Investor Relations

Management Policy

Risk Factors

Risk Factors

Matters that may have a material effect on the investment decisions of investors are described below. Forward-looking statements herein represent the COLOPL Group's judgment as of December 21, 2015 and do not constitute a comprehensive list of all risks that may occur in the future.

1. Strategies and plans

(1) Mobile-related markets

The COLOPL Group expects mobile-related markets to continue to show sustained growth accompanying the steady popularization of smartphones.

Nevertheless, any substantial slowing of the pace of market growth may affect the Group's business and financial performance. Even if market expansion continues, the Group may not be able to achieve steady growth at an equivalent pace. Furthermore, since the market is not mature, any drastic change in market share composition resulting from market entry by a major company may affect the Group's business and financial performance.

(2) Competition with other companies

The COLOPL Group is endeavoring to increase competitiveness by providing distinctive services that utilize location information, providing rich, highly expressive, authentic game applications, and enhancing customer support.

Nevertheless, any intensification of competition with companies that similarly provide services such as applications which use location information via the Internet or mobile phones and smartphone applications and with new market entrants may affect the Group's business and financial performance.

(3) Response to technology innovation

The COLOPL Group engages in businesses based on Internet-related technologies. The Internet-related sector is a highly volatile industry in which new technologies are developed and businesses and new services based on those technologies are introduced in rapid succession. In addition, with regard to hardware, smartphones are becoming increasingly widespread, and a number of new services that support new technologies are being offered.

For this reason, the Group is focusing on recruiting and developing engineers, developing a creative working environment, and in particular acquiring smartphone-related technology, knowledge, and expertise.

Nevertheless, any difficulty in acquiring such knowledge or expertise or delay in the Group's response to new technology may cause the Group's competitiveness to decline. Furthermore, expenditures for additional systems, personnel costs, or other costs associated with responding to new technology may increase. Such cases may lead to a decline in the Group's technological capabilities, an attendant decline in service quality, and a decline in competitiveness and may affect the Group's business and financial performance.

(4) Services for overseas markets

The COLOPL Group plans to take advantage of the characteristics of smartphones and continue to actively offer the Group's services overseas.
However, at times user preferences, laws and regulations, and other circumstances overseas differ substantially from those in Japan, and the Group's business may not develop as expected.

(5) Risks related to investment and financing

The COLOPL Group's policy is to invest in or finance mergers and acquisitions and expand its corporate scale if it determines that it will contribute to increasing future growth potential.

When investing in or financing mergers and acquisitions, the Group performs detailed preliminary reviews of financial details, contractual relationships, and other matters pertaining to target companies and thoroughly considers risks. However, the occurrence of contingent liabilities, identification of unrecognized liabilities, or any other problems that could not be identified even in preliminary reviews or business development which doesn't proceed as planned may result in difficulty in recovering invested capital and affect the Group's business and financial performance. Also, the addition of a business that is new to the Group in a merger or acquisition may result in the addition of risk factors specific to that business.

(6) Risk of damage to the corporate brand

The COLOPL Group considers maintenance and enhancement of corporate brand value important for ensuring user confidence, expanding the user base, and promoting use of the Group's services and appropriately discloses information to stakeholders and actively engages in public relations and CSR activities.

Nevertheless, spreading of a negative reputation or evaluation of the Group may cause the Group's brand value to decline and affect the Group's business and financial performance.

2. Business operation

(1) Planning, development, and operation of game applications

The COLOPL Group engages in the planning, development, and operation of various game applications and platform operation. The Group is achieving steady increases in game application downloads, platform members, and new members and believes that it enjoys a positive reputation among users.

Nevertheless, user preferences for these services may drastically change. If for some reason it becomes difficult to accurately identify user needs or introduce content that meets user needs, a decline in the Group's appeal to users may affect the Group's business and financial performance.

(2) Risks related to systems

The COLOPL Group's business is completely dependent on mobile phones, personal computers, and communication networks that link computer systems, and the Group's business and financial performance would be severely affected by any severing of communication networks because of natural disaster or accident (including those attributable to internal or external human factors). In addition, any computer systems shutdown due to unforeseeable factors such as a sudden increase in access to sites the Group operates or an interruption of data center power supply or cloud services may affect the Group's business and financial performance.

Furthermore, although the Group takes appropriate security measures and strives to avoid unauthorized outside access to its computer systems, any system failure due to a computer virus or hacker intrusion may affect the Group's business and financial performance.

(3) Trends at Apple Inc. and Google Inc.

