Japan's Livedoor: From Web Hosting To DVD Rentals To...

Will Livedoor's far-flung investment strategy help it catch up with online rivals like Yahoo?

It didn't seem like much of a business plan. But in terms of publicity, it was a stroke of genius. Last summer, Takafumi Horie, the 32-year-old chief executive of Internet upstart Livedoor Co., shocked Japan's sports world when he announced that he wanted to own a baseball team. The aging business moguls who control Japanese baseball were aghast, with one sniffing that it would be impossible "to let some unknown person in." Horie didn't get the franchise.

Two bigger Net companies, Rakuten Inc. and Softbank Corp., did get baseball teams. But Horie ended up with something just as good: No one could call him or his company unknown anymore. Japanese consumers loved the pluck Horie showed in taking on the baseball dons and gave the underdog their sympathy when he lost out. Today, Horie is a genuine celebrity: He has been a regular on TV game shows, his girlfriend is a model, he drives a silver-blue Ferrari Maranello, and he lives in a $21,000-a-month apartment -- complete with a room devoted to manga comics -- in the tony Roppongi neighborhood. And Horie is the author of five books -- three of them best-sellers -- with titles such as The One Who Makes Money Wins and How to Make 10 Billion Yen (about $100 million). "People are looking for guidance from someone who is leading society," Horie says from Livedoor's minimalist-chic offices on the top floor of Roppongi Hills, one of Tokyo's premiere business addresses.


With livedoor booming, Horie already has his first 10 billion yen. The company offers online securities trading, DVD rentals, Web hosting, an Internet auction site, and BitCash Inc. (a virtual scrip for Web purchases). Livedoor also owns a venture-capital investment arm, an IT consulting business, and a mobile-phone-software developer. And in February, Livedoor spent more than $500 million for 40% of Nippon Broadcasting System -- which could give Horie a foothold in radio, as well as television and newspapers via NBS' holdings in other companies.

In the year ended Sept. 30, Livedoor booked profits of $54 million, more than quadruple what it earned in 2003. Sales grew 185%, to $294 million. Livedoor.com was the second-fastest growing Web site in Japan last year, with traffic up nearly fivefold through November, according to researcher Net Ratings Japan. "Livedoor never really had a chance of winning the baseball franchise, but from a publicity standpoint they were 100% right to do it," says Hiroshi Kamide, an analyst at KBC Securities in Tokyo. Kamide expects Livedoor's operating profits to jump 155% this year. Sales, he says, will increase 161%, to $769 million.

Still, Horie's online rivals are beating him at more than baseball. Yahoo Japan Corp., the Softbank affiliate that is the country's biggest Net company, expects sales of $1.1 billion for the year through March, and its sites see three times the traffic that Livedoor's do, Net Ratings says. Rakuten, meanwhile, has a larger stock-trading arm, runs Japan's No. 1 cybermall, and gets roughly twice Livedoor's traffic. In awarding a baseball franchise to Rakuten, the baseball bosses cited that company's superiority in pretax profit, total assets, and sales over Livedoor.

Horie says he's not concerned. "The gap is big, but we can close it," he insists. Livedoor's portal currently accounts for just 10% of his group's revenue, but Horie hopes to increase that by beefing up content and adding new services. His latest new product was the January launch of an exclusive DVD tied to the hit Korean TV soap opera Winter Sonata. He also plans to add online dating, expanded shopping, and an enhanced blogging area. With the NBS deal, he says, "we'll have more users and our group value will rise." And he wants to bolster the financial services he offers, in part because he sees opportunity in the inefficiency of Japanese banks. That will be a tough slog, since Rakuten, Softbank, and other rivals are already in that space. Horie though, believes there's room for Livedoor. "It's very competitive, but the top three companies can make good profits," he says.

For all Horie's drive and determination, many investors don't quite trust him. One problem is Livedoor's business mix, which critics say reveals a grab-bag approach to investment. In 2004, Livedoor made 20 acquisitions, including an accounting-software company, an online travel agent, and a Shanghai-based Internet portal. Soon, he may even take over management of a horse racetrack. "With Livedoor it's hard to know what they're going to do next," says Kazuyoshi Komiya, an independent management consultant in Tokyo. These days, Horie is in hot water for buying many of his NBS shares in after-hours deals -- which has led some politicians to call for tighter rules on securities trading. Investors also recall with wonder Livedoor's 100-for-1 stock split in November, 2003, followed by a 10-for-1 split last June. Those moves may have made the Tokyo-listed shares more attractive to small investors, but they also added to volatility and didn't do much for growth. Livedoor's shares now trade at about $3.40 -- less than in January, 2004, and well below two split-adjusted peaks of more than $10 last year.

Horie is unfazed by the criticism. "Analysts are used to seeing very conservative businesses," he says. "I'm happy if individuals are buying our shares." He adds that his approach to running the company is more stringent than people imagine. For instance, he stays in constant touch with Livedoor's managers and he keeps a tight hold on company purse strings, insisting on personally approving all expenditures above $500.

Horie also argues that Livedoor's strategy isn't nearly as scattershot as critics suggest. Livedoor in January announced plans to launch an online bank with Saikyo Bank Ltd., a midsize lender in western Japan. Horie says the venture will help him establish an online settlement system for its auction and shopping services. And in November, Livedoor paid $22 million for accounting software house Yayoi Co., in large part for Yayoi's 400,000 small and midsize business customers. Together, the initiatives make sense, Horie says. The bank will be able to make loans to those businesses and offer an easy online credit check for companies, which will be able to upload their financials to the bank over the Net.

And the racetrack? Horie admits it has little to do with his other businesses, but he loves horses and owns one named Horiemon. Nonetheless, Horie says the track is neither a publicity stunt nor a misguided attempt at mixing business and pleasure. He hopes to offer online betting on races at the track and plans to build a Web site where bettors can crunch the reams of statistics on horses, jockeys, and performance that racing fans adore. He'll also stream video of the races and may even sponsor a competition featuring mounts owned by Japanese celebrities. "Horse racing is a big opportunity," he says.

But surely he concedes that the baseball bid wasn't serious? "Well, I'm not really interested in Japanese baseball as a sport, but as a business I really think it has potential," Horie says. "In the future, if there's a chance to buy a baseball team, I'd like to." Even if he doesn't get into that particular club, it's a safe bet that Horie will keep on making headlines.

By Ian Rowley and Hiroko Tashiro in Tokyo

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