience possible by leading a new era of entertainment, where content accepted by like-minded fans is created as an extension of what our creators and employees like and enjoy in the video domain and beyond,” commented Kazuki Kamada, the founder and CEO of UUUM.

With a clear distinctive business model in supporting its content creators to produce quality content to influence their growing fan base and brand companies, UUUM achieved a 256% and 233% absolute increase in sales and operating profit in the recent 3 years to US$107.9m and US$6.6m respectively for its latest 12 months results, propelling a 110% increase in market value since its listing in Aug 2017 to US$530m. On 13 Jul 2018, UUUM announced its full-year results ending May 2018 in which sales increased 68.1% to 11.7bn yen, operating profit jumped 2-fold to 716m yen. UUUM provided the full-year May 2019 forecasted sales to increase 35.5% to 15.9bn yen, operating income to rise 18.6% to 850m yen (some street estimates to increase to around 1bn yen).

CEO Kamada believe that UUUM, having established an overwhelming strength and presence in YouTuber management, is firmly on the second stage of its exponential growth journey: “Compared to the time I was a child, the manner of content consumption of young people has changed greatly. In the past, in the screen called TV, there were heroes called ‘celebrities’ and we sat down in front of the TV according to the broadcasting time decided by the TV station. But for today’s young people, the heroes are changing to YouTuber, and television is changing to smartphones. When TV was the most dominant media, people wanted to become like a star on TV. Now, YouTube has become the media that people regularly watch and through which they encounter the stars they are struck by. Also, they are able to choose the time and content of watching as they wanted. UUUM’s numbers are good with such a background in these times. The number of channels was 1,141 in 4Q2015 which increased to 5,877 channels in 4Q2018, a rise of about five times in 3 years. Total number of views over the three months also increased from about 2 billion times to about 9.5 billion times in the same period, also nearly five times more. UUUM was able to make this area a business by building a revenue base from advertising revenues from YouTube to tie-ups with companies and movies etc. In other companies, there are about 1 or 2 people in each office. One factor is that we have made efforts to increase the number of famous creators in the unit of 100 people and even 1000 people. The fact that we have made early investments to strategically acquire powerful creators in anticipation of the next cycle has been a factor of growth. Although this area has been said to have low entry barriers, we made a situation where we made a major investment in acquiring talent in our early first phase of growth and now we are at the second phase stage, making it difficult for new entrants to participate and we are focusing on cooperation with business partners.”

UUUM also announced on 14 Sep 2018 the 500m yen acquisition of the profitable Lemonade Co/Influencer One (https://lmnd.jp) founded by Naoya Ishibashi. Influencer One is Japan’s largest Instagram network which has 2,800 registered creators with 80m subscribers. With the acquisition of Influencer One’s Instagrammers, UUUM now has a network of 9,300 creators and influencers. UUUM is able to utilize Instagram and other SNS for its existing YouTubers to succeed exponentially and also gather influential creators into one platform to propose greater tie-up advertisements with corporates. The acquisition will be completed on 1 Nov 2018. UUUM also announced a 3:1 stock split with effective from 30 Sep 2018. On the synergistic effect of adding Instagram creators into the UUUM platform, CEO Kamada said, “There are requests from clients to consider tie-ups combining YouTube and other SNS to turn into a ‘three-dimensional’ thing. It became possible for UUUM to propose tie-up with YouTube as a main proposal and bundled with Instagram which presents great benefit. Expanding the area of activity to other SNS platforms at an earlier stage and on a larger scale than other companies also leads to an exponential increase in the excellent creators of the next generation. Furthermore, if we can spread UUUM creators’ active areas quickly to Instagram and other platforms, it brings ‘peace of mind’ for creators, which also attracts creators of a new generation. As one of the barriers to success as a creator is that monetization is too long and I give up on the way, this acquisition will make UUUM’s support more stereoscopic so that we may be able to further shorten the point to monetization, which will further accelerate the culture of individuals’ creative content creation and dissemination.”

