Netstars - 2022 Q1

  • The total transaction amount in Q1 2022 was JPY191.6 billion, an increase of 22% quarter-on-quarter and a year-on-year increase of 114%.
  • In Q1 2022, the Company’s revenue reached JPY 685 million, decreased 14% from the previous quarter and increased 70% year-on-year.
  • In Q1 2022, the Company's gross profit was JPY 366 million, an increase of 4% from the previous quarter and 66% year-on-year. Gross margin in 2022 Q1 was 54%.
  • Total operating expenses for 2022 Q1 were JPY 512 million, a decrease of 9% from the previous quarter and an increase of 20% year-on-year.
  • The Company's net loss in 2022 Q1 was JPY 150 million.
  • As of the end of March 2022, the Company's remaining cash and equivalents were JPY 21.4 billion (including funds to be settled by merchants), and the cash available for operations was about JPY 4.9 billion.
  • As of the end of March 2022, the Company has connected with about 318,000 merchants.

Company Overview

Founder 2009
Sector Integrated mobile payment
Address Tokyo, Japan

Management Team

Tsuyoshi Ri Founder and CEO
Hisahiro Chofuku COO
Chuck Chen CTO
Gen Adachi CFO
Koki Yamaguchi Head of Overseas Business
Kyoka Yoshida Founder and CMO

Board of Directors

Tsuyoshi Ri CEO
Hisahiro Chofuku COO
Chuck Chen CTO
Gen Adachi CFO
Koki Yamaguchi Head of Overseas Business
Kyoka Yoshida CMO
Kun Wang Software R&D Officer
Sen Lin Innovation Angel Funds
Mr. Sato Development Strategy Director of Itochu Corporation
Mr. Nagahashi Independent Officer
Mr. Kuwata Independent Officer
Kaede Kotsuki LUN Partners Capital Limited
Ting Huang Partner of JD.com
Eiji Yatagawa Partner of KKR

*  The Board consists of 14 members, with Kaede Kotsuki representing LUN Partners and its managed funds.

Note: From February 2022, Hisahiro Nagafuku has been appointed as COO and director of the Company.

Current Operations

Corporate Structure (Subsidiaries)

Netstars has its holding company in Japan, and expands overseas business through the Singapore entity as its overseas holding company. The Singapore entity has a 100% subsidiary in Vietnam. This subsidiary handles sales and development of POS and multi QR payment devices in Vietnam.

Financing History

Time Round Amount(JPY¥ m) Investors
As of 2016-10 Angel Rounds 440 Shenzhen Qianhai Innovation Angel Funds, Power Vision Technology Ltd, Shenzhen Weifutong Technology Ltd, Shinsei Bank
2018-04 A 890 NTT East, CTC, LINE and Gurunavi
2018-09 B 500 Japan Post Holdings
2019-10 C 2,146 Itochu, SCSK, T-Gaia
2020-05 D1 800 LUN Partners
2020-08 D2 2,100 LUN Partners, The Bank of Yokohama, SMBC Securities and JP Post.
2021-02 D3 1,476 JD.com
2021-03-06 E 5,400 KKR, LUN Partners, SIG

Financial Analysis

In Q1 2022, the Company’s revenue reached JPY 685 million, decreased 14% from the previous quarter and increased 70% year-on-year. The decrease compared to the last quarter was mainly due to the base effect led by the non-recurring revenue of development fee for Kanagawa project in last quarter. Excluding that, revenue rose 10% in the first quarter from the previous quarter.

In terms of revenue breakdown, the transaction commission revenue accounted for 47% of the total revenue, and the advertising and communications revenue for Chinese customers accounted for 26% of the total revenue. These two types of revenue together contributed 73% of total revenues. Mini program, POS devices and Kanagawa project revenue contributed 9%, 4% and 4% to total revenue, respectively. Other revenues which including SIM card, servers and POS modification together accounted for 10% of the total revenue.

