V-Cube (3681) | First Look


Share Price: ¥2,700, Market Cap: $630m, EV/Rev: 6.8x






MODEL V-cube provides online communications services for corporate clients. The web conferencing tool is an indispensable tool under the state of emergency, allowing companies to maintain internal online communication such as in-house training and meetings and external events such as seminars, conferences and interviews. While Zoom may be good enough for small companies to arrange simple meetings, V-Cube provides a valuable service to larger companies that have complex communication requirements. The essence of this is the provision of high-quality, large-scale, flexible communications, married with the ability to troubleshoot and fix problems in real-time. V-cube is the leader in the Japanese market in these services. The company was established in 1998 by Naoaki Mashita and listed on the TSE Mothers exchange in 2013. The company has seen strong sales growth since inception, growing 17% annually to reach ¥8b by FY12/20. V-Cube provides both native software as well as a partnering with Zoom in Japan. A key competitive advantage is on the ground 24-hour technical support.

Since COVID-19, the Japanese corporate world has had to rapidly shift from physical meetings towards online alternatives, whether to host client events, training, seminars or conferences. In general, Japan had lagged behind in Digital Transformation, but the structural shift is finally taking place and will continue to benefit V-Cube. Management guidance calls for sales to accelerate to ¥12.2bn in FY12/21, +47% YoY.

V-cube operates in three business segments:

Enterprise DX Business (40% Sales) – provides web conferencing tools and services for companies, covering both internal and external events.

Event DX Business (45% Sales) – services that allow holding of large-scale online events, ranging from shareholder meetings to conferences and recruitment fairs.

Third Place Business (15% Sales) – sales of Telecube – small boxes that act as secure and connected meeting areas. Companies demand Telecubes to act as small conference rooms for web meetings, while the public sector has installed units around stations and other urban areas to enable telework.



The revenue model for each segment is different:

  • The Enterprise Business is a stable cash cow, with web conferencing offered on a monthly subscription model, after a one-time set up fee.

  • The Event DX Business represents that largest growth opportunity for V-Cube. COVID-19 has spurred demand for online and hybrid events, with pharmaceutical conferences/seminars representing a significant growth opportunity. The rises of online shareholder meetings, with rules governing meetings, and online shareholder participation is another significant source of opportunity that continues to expand. Demand to host these events has been growing so rapidly that V-Cube had to lift capacity to 1,300 livestream events per month, from about 300 per month a year earlier. Pricing depends on the complexity and size of each event.

  • The Third Place DX Business has seen strong growth, with the number of installed units growing in 1Q21 by 1,000 to reach a cumulative 3,000 units. The revenue model is a combination of subscription and royalties, depending on the sales channel.

MARKET

V-Cube sees its total addressable market at over ¥200bn, split evenly between the EVENT DX market and the Third Place DX market. Within the Event DX market, V-Cube aims to get about 35% market share, and around 15% market share in Telecubes. The company expects that the Enterprise DX business will remain stable over the long term and provide solid cash flow to invest into growth areas.


MOAT V-Cube brings a reliable reputation to the online communication space in Japan. Businesses need to be able to communicate online reliably, both internally and with clients. This involves overcoming challenges on both software and hardware, as well as having on-demand, reliable technical and logistical support. In short, V-Cube brings a strong brand with experience and technical capabilities to support the growth of online corporate communications.

MANAGEMENT V-Cube’s management, with its innovative founder Naoki Mashita, has a proven track-record of being flexible and opportunistic. Over the years, the company has responded to trends within the IT market, evolving from web design to the current online communications. V-Cube has grown organically and has also been opportunistic with M&A, and unusually for a Japanese company, has been willing to exit businesses quickly where returns failed to meet expectations. Senior management has successfully worked together as a team for several years and brings together a wide range of knowledge in sales, innovation, overseas expansion, technology, and strategy. CEO Mashita holds 14% of the company valued at $90mn, and its thus aligned with long term value creation.

The current strategy is geared towards expanding the Event DX Business, which the company sees as growing from ¥2.6b last year to ¥8.1b in FY22. To meet this growth target, the company is investing in both equipment and human resources to expand event capacity from the current 1,300/month to 4,000/month.






VALUATION


We compare V-Cube with the following peer group: J-STREAM runs a CDN (content distribution network) that distributes video and audio on the internet. J-Stream offers similar services to V-Cube's Event Business. ITMEDIA is a diverse IT media and advertising company. Part of the business provides virtual event solutions that enable online exhibitions and seminars, so again similar to Event DX





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