When asked about whether a Japan-based business is limiting to its expansion, CEO Kamada explained that the cultural uniqueness of Japan made its local content more easily disseminated nationwide in the homogeneous country and more desirable to the world:  “UUUM’s strength as a Tokyo-based creators’ content platform lies in our abundance of Japanese content and demand from overseas fans fascinated with subcultures ranging from anime and manga to more traditional interests, such as washoku (Japanese cuisine). In an era where information spreads quickly through social media, content can naturally travel around the world, crossing national boundaries. The next step we would like to take is to produce content that fascinates not only audiences in Japan, but those overseas as well.. Influencer marketing has different efficacy depending on the country and region. Japan is one of the countries that is very effective from a global perspective. In Japan, when one trend occurs, it propagates at a tremendous speed nationwide. Actually, this phenomenon does not happen so much in other countries. For example, America takes time surprisingly before music and fashion become nationwide trends. It can be said that the spread of smartphones is promoting such characteristics of Japanese people. Currently, the smartphone penetration rate exceeds 70%, and many people access YouTube and SNS on a daily basis. in Japan, there is a strong sense of evil against advertisement. So, stealth marketing is rampant. Enabled by the age of social media, consumers, including myself, are seeking ‘simulated experiences of consumption’. Even if you know that it is an advertisement, many people still watch YouTuber’s video content because you want to experience what you do not understand by reviews alone. There is also the ‘neighborhood effect’ that is unique to social media. When your favorite YouTuber appears and you check the channel everyday, he or she gradually starts to feel like a friend. It is natural to think that you want to experience the products and services experienced by nearby people, so it is natural for influencer marketing to directly connect to consumption. People who are touching social media are getting used to the close distance to the influencer, so we can expect higher effects in the future.”

CEO Kamada added that UUUM is also expanding into acquiring creators in new geographies and into content beyond the younger audience, as well as longer-form original content such as full-scale drama: “in Jan 2018, UUUM entered a capital and business partnership with Capsule Japan, a media company that oversees over 100 YouTubers, in the greater China region, including Taipei and Hong Kong, such as Ryuu from Malaysia who is popular among Taiwanese and Hong Kong viewers and boasts 880,000 followers. In Feb 2018, UUUM launched the “UUUM GOLF” channel, working on programming not only for young people but also for channels aimed at enjoyment by those above the age of 30. In Aug 2018, UUUM’s exclusive creator “Puddle Bond” produces 10 video pieces, including the first full-scale drama, animation, MV with the casting and production support of UUUM.”

When asked about how his growing up years have shaped his entrepreneurial journey and how he came to start UUUM, CEO Kamada said reflectively: “When I was in the lower grade of elementary school, my body was not very strong, but it got stronger when I started playing baseball in elementary school third grade, and I got more friends. In junior high school to high school days, I devoted myself to studying and club activities. Although I entered university, I was absent as I was working in part-time job. I thought that I was better to both myself and the society to work. I quit college in my second grade. I joined a listed major telecommunications services company at the age of 19 in 2003 and I rose to be the youngest executive officer and director by 2010 in charge of general affairs and operations and opening of 100 Softbank mobile phone stores on a monthly basis. After various experiences from shop management to business alliance, I had a lucky encounter in 2012 to speak with my mentor Mr. Taizo Son, who is the CEO of venture investment firm Mistletoe, founder of game maker GungHo Online Entertainment, and the youngest brother of Softbank’s CEO Masayoshi Son. Mr Son advised him to start my own company. My second life began thanks to Mr. Son.” 