2021-2022 Quarterly Revenue
( in JPY million )

Revenue Breakdown 2022 Q1
( in JPY million, %)

In Q1 2022, the Company’s gross profit was JPY 366 million, an increase of 4% from the previous quarter and 66% year-on-year. Gross margin in 2022 Q1 was 54%.

Total operating expenses for 2022 Q1 were JPY 512 million, a decrease of 9% from the previous quarter and an increase of 20% year-on-year.

In terms of expense breakdown, the top 5 expenses together accounted for 67% of the total expenses. Employee compensation remains the largest expense in 2022 Q1, accounted for 36% of the total expenses at JPY 185 million. Sales promotion expense was JPY 58 million, accounted for 11% of total expense.

2022 Q1 Top 5 Expenses
( in JPY million )

The Company’s net loss in 2022 Q1 was JPY 150 million.

As of the end of March 2022, the Company’s remaining cash and equivalents were JPY 21.4 billion (including funds to be settled by merchants), and the cash available for operations was about JPY 4.9 billion.

Recent Developments

Key Operational Development

Transaction Amount

The overall transaction amount have achieved a high growth in Q1 2022. The total transaction amount in Q1 2022 was JPY191.6 billion, an increase of 22% quarter-on-quarter and a year-on-year increase of 114%. Among them, the transaction amount of the Kanagawa project during Q1 2022 was JPY 34.9 billion, and the domestic transaction volume excluding the Kanagawa project was JPY 154.2 billion.

Number of Merchants

As of the end of March 2022, the Company has connected with about 318,000 merchants, an increase of approximately 8,800 merchants compared to the end of December 2021.

2020-2022 Monthly Transaction Amount

( in JPY million )

Number of Merchants

( in thousand)

New Business Development

— Netstars invested in Regional Marketing Co., Ltd., a marketing company in Hokkaido

In March 2022, the Company has invested JPY 31.2 million with shareholding ratio of 14.8% in a marketing company in Hokkaido called Regional Marketing in the form of common shares. Through the alliance with Regional Marketing, Netstars aims to accelerate the roll-out of the StarPay business into Hokkaido and other regions.

— Netstars commences provision of “StarPay Digital Coupon”, supporting the digitization of coupons

In March 2022, the Company will start to provide the “StarPay Digital Coupon” platform supporting the issuance and management of digital coupons. This service enables the issuance and management of coupons from a dedicated web management screen, checking payment status, and distribution of campaign information on the digital coupon website used by users. Users can also check and charge their balance by accessing the digital coupon website.

Changes in directors and executives

Former CSO Yoshimoto Bansho has resigned for personal reasons and ceased to be director.

From February 2022, Hisahiro Chofuku has been appointed as COO and director of the Company. Mr. Chofuku will help the Company to achieve deployment and business expansion in new areas the Company is focusing upon such as payment and mini-apps, and will take over the business from the former CSO.

Mr. Chofuku has been involved in fintech such as mobile funds transfers and payment for many years. He previously worked as Representative Director, President & CEO of LINE Pay in 2020. Before that, Mr. Chofuku worked at LINE Business Partners Corporation in 2013 and served as Representative Director from 2014.

IPO Plan

The Company is steadily advancing the listing process and has completed the first round of IPO review as scheduled in the first quarter. The Company is currently planning IPO in the fourth quarter of 2022. However, considering the current capital market is in the weak trend, the Company does not rule out the possibility of postponing the IPO.

Market Overview

Market of QR code payment in Japan

According to a survey by Yano Research Institute, the market size of the QR code payment (based on QR code payment amount) in Japan in 2020 is about JPY 6,121.6 billion. QR code payment companies continue to expand their business of payment services by implementing promotions to users and waiving commission fees from their merchant customers.

Meanwhile, in order to prevent the further spread of the coronavirus pandemic, the demand for cashless payment is increasing, and the opportunities for QR code payment will also expand. According to Yano’s forecast, the size of the QR code payment market in Japan is expected to be JPY 7,853.7 billion in 2021, and will go up to JPY 12,397.6 billion in 2025.