An increase in the proportion of smartphone game application services among the COLOPL Group's sales has resulted in greater dependence on the platforms of Apple Inc. and Google Inc. for earnings.

However, a change in commission rates or another factor resulting from a change in business strategy or the current trend for either of these platforms may affect the Group's business and financial performance.

(4) Services involving copyright

At times the COLOPL Group pays royalties to introduce in game applications characters, etc. whose rights are owned by third parties. Sales performance substantially below expectations from applications that use characters, etc. or lack of success compared to competitors in introducing popular characters, etc. may affect the Group's business and financial performance.

(5) Natural disasters and accidents

The COLOPL Group prepares against natural disasters and accidents and endeavors to prevent or avoid problems by periodically backing up data and constantly monitoring the status of operations. Nevertheless, the occurrence of a major earthquake or other natural disaster in the vicinity of the Group's business premises may result in damage to the Group's facilities or in power supply restrictions or other events that impede business continuity and affect the Group's business and financial performance.

3. Organization and governance

(1) Human resources

The COLOPL Group has rapidly expanded its business domain by operating its own platforms and developing and providing its own content. Further workforce expansion in the Group's departments responsible for technological development, advertising and marketing, and administration may be necessary to cope with further future business expansion and diversification of business activities.

Nevertheless, any failure of the Group's internal personnel development or external personnel recruitment to progress as planned in response to expansion of its business scale or employee turnover or loss of talented personnel substantially exceeding the Group's expectations may cause a decline in competitiveness or constrain further expansion of operations and affect the Group's business and financial performance.

(2) Internal control systems

The COLOPL Group recognizes the necessity of ensuring the appropriateness of operations, reliability of financial reporting, and rigorous legal compliance based on a sound sense of ethics, with the recognition that effective functioning of corporate governance is essential for a sustained increase in corporate value.

Although the Group strives to enhance its internal control systems, any delay in development of sufficient internal control systems because of rapid business expansion may make it difficult to ensure appropriate business operation and affect the Group's business and financial performance.

(3) Information management systems

Since the COLOPL Group handles users' mail addresses and other important information, the Group has proactively undertaken to strengthen information management systems by formulating an information security policy, providing information security education and training to officers and employees, and obtaining ISO 27001 certification.

Nevertheless, if there is a leak of important information for some reason, payment of compensation to persons concerned, loss of public trust in the Group, expenditures for further information management systems development, or other costs may affect the Group's business and financial performance.

(4) Dependence on the CEO

The COLOPL Group's President and CEO Naruatsu Baba is the Group's founder and has served as chief executive officer since the Group was founded. He possesses development expertise in Internet and mobile phone services, including mobile content, and a wealth of related experience and knowledge and plays a crucial role in making technology judgments and deciding and executing management policies and business strategies.

The COLOPL Group is developing a management structure that does not depend excessively on the CEO by promoting information sharing among corporate officers and management at meetings of the Board of Directors and Management Council and strengthening management systems.

Nevertheless, inability of the CEO to remain involved with the Group's operations for any reason may affect the Group's business and financial performance.

4. Compliance

(1) Risks related to service safety and soundness

Some applications provided by the COLOPL Group are premised on large numbers of individual members communicating among themselves at their own initiative. In order to develop a wholesome community, in its Terms of Service the Group expressly prohibits any inappropriate use that may develop into a social problem. In addition, the Group constantly monitors users and sites and endeavors to take measures to deal with users who violate the terms of service, such as requesting improvement and revoking membership. Furthermore, to promote the appropriate use of services, the Group has more clearly expressed proper manners and points to remember when using content, has strengthened the monitoring system, augmented the personnel structure for patrolling sites, and otherwise substantially strengthened the monitoring structure, both in terms of systems and personnel, and continuously implements initiatives to maintain soundness.

Nevertheless, it is difficult to completely keep track of the conduct of members for content with rapidly expanding membership, and the Group may be legally liable for any trouble caused by inappropriate member conduct, regardless of content of its Terms of Service. Even if the Group is not legally liable, reputational damage from such conduct may affect the Group's business and financial performance.

Furthermore, although the Group's policy is to continuously take necessary measures to maintain and increase content soundness as business scale expands, any delay in the resulting systems response or structural reinforcement or greater than expected increase in response costs may affect the Group's business and financial performance.

