First, the conclusion
We are unable to confirm any documents in which the company officially provides an answer as to why DMM is not listed. Therefore, it is dangerous to simply say, `We can't list because we have a business for adults,'' or `We don't need to list because we have surplus funds.''
The following three points can be confirmed from publicly available information.
- Changed the organization from a stock company to a limited liability company in 2018
- Currently a multi-business group that manages over 60 businesses.
- Since 2018, we have strengthened business development including investment and M&A
From here on, the analysis begins. For DMM, it is easier to understand that going unlisted is a management design for repeatedly allocating capital to uncertain businesses, rather than a ``circumstances that prevent a company from listing''. However, this is only rational as long as sufficient funds can be secured without using the public market.
Conversion into a limited liability company will firmly fix the “current unlisted status”
According to DMM's official announcement, DMM.com Co., Ltd. changed its organization to a limited liability company on May 25, 2018, and merged with DMM.com Lab Co., Ltd. on June 1 of the same year. The official history also records an organizational change and merger to DMM.com LLC as an event in June 2018.
Under the Companies Act, limited liability companies are classified as ``membership companies'' along with limited liability companies and limited liability companies. Investors hold equity, not shares. Therefore, it is not possible to list your company's shares as a limited liability company.
However, there are important reservations here. There remains a path for the company to reorganize from a limited liability company to a joint stock company. It would be an exaggeration to view the 2018 changes as an "irreversible declaration that the company will not be listed in the future." To be precise, if a company chooses to go public, it means that it has first chosen a state in which it would need to change its corporate form itself.
There are also differences in disclosure burden. Article 440 of the Companies Act stipulates that public announcements such as balance sheets after the annual general meeting of shareholders are for joint stock companies, and limited liability companies are not required to make the same public announcement of annual financial results. Securities reports and timely disclosure required of listed companies do not apply to unlisted DMMs.
However, a limited liability company does not eliminate obligations such as accounting, taxation, and registration. Being unlisted does not mean that there is no need for explanations, but should be seen as a system design that makes it easier to limit the people to whom explanations are made and the scope of disclosure.
Why is it compatible with DMM's multi-business management?
New businesses can be treated as a “portfolio within the company”
DMM has expanded its business areas to include videos, e-books, finance, English conversation, games, etc., and officially operates over 60 businesses. For these companies, what is more important than the success rate of individual projects is whether they can generate some major successes from multiple trials and reallocate funds and human resources to the next step.
Even listed companies can invest in new businesses. However, investment amounts, periods of losses, impairment losses, and withdrawal decisions are reflected in consolidated results and disclosures, and explanations to the market, including minority shareholders, are required on an ongoing basis. If a company is unlisted and ownership and management are close, it is easier to continue investing even if it hurts short-term profits, as long as decision makers are satisfied with it.
The fact that DMM has officially stated that it has been actively engaged in investment and M&A is also consistent with this portfolio-type management. Being a limited liability company does not in itself guarantee success, but the advantage is that it is easier to conduct trials, selection, withdrawal, and reinvestment within the same control structure.
It is easier to value the “value of options” than quarterly profit
Public markets are not a place to deny long-term investing. Even so, explanations are required for investments that fall short of business forecasts, businesses with uncertain timing of profitability, and acquisitions that have little connection to existing businesses. If the capital efficiency falls short of investors' expectations, it will affect the stock price and the evaluation of the management team.
Companies like DMM, which do not have a fixed business field, tend to invest more in expanding their future options. If the company is unlisted, it is easier to prioritize group-wide learning, human resources, and customer contact points rather than short-term profits for each business. Rather than running away from shareholders, this is a choice to keep the evaluation axis for capital allocation within the company by not bringing in outside shareholders.
Public equity is not required, not “no capital required”
The most important thing to note here is the assertion that DMM is covering its investments solely with ample internal reserves. Because it is an unlisted company, its consolidated financials, business profits, operating cash flow, and debt structure are not disclosed to the public at the same level as listed companies. It is not possible to accurately measure surplus funds from the outside.
What can be confirmed is the fact that they have operated over 60 businesses and have carried out investments and M&A. Funding sources are not limited to business cash flow, but may also include bank loans, joint investments, procurement by subsidiaries, and business sales.
Therefore, it is not that DMM does not have the merits of listing. At this point, we can only speculate that avoiding IPO preparation and maintenance costs and reduced management discretion is more valuable than raising capital from the stock market, stock liquidity, or M&A using listed stocks.
Adult businesses could be part of the reason, but not the main cause
You can check the link to the adult service ``FANZA'' from the official website of DMM.com. Businesses aimed at adults pose different management issues than content aimed at the general public, such as confirming age, rights, and consent, placing advertisements, screening payment companies, and brand standards for business partners.