In the face of COVID-19, maintaining and strengthening the relationship between physical stores and customers through mobile apps has become the focus of the moment. In light of this, players in cashless payment industry are gradually turning their attention to provide mobile applications, and driving customers to their merchant stores through coupon distribution and message notifications. In addition, the popularity of mini-programs which can be used in apps without downloading will also became a tailwind for the QR code payment market.

2020-2025 QR Code Payment Market Size – Change and Forecast

( in JPY billion )

Source: Yano Research Institute

Japanese cashless payment awareness under the coronavirus pandemic

According to a survey led by Dentsu on December 2021 that focusing on the awareness of cashless payment of the public under the pandemic, 93.3% of the respondents said that they pay through a cashless way, which is an increase of 4.7% from 2020.

The top three locations for cashless payment are convenience stores, shopping centers and drug stores. Whereas hospitals and clinics, small and medium sized stores has become the most inconvenient places due to the lack of cashless payment adoption.

From the perspective of the daily frequency in using cashless payment, 41.8% of cashless payment users choose “more than 2-3 times a week”,  the portion for QR code payment and NFC payment are 57.8% and 44.6% respectively. It can be seen that mobile payment has surpassed credit card payment and has gradually became the mainstream of cashless payment in Japan.

Investigation on Utilization of Different Cashless Payment Methods

( in %)

Source: Dentsu Inc.

Competitors

InComm Japan

2008 – Atlanta

InComm Japan is the Japanese subsidiary of the world’s largest POSA card distribution company headquartered in Atlanta, USA, InComm. InComm Japan holds several patents on POSA card technology and is a major player in connecting POS systems for card activations at over 60,000 stores in Japan. Over the last few years, InComm Japan has announced partnerships with the leading payment issuers, including QR and barcode payment services such as WeChat Pay, LINE Pay, d Payment (R), AliPay, etc.

Financing History

  • undisclosed amount, Warburg Pincus

Recent News

  • NA

Canal Payment Service

2017 – Tokyo

Japan payment service company. Three shareholders are Nihon Unisys Group, JCB, Japan Card Network. The main business includes the plan, development, design, sales, installment, operation of e-payment system, the business transactions based on internet, clearing and settlement related business, entrustment and agency, etc.

The company integrated payments: cooperate with 13 domestic payment brands like LINE Pay, PayPay and oversea payment brands like TenPay, AliPay, UnionPay, etc. Prepaid card point charge gateway services: cooperate with 13,000 domestic lawson stores to deal with the domestic or oversea brand prepaid card transactions like ANA, JCB, Visa etc.

Financing History

  • N/A

Recent News

  • In April, the company has revised the service terms between the company and merchants, and added relevant provisions in terms of merchant information and personal information in accordance with the newly revised Personal Information Protection Law of Japan.

Digital Garage

1995 – Tokyo

TerraPay links mobile wallet providers, banks, financial institutions, remittance operators, etc. to provide international remittance services.

In 2016, TerraPay acquired a 100% stake in Pay2Global, a regulated digital international remittance company with “right to travel” to the European Economic Area (EEA).

Digital Garage is a well established Japanese Internet combining three verticals in IT (Information Technology), MT (Marketing Technology) and FT (Financial Technology). In 2012 Digital Garage acquired SBI Holdings, Inc’s SBI VeriTrans Co., Ltd, a payment settlement business. In May 2019 Digital Garage established Cloud Pay, a multi-QR code payment solution encompassing a number of issuers.

DG Financial Technology (DGFT), a payment service provider and a subsidiary of DG, having 700,000 participating merchants in Japan and handling approximately JPY 3.3 trillion in annual transaction volume (as of September 30, 2021), and 600 million transactions per year.

Financing History

  • N/A

Recent News

  • In January, Digital Garage’s subsidiary DGFT and QAL Startups form a business partnership in the online payment business for veterinary clinics and launched VETSHIP ITSUDEMO PAY.
  • In February, Digital Garage and JCB, Japan’s only international payment brand, formed capital and business alliance to promotes payment infrastructure business platform and fintech business. JCB acquires 3% of DG’s total number of issued common stock shares.