In the online game industry, some users engage in real money trading (RMT)* of in-game items, etc. on auction sites or by other means. Although to make games more fun the COLOPL Group has incorporated into its services a function that enables users to exchange in-game items, a small number of users list such items at auction sites. The COLOPL Group clearly expresses prohibition of RMT in its Terms of Service and monitors auctions sites on a timely basis. In addition, in the Safety and Soundness Guidelines, the Group has clearly indicated a policy of taking strict measures against violators, such as revocation of membership.

Nevertheless, any large-scale occurrence or expansion of RMT related to the Group's services may result in a decline in the credibility of the Group's services and affect the Group's business and financial performance.

*Real money trading (RMT) is the buying and selling of online characters, items, in-game virtual currency, or other data using real money.

(2) Risks related to intellectual property rights

The COLOPL Group endeavors to obtain intellectual property rights related to the contents and services it operates. In addition, the Group exercises due caution to avoid infringing the intellectual property rights of third parties.

Nevertheless, if in the future a third party is granted rights in a business field in which the Group operates, such third party may take legal action to claim compensation for damages or prohibit use of the rights, or the Group may pay royalties or other compensation for use, which may affect the Group's business and financial performance. Also, any infringement of the Group's intellectual property rights may affect the Group's business and financial performance.

(3) Legal regulations related to the Internet

The services operated by the COLOPL Group are subject to application of the Act on the Protection of Personal Information with respect to users' personal information. In addition, the Act on Prohibition of Unauthorized Computer Access prohibits the unauthorized use of the IDs and passwords of other persons. Furthermore, the Group may be obligated to disclose matters required by law when transmitting certain e-mail advertisements under the provisions of the Act on Specified Commercial Transactions and the Act on Regulation of Transmission of Specified Electronic Mail. The Group is also subject to application of the Telecommunications Business Act as a telecommunications carrier.

In addition, although the Group provides an SNS* function on some of the applications it provides, this is a service based on wholesome communication among users that the Group believes does not fall under the category "Internet opposite sex introducing service" as defined in the Act on Regulation on Soliciting Children by Using Opposite Sex Introducing Service on Internet. Furthermore, the obligation for mobile service providers to provide a filtering service is stipulated in the Act on Development of an Environment that Provides Safe and Secure Internet Use for Young People, enacted in April 2009, and as mentioned in the preceding paragraph, the Group continuously strengthens initiatives to maintain site security. In addition, for-pay "virtual currencies" used in some smartphone native game services are subject to application of the Payment Services Act, and the Group has registered with the Kanto Local Finance Bureau and engages in operations that comply with the Payment Services Act, Order for Enforcement of the Payment Services Act, and other relevant laws and regulations.

Although the Group actively complies with the above laws and regulations, any administrative action against the Group for infringement of such regulations due to unforeseen circumstances, strengthening of these laws and regulations in the future, or enactment of new laws or regulations that restrict the Group's business may affect the Group's business and financial performance.

*SNS (social networking services)are membership-based community services that promote and support links between people using mail, bulletin boards, and other means.

(4) Legal regulations related to applications

The COLOPL Group operates in the mobile Internet industry, which has been the subject of some mass media reporting on issues such as inducement of excessive gambling spirit. In a recent development, in July 2012 the Consumer Affairs Agency indicated its opinion that a charging method called "complete gacha" violates the Act against Unjustifiable Premiums and Misleading Representations. The Group has already introduced countermeasures and believes that this development has no significant impact on the Group's services. It is only natural to provide services that comply with laws and regulations, and the Group believes that as a service provider it should voluntarily respond to and comply with societal demands, which may continue to change in the future, and strive to avoid loss of industry health and growth potential.

Nevertheless, any legal restrictions such as changes in the interpretation of existing laws and regulations or enactment of new laws and regulations as a result of changes in the social situation may result in significant constraints on the Group's business and significantly affect the Group's business and financial performance.

*"Complete gacha" is the term for a system that enables people to obtain rare items or cards by completing a set of randomly obtained items or cards.

5. Others

(1) Short company history

The COLOPL Group, established in October 2008, has a short company history. Since there is insufficient historical financial information to compare business performance over a number of fiscal periods, the available financial information may not be adequate for judging future business performance solely on the basis of past performance.

(2) Dilution of stock value as a result of the exercise of stock acquisition rights

The COLOPL Group grants stock acquisition rights to the Group's corporate officers and employees as an incentive and the Group may grant stock acquisition rights to corporate officers and employees in the future.

The exercise of these stock acquisition rights may result in new issuance of the Group's shares and dilute the value and ratio of voting rights of shares held by current shareholders.