Once a company goes public, these issues become not only a matter of legal compliance, but also an ongoing accountability challenge to investors, financial institutions, advertisers, and partners. Depending on the investment policy, a company may be excluded from institutional investors' investment targets and its corporate value may be discounted.
However, the presence of a business for adults is not in itself a reason for prohibiting listing. In addition, we are unable to confirm any primary documents in which DMM cited its adult-oriented business as the reason for turning it into a limited liability company. Reputation management is considered to be one of the factors that makes delisting rational, but it is not a material that determines a causal relationship.
The cost of being private
If you only look at the degree of freedom in management, going private always seems advantageous. In fact, DMM also incurs the following costs:
| Issues | Advantages of private/limited liability companies | Compensation |
|---|---|---|
| Capital allocation | Easy to make quick decisions based on the will of a few | External market discipline tends to be weak |
| Financing | Individual negotiations with limited disclosure | Cannot use public offering or listed stocks |
| Business evaluation | It is easy to grow a loss-making business over the long term | It is difficult to see the profitability of each business from the outside |
| Equity | Easy to maintain control | Low convertibility into cash, difficult to objectively evaluate value |
| Governance | Easy to maintain consistency in business policies | Dependency on key personnel and succession can be an issue |
| Trust/Recruitment | Easy to protect unique culture | Unable to use name recognition and credit enhancement of being listed |
LLCs are not the ``strongest armor.'' While speeding up decision-making, the mechanisms by which the market and independent directors can quickly correct errors in judgment may be weakened. Because there is little publicly available information, the costs for individual examinations by business partners and financial institutions also increase.
Conditions that make listing reasonable
There is no guarantee that DMM will remain unlisted in the future. If the following conditions are met, the benefits of demutualization and listing will be greater.
- Overseas expansion and large-scale capital investment require capital that exceeds existing financing methods.
- In large-scale M&A, it becomes necessary to use own stock as acquisition consideration
- Succession and liquidation of founders and existing equity holders will become management issues
- Business portfolio will be organized, making it easier to explain consolidated results and growth strategies to the market
- Clarify the boundaries of business, brand, and governance, including for adults
On the other hand, as long as a company can secure sufficient funds through existing businesses and mutual procurement, and the number of business trials and decision-making speed are central to its competitiveness, it remains rational to remain unlisted.
What investors can read from DMM
You cannot buy shares of DMM itself. Still, the company is a good comparison to consider when considering publicly traded platform companies.
First, a large number of businesses does not indicate corporate value. What is important is which business to allocate the cash generated by successful projects and how quickly you can withdraw from unsuccessful projects. If it is a listed company, you can track the skill of capital allocation from operating cash flow, return on invested capital, goodwill, impairment loss, and profit by business.
Second, in the content business, including for adults, the sustainability of profits is determined not only by sales growth but also by the continuity of payments, rights management, brand separation, and stability of advertising channels. The less visible items are for unlisted DMMs, the more important they are when evaluating listed peers.
Third, listing is not the goal for a company. Public markets only become rational when the funding, liquidity, and credit they provide outweigh disclosure, governance, and accountability for short-term performance. The choice of DMM is an example of the assumption that ``a huge company should go public'' does not necessarily hold true.
[Summary]
Since DMM is a limited liability company, it cannot be listed on the stock market in its current form. However, this does not mean that future listings have been systematically and permanently sealed.
The rationale for remaining unlisted lies in its management model, which allows it to flexibly proceed with start-ups, withdrawals, investments, and M&A across more than 60 businesses. Rather than providing quarterly explanations as a listed company, DMM believes that it is better for DMM to keep ownership and management close and maintain discretion in capital allocation.
However, the scale of internal reserves and profitability by business cannot be fully verified from publicly available information. It cannot be said that the adult business was the main reason for the company to become a limited liability company. DMM's strategy of going private is not the privilege of giant corporations with surplus funds, but is a conditional choice that can be made as long as the benefits of not using public markets outweigh the costs of losing funding, liquidity, and transparency.
Related pages
Source
- DMM.com Business Creation Department “Organization Overview”
- DMM.com "Kamechoku Recruitment Page" (Check descriptions of over 60 types of businesses/services and new business development)
- [DMM.com "Notice regarding DMM.com becoming a limited liability company and absorption-type merger"] (https://prtimes.jp/main/html/rd/p/000003048.000002581.html)
- [DMM.com "Newly released 'DMM M&A' page showing M&A guidelines unique to DMM"] (https://prtimes.jp/main/html/rd/p/000003590.000002581.html)
- DMM.com official website (Check the route to the adult service "FANZA")
- e-Gov Law Search "Company Law"