“Another turning point came after I left the mobile phone firm in 2013 and got in touch with HIKAKIN, an old acquaintance. HIKAKIN was already in the spotlight after one of his beat-boxing videos earned him a live appearance at an Aerosmith concert. When I learned HIKAKIN actually performed together in Singapore with Aerosmith’s lead singer Steven Tyler, I thought for the first time that I could actually make a business out of doing YouTube. At first, I was thinking about running a direct shopping business on YouTube, similar to what the TV-based retailer Japanet Takata does. But when I learned that HIKAKIN was struggling in his business negotiations with various companies, I began to think that haggling was not something creators should be spending their time on. That prompted me to start UUUM with HIKAKIN, now the company’s top adviser, to support YouTubers so they can concentrate on producing videos. In addition to HIKAKIN, I also asked some top creators. There is a feeling that ‘they want support’ among them. Celebrities in showbiz don’t sit down at a negotiating table and directly ask their sponsors how much they will pay. But no company played a role in managing YouTubers’ talents before UUUM arrived. The prototype of ‘a company supporting the world’s most individual creators’ was thus born. The UUUM business that manages creators is living my experiences gained in general affairs and operations which was the cornerstone of support capabilities for current creators. A request from Dentsu and Hakuhodo came in 2014 when we received the tie-in video commercial job of HIKAKIN, and we earned the right of Google multi-channel network (MCN) at the same time. YouTube channel management is now possible. We started selling YouTuber’s character goods from around the summer of 2014. In the winter of 2014, we launched a public activity called ‘UUUM network’ that expands creators to 30 people at a stretch, and over 1,000 new channels joined our company. This was a big turning point. Also, in the summer of 2015 I cooperated with Kodansha to create the media channel Bonbon TV. In November 2015 we held a fan appreciation event called U-FES. We have also steadily expanded our business, including releasing games.”

CEO Kamada added that the venture firm JAFCO had played an important role in supporting UUUM: “When UUUM was founded in 2013, it started with capital of 10 million yen. Originally it was managed with several angel investors. After that, at the stage of enlarging the company, I wanted to partner with various companies, but I thought that I would like to have a viewpoint of a media company. However, when you receive an investment from a business company, the color of the company will inevitably follow. So I decided to talk with the venture capital firm JAFCO who was introduced by one of the angel investors. Our hope was not to see that they invest but also how we work hard to move together. How much can you get involved? Can you make sales for us? Will you work hard? They respected what we wanted to do and told us they want to invest. Regarding the preparation of IPO, we asked for support to prepare procedures to make it a company with a board of directors, introduce corporate auditors, prepare necessary documents for intermediate examination and preliminary checks. The hardest thing is how we can secure the permission and authority including the copyright of YouTuber’s own movies. It took me a while to create that logic, but I was able to proceed with two people with this as well using JAFCO’s network.

When asked about the challenges and adversities that he encountered and overcame, CEO Kamada was emotional and said, “Entrepreneurship is not that easy. When I became an entrepreneur, I realized that the business is not born suddenly, the founder must constantly sow seeds. When I am unlisted, when I receive a loan, everything including my personal life will be pledged as collateral. The risk is big. It was when I borrowed 200 million yen from the bank that I first felt the risk. I thought that I had the courage, but I had something to give to take that kind of risk. I do not feel like doing business, I am doing business because I want to do what I want to do, to make it possible for the creators and friends to do their best in the community, doing the necessary work in management support, legal affairs, and so on. A lot of people ask me when I started thinking about an IPO. But I never thought about when to take my company public. I just wanted to be a help to creators by supporting their process for making something they like into a job. It was just the result of pursuing something I like myself.”

Why are creators attracted to join UUUM to co-share revenue when they can be solo artists? YouTube typically takes 45% of the advertising revenue from videos in the Partner Program, and the content creator typically gets 70% of the balance 55% while the management company gets the remaining 30% (or 16.5% of the Adsense revenue). UUUM’s gross profit margin is 29.0% (YE May 2015 22.7%, YE May 2017 27.3%). CEO Kamada elaborated on the attractiveness of UUUM’s platform for creators: “Top and emerging creators are coming to UUUM where creators exchange know-how closely to become an excellent creator. Also because UUUM is a mass of know-how. When it comes to business negotiations, individual YouTubers have struggled to manage their contracts with companies while focusing on producing videos. In addition to providing professional video staff and editors affiliated with production companies, UUUM offers YouTubers the accumulated knowledge of how to create popular works, manage legal matters including video music copyright issues, and consultations for raising the social recognition of our creators. In the past, when you wanted to appear on TV, entering the entertainment office was the path. But on YouTube, the path is decided by yourself. You can do activities even if you do not belong to the office. But when we want to aim for scalability and sustainability, various problems such as legal affairs have come up, and individuals have limitations. UUUM has support capability there. We are constantly listening to what the YouTubers’ needs and their troubles and refining the service we offer, so we are proud that we understand YouTuber best. If you catch a cold, I will send cold medicine.”

