TOKYO -- The stock market's initial reaction to social networking site operator mixi's capital increase plan was enthusiasm, with its share price going limit-up last Friday.
The company plans to raise 6.3 billion yen ($61.4 million) through a public offering and spend the money on its smartphone game business. After a subsequent roller coaster ride, the price is now back where it started. As the dust begins to settle, investors want to see if the move will actually lead to business growth.
Betting on smartphone games
Expected to incur 350 million yen in consolidated net loss for the year ending March 31, mixi has now set its sights on smartphone games. Advertising revenue for its mainstay social network has slumped as rival sites eat into its user base.
Given that the stock price did not head south, the market seems to have shrugged off the dilution of per-share earnings that will follow the capital increase. Instead, investors appear to go along with the company's bet that "Monster Strike," its first full-fledged game for smartphones, will turn into a smash hit.
"Monster Strike" users have topped 3 million since mixi began distributing the game in October, winning over players at a faster pace than GungHo Online Entertainment's popular "Puzzle & Dragons" game. Mixi's share price went from 1,200 yen at the end of September to above 6,000 yen in December largely thanks to the "Monster Strike" effect.
Advertising strategy turnaround
The company plans to use proceeds from the capital increase for an advertising blitz. Rival firms with smartphone game apps have sharply expanded their player and fan bases through a flood of television ads and other marketing, but mixi had taken a different tack for "Monster Strike," relying instead on word of mouth.
The company now plans to reverse course, using television commercials and other mediums to spread the word about its smartphone game. The company is apparently so gung ho about its new strategy that it has told brokerage analysts and others it will "burn through 600 million yen in March (for advertising)." Investors believe that the game that already has 3 million users will receive a big boost from the ad campaign.
But the stock price increase so far has been based entirely on expectations. Whether the gains can be sustained for the long haul will hinge on mixi's ability to grow earnings.
The company had nearly 10 billion yen of cash on hand as of Dec. 31, prompting some critics to question its fundraising rationale. "Is the capital increase really necessary when it already has ample funds?" asks an analyst at a foreign brokerage.
A coming management change at the company may also make it difficult to predict whether the business plan will play out as planned.
President Yusuke Asakura, who took over from company founder and current Chairman Kenji Kasahara last June, will step down midyear to become an adviser. Corporate officer Hiroki Morita, said to be the brains behind "Monster Strike's" success, is scheduled to replace Asakura, whose short tenure at the helm comes as a surprise. Moreover, Morita's business strategy for growing the company is unknown.
The stock market awaits a better picture of Morita's plans. Depending on the details, investors' current favorable view of mixi's capital increase could change.