Fandom-as-a-Service

research report

Hello,

(Japanese) SaaS micro-caps have become so ridiculously cheap lately that over the past month or so I’ve found it hard to look at much else. Even so, I’ve come to the conclusion that I’d rather not initiate a SaaS basket bet.

That’s not because I think the setup is unattractive. A diversified basket of these names may well outperform the market over the medium term. It’s just not a style I have much experience with, and I’m more comfortable with a concentrated approach where I can know and follow each company well, allowing me to reassess the thesis earlier, and hopefully better, than the market.

So the way I’d rather approach this selloff is by focusing on companies that are not pure software but are being lumped in as such and thrown out with the broader SaaS bathwater.

And that is exactly the case for the company profiled in the report below.

It does not really compete on technology. Its advantage lies in access to IP, built through long-standing relationships in the music and entertainment industry and through boots-on-the-ground sales work that no new AI startup can easily replicate.

In fact, this business shouldn’t be thought of as a typical SaaS company, even if a large part of revenue are recurring subscriptions. A better way to think about it is as a middleman, or perhaps a quasi-marketplace, that secures IP through trusted relationships and monetizes that IP by bringing a loyal audience into its ecosystem.

And just how powerful that ecosystem is can be seen in the numbers: less than 1% annual churn among subscribers, even lower churn among IP providers, and EBIT growing organically from ¥730M in 2020 to what should be ¥5.2–5.4B once results for the fiscal year ending March 2026 are out.

Nonetheless, AI-related fears seem to have taken hold among Japanese investors, sending the stock down by almost 40% over the past six months—even though the company has delivered strong results, raised operating profit guidance by double digits, and was not particularly expensive to begin with.

Today, the company trades at 8.5× EV/EBIT and at an even lower normalized FCF multiple. That’s due to its extremely asset-light, float-based business model, which has generated average FCF-to-EBIT conversion comfortably above 100%. And may be another reason the company is overlooked by Japanese investors, who tend to focus heavily on P/E multiples.

I know this might be a lot to take in without a full picture of what the company actually does, so it’s probably best if I end the executive summary here and let the full research, as well as notes from the conversation with the CEO, start below.