CEO Kamada added on the creative freedom that creators enjoy at UUUM: “Due to the popularity of creators, companies that ask for tie-up jobs are increasing, regardless of company size, major companies or SMEs. The business negotiation story usually goes like this, ‘Watching videos are increasingly popular, how much is it to engage HIKAKIN by the way?’ Since we are not making a price list, we will ask about the details of the product, the purpose of the promotion, the assumed target and so on and make various adjustments on that. Even though creators work with companies, YouTubers maintain their creative freedom. YouTubers working for UUUM create ad videos for clients, but the clients don’t have control of the story line. The YouTubers may not even favor the products they pitch. If YouTubers find products to be useless, they honestly say that in their videos. We ask client companies to be aware of this. No matter how big your company gets, I will not ask for stability or just ask for sales. What is fundamental is respect for the creators and ‘favorite things’ created. I hope creators can make use of the UUUM platform and environment well and make fun and good things with one another. If you work, you want to laugh and work.” CEO Kamada also commented on the use of the buddy-system and project communication-management tools at UUUM to better manage the activities of the creators to scale up the engagement and output  “Because the creator has other schedules, basically you share your schedule with Google Calendar and talk with Slack and other chat tools. All creators engaged in an exclusive contract with UUUM are using Slack. Although I was using LINE at the beginning, it is not suitable for project management, and Slack was introduced. We are doing things like setting up with management tools like Trello, submitting confirmation videos, getting things up and running, and so on. There are also dashboards for buddies, the manager and employees in charge of their support work. We adopted the designation ‘buddy’ because we do not want the creator to be above or below the manager like in the entertainment world. I want the manager to be a companion who accompanies the creators sideways. UUUM hold real events such as U-FES where about 10,000 people gather which becomes an opportunity to realize growth and to build solid relationship of trust with the user, a precious place for creators to interact with users. When participating in such events, the buddies, creators, and users become unified. All of them can feel they have helped create and are part of a big community.”

UUUM’s reliance on YouTube platform is a risk given that YouTube might be displaced as the dominant video platform and UUUM might be impacted by any changes it made in the Adsense program. In Jan 2018, YouTube raises the bar for monetizing videos for smaller content creators, resulting in calls of ‘Adpocalypse’ and the end of MCNs. The top 3% of most-viewed YouTube channels are drawing an increasing share of overall viewership, up from about two-thirds in 2006, making it tougher for the rest of the smaller content creators to generate revenue. MCN (Multi-Channel Networks) in US also have a bad reputation. Since Disney shelled out US$675 million to buy Maker Studios in March 2014, the market potential for indie YouTube stars—and digital distribution modes—have drastically changed, thanks in part to market saturation and revenue-sharing discrepancies. A large part of the downfall of US-based VC-funded MCNs has stemmed from paying big-name creators lots of money in order to meet high view counts, such as paying creators money in advance or giving them 105% of their revenue. At the time of the deal, Disney CEO Bob Iger said that Disney planned to use Maker’s network to expand the distribution and audience for short-form content related to Disney’s various sub-brands, such as Star Wars. However, most of the YouTube artists who belonged to the Maker Studios family had relatively small audiences and generated little in the way of revenue, especially after YouTube took its 45% cut. Then Maker Studios lost its top creator, PewDiePie, whose real name is Felix Kjellberg, in February 2017 after the Swede posted videos containing anti-Semitic jokes, forcing it to cut ties with YouTube’s most watched star and his 58 million subscribers. Interestingly, we believe that the tighter changes made by YouTube for quality content creators to qualify for monetization is positive for UUUM who is able to further extend its super-dominance in Japan to win more brand companies as clients in tie-up deals. There is also the growth option potential in UUUM’s participation in YouTube Premium, the ad-free paid subscription service with original programs whose rebranding was announced in May 2018, which allows them to set up paid channel memberships for access to exclusive content including livestreams, extra videos, or shoutouts. Japan’s and UUUM’s top online content creator Hajime will be the lead star of a new YouTube Originals show to launch exclusively on YouTube.

