Is MET's Corp. a Good Long-Term Bet?

Back to Contents of Issue: April 2000

by Takashi Otomo

On February 18 MET's Corporation became the third company to list on Mothers, the new market for high-tech ventures created by the Tokyo Stock Exchange last December. It was a strong debut, with the shares in bid-only status in first-day trading. (A thousand shares were offered in an IPO underwritten by Kokusai Securities.) But is this stock a good long-term bet?

Currently the software maker's G. Crew graphics package is No. 1 in market share in Japan, while its Fude Jiman calligraphy software is No. 2 in that popular category. The company retains 100 percent control over the marketing of its software products and is the strongest player in graphics software, where price competition is fierce.

MET's uses a technology platform approach that allows it to apply the same basic technology in multiple products, which can then be combined. Because the approach squeezes down the time needed to develop products and improves efficiency, the company's software developers can focus more on researching basic technologies suitable for such sharing than on developing specific products.

In the fiscal year that ended March 1999, the G. Crew and Photo G. Crew series of graphics packages accounted for 54.1 percent of sales, while other software (including Fude Jiman) was responsible for 45.9 percent. In April to September 1999, however, those figures shifted to 65 percent and 34.1 percent. In the past few years the company's total sales have fallen, from 1.78 billion in 1997 to 1.67 billion in 1998 to 1.27 billion in 1999. (The company says sharp declines in the pricing of its products are responsible.) Production cost reductions have, however, boosted profits substantially. The financials bear out that argument, as recurring income has more than doubled in the same period: 118 million in fiscal 1997, 230 million in fiscal 1998, and 290 million in 1999.

MET's is, however, now shifting to a sales strategy aimed at expanding its customer base; thus, it's likely that sales and profits will move more hand in hand. The company is a good bet to make that strategy work: in the past three years, its across-the-board price cuts have doubled its customers, from 500,000 to 1 million. The company plans to forge on to win 10 million customers in the next five years.

It also plans to provide multimedia content via the Internet and satellite to that expanded customer base. One step will be to start allowing customers to download the software they purchase from the MET's Web site, starting in the coming fiscal year.

MET's describes the factors that will drive its growth from now on as threefold. The target market is expanding, with the popularization of personal computers, cable TV, multi- media appliances, home game machines, and mobile phones. MET's will develop products that meet the needs of that expanding market (and it has the technologies and profit centers in-house). And it has active users and marketing data on them.

A lean organization, with six officers and 19 employees, MET's is exposed to considerable risk from the possible loss of key personnel. Any fall-off in Windows' market share would also be a risk, since MET's has concentrated on software to run under Windows. (Though it is now developing software for Java, which is not dependent on a specific operating system.) Stiffer competition from Justsystem, Microsoft, Adobe Systems, Creo, and other software houses is another downside risk.

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