TeamSpirit (4397) - First Look

Updated: May 1, 2021


What is HCM and what does TeamSpirit do?


Human Capital Management (HCM) is a concept that views workers as individuals with skills and talents – something that can be managed to help a business to grow. New digital technologies enable HR leaders to provide an engaging and personalized employee experience.

When people talk about HCM, they are usually referring to a suite of modern IT applications that cover all the touchpoints between an employee and employer: Talent Management, Workforce Rewards, Workforce Management.

A well-designed HCM solution can help companies to:

  • Attract and Retain Talent

  • Optimize Workforce and Management Spending

  • Respond with Agility to Change

  • Streamline HR Operations

TeamSpirit focuses on Workforce Management (WFM). WFM systems organize information to give a complete record of human capital, so that organizations can improve worker productivity, reduce labour costs, and minimize compliance risks. TeamSpirit operates a cloud-based software-as-a-service (SaaS) delivery model, which is quickly becoming the norm for HCM technology. Cloud solutions allow companies to quickly deploy software, lower costs, and enable easy upgrades.

TeamSpirit connects to other tools within the broader Enterprise Resource Planning (ERP) system. The platform integrates with other tools, such as document signing, expense management, and remote communication, so that information can be analyzed in real time.

It is not just the technology that has changed. The workforce is transforming too – into flatter, more agile networks of teams, becoming more mobile, global, and diverse. These trends underpin the rapid adoption of cloud computing.

What are the key sales drivers?


Demographics. Japan’s population is aging and shrinking fast. Over the next 40 years, the population of 127m will shrink by around a quarter. The policies of Abenomics – economic growth, inflation, public debt stabilization – rely heavily on structural labour-market reforms. Japan urgently needs to boost the labour force by adding more women, older workers and foreign workers. HCM software, like TeamSpirit, enables “work-style reforms” designed to increase labour flexibility.


Digital transformation. Japan is hurtling towards its 2025 Digital Cliff, its digital shortcomings brought into sharp focus by the Coronavirus. DX has become an urgent policy concern, so much so that the Government has recently set up a Digital Agency to speed things up. The spread of Covid has brought irreversible changes to society and the way we work. For companies to grow under this new normal, digitalization is becoming more important. ‘Digital Anywhere’ means just that and TeamSpirit can help companies to support a more mobile and agile workforce.

TeamSpirit generates over 90% of revenue from recurring sources. The key KPIs that drive Annual Recurring Revenue (ARR) are the number of licences and churn.







The longer-term plan calls for 1 million licenses and ¥10b in sales by 2025. The current Annual Recurring Revenue (ARR) currently stands at ¥2.3b, which implies that the business could grow 4x over the next four years.

Is it an attractive market?

Looking at this from the top-down first. Globally, businesses spend around $180b on ERP software. Client Relationship Management (CRM) made up a quarter of the spend, while HCM accounts for just less than 10% of the total.


Fortune Business Insights estimates that the market size stood at $16b in 2019 and is expected to reach $32b by 2027, for a CAGR of 9% over the next several years.

The key global players include: Automatic Data Processing, SAP, Oracle Corp, Ultimate Kronos Group, Workday, Cornerstone onDemand and Ceridian HCM Holding.


The Japanese market remains relatively small part of that global pie. The global HCM players are already operating in Japan, especially among the large multi-national companies. Just as an example here is the client roster of Workday in Japan: Fast Retailing, FujiFilm, Hitachi, Mizuho, Nissan, Nitori, Orix, Rakuten, Ricoh, Sansan, SONY, Toyota, Trend Micro.

The shift to cloud-based HCM is still in the initial stages in Japan. TeamSpirit cites ITR Market View to size the market for Employment Management SaaS at around $100m currently in Japan. This is expected to grow to around $300m by 2024.


The market though is potentially much larger than that. Many larger companies have their own legacy systems on premise. The lack of IT support for these legacy systems due to the ageing workforce is forcing many companies to open up and shift systems into the cloud, particularly post Covid. Many companies are still using timecards and Excel!

A quick back of the envolope calcualtion: Assuming that all Mid-to-large company employees (~30m) are potential users of HCM software, the market TAM could be worth around $2b.


The key Japanese players in WFM include:

TeamSpirit, King Of Time (Human Technologies), Akashi (SonyBiznet), ByeBye Time Card (Neolex), Kincone (Soulware)

Is Team Spirit a winner?

It is early days for cloud-based HCM software makers and TeamSpirit is a small company with Annual Recurring Revenue of just $20m. What is for sure is that the market has exceptionally low penetration. TeamSpirit has around 1,400 corporate clients out of a total mid-large universe of around 55,000 enterprises and 1.8m SMEs. The target is clearly to grow the enterprise user base and the core KPI is to grow Licence ARR at above 30% per annum. This makes sense, given the core competitive advantage for cloud-HCM is likely to be switching costs. It is vitally important to grow its customer list before other local and global competitors can expand their share. We feel that the competition from the likes of Money Forward and Freee could intensify as those companies move from pure accounting software to a broader ERP offering. This is already starting to happen.

Is it a good stock to own?


The stock is trading at the bottom of its 52-week range (¥1,550 to ¥2,980) following a weak Q2 results (Apr 9). The stock fell around 20%, as the company lowered its full year sales guidance from ¥3.15b to ¥2.9b (-8%). That is what happens when growth slows at a company with high sales growth.


The growth in the number of licences is the chief culprit here. Licence additions slowed to 13,560 in Q2, down from c20,000 the year before. The company partially blamed that on a delay in booking around 2,000 licences, pushed now into Q3, but it said the same thing at the end of Q1.


The company’s strategy is to target larger companies, which have both a higher number of users and a higher fee opportunity (upselling services). However, this transition is taking longer than expected, partly due to the slow decision making process at larger companies, probably hindered by COVID.


At the current price of ¥1,570/share, expectations are pretty low. The stock trades in line with the Japan SaaS average at around 9x EV/Sales. Given the size of the TAM and the low penetration of cloud-HCM, we believe the market cap will be significantly higher than the current $250m over the next 5 years.

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