CEO Kamada commented: “UUUM’s idea of creating interesting and worthwhile things in the world is not limited to videos, not limited to platforms. For us, events, goods, games, all are content. It doesn’t have to be YouTube as long as there is a platform. We are living in an era in which each individual can become a media entity. While there are platform options, YouTube is a global platform, and it is said that more than 1.5 billion people are watching. Among them, the number of viewers is increasing for our content, and viewing time is getting longer and longer. YouTube is accepted by users because there is a lot of information in the world, including on the internet. To meet a person’s hobby or information conforming to interests, ‘search’ is the first action principle.” CEO Kamada added: ” The important thing is the desire to produce high quality content and continue to give love to creators, content, and employees who accompany the creator as a buddy. It is the same as thinking that ‘I want to know how to make delicious ramen’ and get the same material and recipe. The top runners in the industry are everywhere. Many companies imitated and introduced the SPA (Specialty Store Retailer of Private Label Apparel) fast fashion system at Zara. Many consultants are also trying to imitate the Toyota Production System by going to the factory. But companies that overtake eventually have not appeared. The key to success is continuity power. It is important to continue making quality content that cannot get bored by the viewers who have become more discerning. Goal setting is essential for continuing video production. Creators should start after thinking about the goal of ‘making videos for what purpose’. When you make a lot of videos, the more you make it, the more it will be accumulated as the content library, so the link will be displayed as related video, and the migration rate will also rise. Then, the distance in feeling between the creator and the viewer comes closer without you knowing it. As a result, emotional identification is easy to be born, which I think will lead to popularity.”

The recent listing of Vietnam’s largest MCN and digital media company Yeah1 Group (HOSE: YEG) in Jun 2018, which is valued at over US$400m at IPO at VND 300,000 per share (now VND 230,000), has brought about a comparison with UUUM in the business model quality and growth potential, further highlighting the distinctive exponential edge of UUUM.

Yeah1 claims 4.4 billion monthly views with 156m subscribers across its channels and that it takes up one-fourths of all YouTube views in Vietnam. Yeah1 had revenue contribution from both digital (56.9%) and traditional media (43.1% of sales) such as TV cable channel and movies, including a 76% stake in a Google publishing business that was acquired which contributed 24.2% of sales: (1) YouTube accounts for 34.4% (YouTube pays 55% of the revenue from brands/advertisers to Yeah1, and then Yeah1 pays 70-95% of the revenue from YouTube to YouTube creators); (2) Ad on TV cable channels 24.2% (Yeah1 has 4 TV channels broadcasted on cable TV systems. Yeah1 claims the 4 TV channels (Yeah1 TV, Yeah1 Family, iMovieTV, UNI) are among the Top 30 out of 267 channels. (3) Google publishing 17.3% (Yeah1 acquired in 2018 before the IPO a 76% stake in Netlinks, which is also the only official publishing partner of Google in Vietnam, collaborating with 600 publishers with 2.3 billion monthly views. Google pays 60% of the revenue from brands/advertisers to Yeah1, and then Yeah1 pays 70-95% of the revenue from Google to its client publishers); (4) Movie business 16.7% (Yeah1 produced around 10-12 movies a year (24% market share); (5) WebFace management 5.1% (ad revenue from 40 websites operated by Yeah1); (6) TV media buying agency 2.2%.

Yeah1 was founded by chairman Brian Nguyen Tong (former model and actor and serial entrepreneur) who owns 31.5% stake and CEO Dao Tri Phuc who has a 3.323% stake. Brian Nguyen Tong first started a chat forum for teenagers in 2006 and quickly amassed a huge following, and the forum was converted into an entertainment content website called Yeah1. DFJ VinaCapital invested $1.4 million in 2008, two years after the media firm was launched, and holds a 27.17% stake. Another VC investor was Ancla Assets with a 9.5% stake. Other investors include Macquarie Bank, Thailand’s Central Group, which has previously invested in supermarket chain Big C, e-commerce website Zalora, and electronics retailer Nguyen Kim, TT International, Matthews Capital.

