Risk Factors

In the past, CyberAgent saw continued growth in the internet media, internet advertising, and game markets, due to the expansion of internet markets, the increases in internet users, the proliferation of smart devices, and increases in internet usage in corporate activities. While we believe these trends will continue into the future, if there emerges a hindrance to the growth of internet media markets, game markets, or if business confidence worsens, and affects the internet ad market, the Group’s business performance and financial standing may be affected.

(i) Business outlook
The Group provides a variety of services in the internet industry, and it may affect the performance of the entire group if future trends in Japan’s internet population and the scale of internet-related markets, etc., are not favorable, or if we are slow to respond to new business models, etc. In addition, as policy, the Group shall, as needed, actively engage in hiring human resources, establishing subsidiaries and affiliated companies, investing, forming business alliances, etc.

The performance of the Group in past years has fluctuated in each period for each business/subsidiary. In addition, we may be impacted by market conditions, etc., so the evaluation of the Group’s business outlook cannot be entirely based on the business results of previous years. For that reason, when announcing our business outlook, due to changes in the business environment, etc., actual results may differ from those in the announced business outlook. In such cases, we shall promptly announce the revisions to our business outlook.


(ii) Changes in accounting standards
In recent years, as the development of international rules for accounting standards has progressed, the Group has made prompt and appropriate revisions to its standards. However, if accounting standards or taxation systems are changed considerably in the future, it may affect the business performance and financial standing of the Group.

The Group’s business domain is regulated by various laws and regulations, such as the Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms, the Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers, and the Right to Demand Disclosure of Identification Information of the Senders, the Act on Prohibition of Unauthorized Computer Access, the Consumer Contract Act, the Act on Securing Quality, Efficacy, and Safety of Products Including Pharmaceuticals and Medical Devices, the Act Against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, the Act on the Protection of Personal Information, the Act on Establishment of Enhanced Environment for Youth’s Safe and Secure Internet Use, the Payment Services Act, and the Food Sanitation Act, and procedures and guidelines from supervisory government agencies. The Group’s business may be subject to new restrictions, and business performance and future business expansion may be impacted as a result of the enactment or revision of rules and regulations, the strengthening of existing regulations, or the formulation or revision of new guidelines or voluntary-regulatory rules. In addition, if illegal acts occur in the services the Group operates, third parties who have suffered damage or loss from them may file lawsuits against us as the service operator to claim damages.

Furthermore, with regard to music copyrights, The Group’s business performance and future business expansion may be impacted should the necessity arise for copyright royalties, changes in license terms, or new grants of rights, etc., other than music copyrights to copyright management organizations such as the Japanese Society for Rights of Authors of Music (JASRAC), etc., or neighboring-rights holders, including holders of master copyrights.
 

The Group takes various measures for maximizing the value of each group company while considering that our important managerial mission is to enrich our corporate governance. In addition, in order to maintain the credibility of our fair practices and financial reporting, we create, maintain, and operate effectively functioning internal control systems in related areas.

However, if the development of sufficient internal control systems cannot keep up with the rapid expansion of our businesses, etc., it may become difficult to operate our businesses appropriately, affecting the business performance and financial standing of the Group.

The Group positions the hiring and development of personnel as an important management issue to secure our advantage in the internet business world and continuously carries out a wide range of measures related to the hiring and development of personnel. However, if it becomes difficult to secure sufficient personnel, or if it becomes difficult to maintain the Group’s collaborative, cooperative systems due to rapid hiring of personnel, the business performance and financial standing of the Group may be affected. If board members, including the president or executive who has the technological knowledge, skills, or experiences resign or retire for some reason and there are no successors, the business performance and future business expansion of the Group may be affected.

The Group, with the cooperation of the Group business partners, promotes the strengthening of information technology security, etc., including in the computer networks necessary to provide the Group’s services. However, there are risks of the leakage of important data, the unauthorized falsification of computer programs, system failure, and disruption of the provision of the Group services due to such occurrences as remarked below: vulnerability in computer systems, deterioration in existing security measures, malware or computer viruses, unauthorized access to computer networks, an error of executive, employee, or business partner, unexpected failure of a cloud service provided by a business partner, cyber attacks on a business partner, natural disaster and temporary overload by the increase of access. It may result in a third party’s claim for damages, fallen credibility of the Group, and/or loss of revenue opportunities, etc., thereby affecting the business performance and future business expansion of the Group.

