Japan’s Youngest Billionaire Extends Loss as Gree Plunges

Yoshikazu Tanaka, Japan’s youngest billionaire and founder of Gree Inc. (3632), lost $704 million in the past two days after his social-gaming company declined on concerns one of its sales methods may be declared illegal.

Japan’s second-biggest operator of social games fell 0.1 percent to 1,650 yen today, extending a record 23 percent plunge yesterday. The two days of declines wiped out 56.2 billion yen ($704 million) from the value of the 35-year-old Tanaka’s shareholding, based on calculations by Bloomberg News.

Gree and other Japanese social game-related companies fell after the nation’s Consumer Affairs Agency said it’s considering whether a sales method called “complete gacha” violates the law. The Yomiuri newspaper said May 5 the agency will ask social-network game operators to stop using the system because it prompts customers to pay excessive fees.

“The situation remains severe” for both Gree and its rivals, Mitsuo Shimizu, a market analyst at Tokyo-based Iwai Cosmo Securities Co., said by phone today. “Their profitability is at risk, depending on the government’s decision.”

Tanaka was Japan’s youngest billionaire with an estimated fortune of $3.5 billion, Forbes magazine said in March. His 48.18 percent stake in Gree is now worth $2.32 billion.

‘Complete Gacha’

Gree and five other companies will cooperate fully with the government and release guidelines to improve social gaming by May 31, Tanaka said at a press conference in Tokyo after the company reported that third-quarter profit almost tripled.

“Even if the ‘complete gacha’ is abandoned, it won’t rock the foundation of Gree,” said Ryotaro Shima, head of Gree’s corporate division. “We will consider introducing new services to spur sales.”

Tomoyuki Akiyama, a spokesman for DeNA Co., the country’s biggest social-game operator, declined to comment when reached by phone today.

DeNA fell 1.5 percent after slumping by the daily limit of 500 yen yesterday.

The government agency plans to issue an opinion on the “complete gacha” system soon, Kazuyuki Katagiri, a section chief, said by phone yesterday.

The system charges players about 300 yen apiece for virtual items that can be collected and converted into a rare item once a certain combination is obtained. The sales method may violate the law through unjustifiable premiums and misleading representations, according to the Yomiuri report.

Capcom, Konami Rebound

In one incident, a user’s charges totaled 4 million yen in two months of playing games with the sales system, according to the minutes of the consumer agency’s panel meeting in February. Some users also put up rare virtual items on auction sites, the panel said.

“The companies may need to change their business models,” Masamitsu Ohki, a fund manager at Tokyo-based Stats Investment Management Co., said by phone. “Companies shouldn’t rush to expand as the very existence of social games is being questioned and that would deter some investors.”

Capcom Co., the Osaka-based maker of “Resident Evil” games, jumped 5.3 percent in Tokyo trading today after declining 6.6 percent yesterday. The company said yesterday net income for the year ending March 31 may rise 46 percent to 9.8 billion yen.

Market ‘May Shrink’

Konami Corp. (9766), the maker of “Metal Gear Solid” games, rose 7.1 percent after slumping 18 percent yesterday, the biggest drop in more than a year. The company said in March it agreed to publish its games on social-network game maker Zynga Inc. (ZNGA)’s new platform.

The impact on Capcom and Konami’s operating profit from a ban on “complete gacha” would be “about 10 percent, if any,” said Satoru Kikuchi, a Tokyo-based analyst at Deutsche Bank AG. “The drop yesterday was too much.”

A ban could reduce Gree’s net income by 18 percent and DeNA’s by 6 percent, said David Gibson, a Tokyo-based analyst at Macquarie Securities Ltd., who has an underperform rating on both companies.

Net income in the three months ended March 31 totaled 13.4 billion yen, compared with 4.7 billion yen a year earlier, Gree said in a statement today. Sales rose to 46.2 billion yen from 16.4 billion yen a year earlier, it said.

Gree has forecast net income may total between 44 billion yen and 50 billion yen in the year ending June 30. DeNA estimated profit of 32.6 billion yen in the year ended March 31, it said Feb. 7.

Japan’s social-gaming market may expand 33 percent from a year earlier to about 343 billion yen this fiscal year, Yano Research Institute Ltd. forecast in January. That would be almost 70 times the 4.9 billion-yen market in 2008, according to estimates by the researcher.

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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