Despite both companies having a roughly similar profile in monthly views (over 4bn views) and subscribers (~160m), due to a difference in engagement, interaction, video watch time and playbacks, UUUM produces twice the revenue (US$107.9m vs Yeah1’s US$52.5m) and generates 3.4X more in ad revenue from YouTube when compared to Yeah1 (US$61.4m vs Yeah1’s US$18.1m). Why the substantial difference? How much does YouTube pay content creators for 1 million views? The range is wide: $600-$7,000 earnings per 1 million YouTube views. What YouTube and advertisers really care about most when it comes to views on videos is interaction or watch time. YouTube calculates this through a system called CPM or cost per 1,000 views which can fluctuate between 10 cents and $7 per 1,000 views depending on the quality of the content. But in most cases, the average per 1,000 views for any given YouTuber would be around $1.50 – $3. Those with hardcore audience who watched every video till the end could expect to earn $3 – $7 per 1,000 views or $3,000 – $7,000 per 1 million views. Other determining factors include: Quality of viewers (age, gender, location); Views by geographic location; Type of content (viral, informational, news, comedy); How often videos are uploaded; Audience watch time; Engagement; Subscriber count; Number of views on mobile vs PC. UUUM stands out for its higher quality content and deeper audience engagement, which in turn drives an increasing number of brand companies seeking tie-ups in crafting entertainment content around products to reach consumers effectively. The much higher monetization capabilities of UUUM’s content creators is the result of its distinctive and clear business model with the online content creators at the center as the driving force to generate synergistic multiple revenue streams from tie-in ads, original merchandise and events to online video and movie production, and gaming.

In addition, we are cautious of Yeah1’s balance sheet, working capital dynamics and bargaining strength in the ecosystem when compared to UUUM, which led to a much lower operating cashflow (US$1.2m vs UUUM’s US$3.7m):
• Longer receivables turnover period: 25.9% of Yeah1 sales are receivables (US$13.6m) vs 12.3% at UUUM (US$13.3m), resulting in a longer receivables turnover period of 95 days vs 45 days at UUUM
• Higher proportion of payables and other current liabilities: Payables, accrued expenses and other current liabilities (US$16.8m) account for 32% of Yeah1’s sales and also higher than its receivables vs 10.2% of UUUM’s sales (US$11m)
• Higher proportion of goodwill and long-term assets: Yeah1 carry 3.5X more in goodwill and long-term investments assets at US$12m vs UUUM’s US$3.4m, subjecting Yeah1 to potentially higher impairment risk

In a recent April 2018 survey this year, the YouTuber profession that Japanese kids aspire to slides down from top 3 to within top 10. The reality that creating quality content consistently to engage with enough of an audience to hit the higher monetization bar raised by YouTube following the change in policy since Jan 2018 has started to hit dreamy young kids. Even for successful YouTubers who have became the new Oprah Winfreys, the stress of creating daily content can create burnout and take its toll. During last year’s survey, we like how Japan’s top YouTuber Hajime had sought to inject reality amongst the younger generation on the work ethics required for the profession with his comments: “I’m very grateful that today’s elementary and middle schoolers are saying they want to be YouTubers when they grow up. I think they understand it’s hard work, that we lose sleep, that at first you get ridiculed.”

Relating to the difficulties in starting innovative new things, CEO Kamada thoughtfully shared: “Because new things are treated as ‘smelly’ generally, I think that we should push forward to what we thought was good and ignore such voices. YouTuber was also seen as a doubtful and fad thing at the beginning. Japanese people think YouTube is merely a platform for individuals to earn advertising revenues. They tend to consider the YouTuber phenomenon as just a passing fad. But the tide changed instantly since the news article that was published on the survey of elementary school student on what do they want to be in the future when they grow up and YouTuber was ranked as one of the top occupation choices. What we are trying to push is the momentum, so that the majority of Japanese people, including seniors and females, are familiar with YouTube and watch it regularly. When core fans are attached, there is transmission power. When the management philosophy is properly listed, the culture and direction of the whole enterprise can be decided. That’s why I wonder what we can contribute to the world. ‘Kodomogorokoro’ means that you want to positively influence someone by making moving images, videos, a creative output, so that he or she can remember such things as ‘that time was exciting and interesting’, ‘that time was heartwarming’, express this in ‘sekai’ (the world). Start from the point that I want to give something, to do something, to ‘kodomogorokoro’ something.”


Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 200 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.


It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | kb@heroinnovator.com | WhatsApp +65 9695 1860
www.heroinnovator.com

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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