The Group holds personal information obtained through internet-related businesses and strives to manage that personal information in keeping with our Privacy Policy, which has been prepared in accordance with the Act on the Protection of Personal Information. However, if personal information is leaked or an issue arises in the process of collecting personal information due to events such as vulnerability in computer systems, computer viruses, unauthorized access of a computer from an outside source, an error by an executive, employee, or business partner, cyber attacks on a business partner, natural disaster, or sudden mass network access, or if, with the growing interest in the handling of personal information, a situation arises in which the Group is not legally liable but is held responsible from a social or moral point of view, the Group may incur damage due to a claim against us or deterioration of trust in the Group and our business performance and future business expansion may be impacted.

The Group makes efforts to protect our intellectual property rights that accompany technological innovations in the internet industry and the expansion of our intellectual property rights business and reinforces awareness of our intellectual property rights and our internal management structure so that our officers and employees do not violate the third party intellectual property rights. However, if a third party files a lawsuit against the Group regarding intellectual property right infringement or the Group receives a claim to stop using the intellectual properties based on the content of the intellectual property rights held by the third party, extensive funds and time may be required until that situation is resolved, and the Group’s performance and future business expansion may be impacted.

The occurrence of a natural disaster, including an earthquake, typhoon, terrorist attack, or infectious disease epidemic, could severely impact the Group's business and cause it to fall into a state of confusion. While the Group strives to ensure appropriate and prompt crisis response and recovery measures against the occurrence of such natural disasters, there is no guarantee that the effects of a natural disaster, including computer system outages or loss of data, can be completely mitigated, and a possibility of various negative effects that include business activity impact, brand image damage, physical property damage, and injury to personnel. Furthermore, since the Group's offices and computer network infrastructure are concentrated in particular locations, there is a possibility that natural disasters and other events in those locations would cause significant damage, which may affect the business performance and future business development of the Group.

To prevent the spread of COVID-19, entertainment and events in our sports and events business may not be held conventionally, and in our other businesses, the restriction of business activity and advertising budget reductions by advertisers may affect the business performance and business development of the Group.

Based on our vision, "To create the 21st century's leading company," our business model's distinctive characteristic is that we both communicate with internet users and advertisers. Amid the rapidly growing and evolving internet business, the company constantly creates new business domains at the speed uniquely possible. Our policy going forward is to continue expanding our business as a comprehensive internet service company through efforts such as creating new businesses, establishing subsidiaries and affiliates, acquiring companies, and expanding overseas. However, we can expect to incur additional expenditures for hiring new personnel and expanding facilities to realize these goals. And we anticipate that it may take some time before these businesses can generate stable profits. Furthermore, to gain a market advantage over competitors, there is also a possibility that profitability will decline and user acquisition costs will increase due to intensified price competition.

We may also be unable to deal with potential risks associated with overseas business expansion, including laws, regulations, political and social situations, currency fluctuations, and competitive environments in various countries. Therefore, if the business does not progress according to the Group's plan, or the Group's management system cannot keep up with the expansion, or there are severe deficiencies in the internal management systems of subsidiaries, the Group's business performance may be significantly affected. It could lead the Group to change its strategy. Since the Group is engaged in the internet media business and other services for general consumers, it is exposed to the possibility of unforeseen reputational damage. In such cases, the Group's business performance may be affected by damage to the Group's brand image.

 

The internet media business the Group operates provide a wide array of content and services including “ABEMA,” blogs, social media, videos, music, and informative websites. We plan to increase and retain users, by developing new content, enriching the functions of existing services, stabilizing our business operation via the accumulation of further know-how, and so on. However, if we cannot offer attractive content and services liked by a broad range of users, the business performance and future business expansion of the Group may be affected. 

In addition, the internet media businesses and game businesses handled by the Group offer services in accordance with the contracts with the credit card companies, platform operators, telecommunications carriers, etc. If there are changes in the Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms or other laws and regulations, technical specifications, revisions to contracts, cancellation of contracts, or other unexpected events, and if we are not timely in responding to such, the business performance and future business expansion of the Group may be affected.
 

The Group provides its game titles over the internet. Our policy is to acquire and retain users mainly by developing new games, expanding the features of existing services, and stabilizing operations via the accumulation of further know-how. However, if we cannot execute the following, the business performance and future business development may be affected. 1)Respond to diversification and changes in user preferences, 2) provide attractive new games, 3) prevent existing games from becoming obsolete while offering games and services that are liked by a wide range of users over the long term,

In addition, the business performance and financial position of the Group may be affected if it becomes difficult to secure and train a sufficient workforce to develop and operate games or to maintain collaborative projects and coordination within the Group due to hiring human resources too rapidly.

