Integration processes often incur significant costs. When can the company expect to fully realize synergies and substantially improve profitability?

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Answer content: Okay, regarding LY Corporation's integration costs and the realization of synergy effects, let me break it down for you. I'll try to keep it simple.

That's an excellent question, probably the top concern for all investors and users following LY Corporation. We spent a huge amount of money and put in tremendous effort to merge the two giants, LINE and Yahoo Japan. The big question is: when will we finally see the "1 + 1 > 2" outcome, instead of just burning cash?

Think of this integration like merging two major cities. It's not just about building a simple connecting road in between. It involves integrating and optimizing – even rebuilding – things like power grids, water systems, transportation networks, and government agencies from both sides. This process is inevitably expensive and time-consuming, and in the short term, it can even lead to traffic jams (reduced efficiency).

Below, I'll explain this "construction" process and the timeline for "opening the roads" in several points.

1. Why are costs so high? Short-term pain is unavoidable

Integration costs are primarily spent on several critical but "invisible" tasks:

Merging Technology Systems: This is one of the biggest expenses. For example, gradually unifying independent servers, databases, and user account systems from both sides requires massive engineer resources, purchasing new equipment, and retiring old equipment. The process is highly complex.
Organizational Restructuring: Originally, both companies had their own HR, finance, and legal departments. After the merger, this structure needs streamlining, which can incur costs associated with personnel optimization (e.g., severance payments).
Investment for Business Integration: To enable future synergies, investment is required now. For instance, developing the "account linkage" feature to connect LINE and Yahoo accounts demands significant R&D resources. This money is paving the way for the future.

Therefore, it's perfectly normal that financial performance looked weak, even declining, during the initial integration phase (roughly 2021 to 2023). The money is being spent on "building the road," and since the "road" isn't finished yet, the "traffic" (profits) naturally moves slowly.

2. When will synergy effects be "fully realized"? A three-phase plan

The company plans to realize synergies in phases, not all at once.

Phase 1: Foundation Phase (2022 - 2023)

Primary Task: Reducing duplicate costs, connecting underlying systems.
Specific Outcomes:
- Cost Synergies: These appear first. For example, unified server procurement can secure lower prices; consolidating office space saves rent; streamlining overlapping back-office departments reduces personnel costs.
- Infrastructure Building: Completing the crucial "account linkage" system. This is the foundation for all future benefits like cross-selling and targeted advertising.
Current Status: This phase is largely complete. The company has also mentioned in its financial reports that FY2023 was the peak for investment and integration, achieving cost synergies worth hundreds of billions of yen. You can understand this as the foundation being laid.

Phase 2: Emerging Effects Phase (2024 - 2025)

Primary Task: Begin leveraging the connected foundation to drive revenue growth.
Specific Outcomes:
- Cross-Selling: Promoting Yahoo Shopping or Yahoo Travel services more seamlessly within LINE, and vice versa. With linked accounts, user conversion becomes smoother.
- Enhanced Advertising: By integrating user data from both sides (of course, with user consent and legal compliance), ad targeting becomes more precise and effective, attracting more advertisers and increasing ad rates.
- Financial Services Integration: Achieving deeper integration of PayPay, LINE Pay, and banking/securities businesses to create new financial products.
Current Status: We are now at the beginning of this phase. Integration costs are starting to decrease significantly, while revenue from synergies will gradually show in financial results. Profitability should begin to rebound noticeably.

Phase 3: Synergy Maturity Phase (Beyond 2025)

Primary Task: Synergy effects become fully integrated into daily operations, creating entirely new value.
Specific Outcomes:
- A seamless user experience where you might not even notice that LINE and Yahoo were once separate services.
- Launching innovative services that wouldn't have been possible for either company alone, thanks to the combined robust data and user base.
- Synergy effects are no longer a separate "goal" to discuss but have become the company’s sustaining "engine" for growth.
Expected Results: At this stage, the company's profitability is expected to achieve a qualitative leap, truly realizing the ambitious goal of "1 + 1 > 2" or even "> 3".

Conclusion: Key Timeline Summary

Consolidation Pain Period (High Cost Investment): Primarily concentrated in 2023 and prior.
Turning Point (Significant Profitability Improvement Starts): Beginning in fiscal year 2024, the trend of declining costs and rising synergy-driven revenue will become increasingly evident.
Full Harvest Period (Synergies Fully Realized): Generally expected by fiscal year 2025 and beyond, when the company's profitability reaches a new level.

Naturally, this is an ideal scenario based on the company's plans. Practical implementation could still face various challenges like market competition or macroeconomic conditions. That said, the toughest phase of "spending to build the road" is largely behind us. Now it's time to look forward to seeing how fast the traffic can flow once the road is finished.