The Company has implemented various measures in cooperation with industry organizations to promote the sound development of the market in terms of the social game use environment and users' appropriate usage of social games. However, in the event of slow response or delay in system enhancement, or an unforeseen event, the future business development of the Group may be affected. 

Furthermore, if the World Health Organization recognizes excessive dependence on games as an international disease (game disorder), or if it becomes necessary to respond to such situational changes, the business performance and future business development of the Group may be affected.

The internet advertisement business handled by the Group may be affected by business trends, including the reduction of ad spending by advertisers due to market changes or changes in economic trends. In addition, we may have to fulfill the obligation to pay additional ad fees to the media due to deterioration in the financial standing of advertisers, the wrong distribution of ads, etc.

In addition, the internet advertising business depends on making purchases from media companies due to the nature of the transaction format. If we become unable to procure ad spaces or products due to the discontinuance of transactions with media firms, or if transaction conditions and product specifications related to the regulation of personal information both in Japan and abroad such as Cookie regulations by OS developers, GDPR, e-privacy regulations, the California Consumer Privacy Act (CCPA), etc., are changed, the business performance of the Group may be affected. Furthermore, there are multiple competing companies in the internet advertising business. We are actively working to strengthen our company’s and the Group’s media sales and the strength of our sales proposals, intensifying price competition to acquire customers, which invites lower profitability, etc., and may affect the business performance and financial standing of the Group.

We actively develop and improve our ad distribution system in our AI business, add features, automatically generate ad creatives using AI, and develop and introduce new data analysis and marketing methods. However, the emergence of new technologies and approaches could significantly reduce our competitive advantage over competitors. When utilizing AI, we proceed with caution based on understanding the importance of avoiding any biases or infringements of rights concerning the data used, the scope of use, decision-making criteria, the algorithms that lead to decisions, and outputs. Nevertheless,  it may affect the Group's business performance if any problem occurs, such as infringement of the rights of a third party due to inadequate specifications, management, or judgment as a result of the liability for damages, loss of trust. 

The future business development of the Group could also be affected by many factors that include AI ethics guidelines, laws and industry guidelines, changes in the guidelines or functions of operating systems installed on smart devices, and changes in the specifications of the browsers.

Public companies that we invest in may see a decrease in the gain on valuation or an increase in the loss of valuation due to share price trends. In addition, investments may not be collectible due to future performance by the companies that we have invested in, and the Group's profit and loss may be impacted. Unlisted companies may experience a deterioration in performance due to uncertain factors in the future, and the Group's performance, financial standing, and future business expansion may be impacted.

As the Group operates its E-commerce businesses, we comply with relevant laws and regulations, manage product control systems, and sign contracts with suppliers thoroughly, but if the product we sold goes against the law or has defects, producing problems of safety, etc., our business performance may be affected by occurrences of liability for damages, loss of trust, etc.

CyberAgent carries out sporting business, including the operation of sporting exhibits and events, and in the case of sporting exhibits, there may be an accident due to attendance by a large number of spectators. The necessary prevention measures are taken, but the Group’s performance may be impacted due to incidents of liability for damages or a loss of confidence.

The Group, for purposes of further growth, attaches great importance to diversification of earnings through entry into and strengthening of business peripheral to “ABEMA,” and entry into and strengthening of new business fields, such as a business that utilizes resources and know-how of the existing business. One method to achieve that is to strengthen investments and lending, including M&As. The target business is investigated in detail beforehand as much as possible, and once the risk is sufficiently considered the M&A proceeds. However, if issues arise post-acquisition that were unable to be ascertained beforehand, such as the identification of unrecognized liabilities or the emergence of contingent liabilities, or post-acquisition business expansions do not proceed as planned, the Group’s performance, financial standing, and future business expansion may be impacted. In addition, if new areas of business are added to the Group through M&A or similar means, risk factors specific to those businesses will be taken on by the Group.

The Group operates restaurants and has thorough quality control and hygiene management. However, if a food-related incident arises due to certain circumstances, the Group’s performance may be impacted due to incidents of liability for damages or a loss of confidence.

The Group operates the real estate business, which is highly susceptible to economic fluctuations caused by various factors in Japan and overseas, the resulting employment environment, etc. if the demand for developing office space, etc. decreases, vacancy rates rise, or rents decline, the business performance of the Group may be affected.