GREE Holdings, Inc.

The increasing sophistication and functionality of smartphone games has raised development difficulty, leading to prolonged development periods and rising development costs. If user acquisition does not proceed as planned due to intensifying competition with other companies, or if the number of users declines, this may affect business operations and financial results. The Company is promoting continued usage by expanding highly entertaining content, but this also carries the risk of a decline in the ratio of paying users due to diversifying user preferences and content obsolescence.

New technology trends including artificial intelligence technologies such as generative AI, large language models, machine learning, cloud computing, and quantum technology are rapidly changing the business environment and competitive structure. Delayed appropriate response to these trends may lead to a decline in technological advantage and service competitiveness. In addition, expanded spending on system investment and personnel costs associated with responding to these trends may put pressure on financial results. The Company is working to accumulate knowledge and expertise in cutting-edge technologies and to recruit and develop excellent engineers.

Through the provision of internet services, the Company holds a large amount of personal information of users. If information leakage occurs due to intentional acts, negligence, unauthorized access, computer viruses, or other causes, there is a risk of pursuit of legal liability including damages, in addition to high fines being imposed under overseas laws and regulations. Furthermore, damage to brand and credibility may have a significant impact on business operations and financial results. The Company has established personal information protection regulations, clarified business processes and authority structures, and conducts regular training for employees.

The Company is subject to numerous laws, regulations, and guidelines, including the Telecommunications Business Act, the Act on Settlement of Funds, the Act on the Protection of Personal Information, the Act against Unjustifiable Premiums and Misleading Representations, and the Act on Proper Trade Practices between Freelancers and Business Operators. If new laws or regulations are enacted or amended, or if administrative dispositions are issued by regulatory authorities, new constraints may be imposed on the business. In overseas operations as well, laws and regulations regarding commercial transactions, advertising, personal information, protection of minors, and antitrust matters apply in each country, and there is a risk that strengthened regulations may make business promotion difficult. The Company is working to strengthen its compliance system through the development of internal regulations, training, and thorough dissemination via its portal site.

Paid gacha (random-type item provision schemes) in "GREE," various smartphone games, and "REALITY" constitute a major source of revenue. If industry association guidelines and internal regulations are not properly implemented, this may result in a decline in the number of users, a decline in the ratio of paying users, a decrease in paid usage, and other effects that directly impact financial results. There is also a risk that changes in the regulatory environment may place constraints on the gacha charging model itself. The Company addresses this by complying with industry association guidelines and establishing necessary internal regulations.

Stable provision of services may become difficult due to various factors such as natural disasters, accidents, sudden traffic surges, large-scale cloud outages, unauthorized access, and computer virus infections. Service disruptions may affect business operations and financial results through user attrition and decline in credibility. The Company is working to reduce risk through building a stable system operation structure, migrating to cloud services, and continuous capital investment, but if actual traffic deviates significantly from projections, this may result in additional investment burden.

The Company is promoting expansion of the Metaverse Business centered on the smartphone-based metaverse "REALITY," but if business development does not proceed as planned due to circumstances differing from projections, recovery of investment may become difficult and this may affect financial results. The metaverse market is in its infancy, and uncertainty regarding user acquisition and monetization is high. The Company is promoting expansion domestically and overseas centered on "REALITY," but disclosure of specific countermeasures remains limited.

The Company invests in venture capital and startups primarily in the internet and IT fields. If the achievement status of business plans of investee companies or their future growth potential and earnings outlook deteriorate, recovery of investments may become difficult, which may affect financial results. Startup investment is inherently high-risk, and there is a risk that impairment may occur simultaneously across multiple investees when market conditions deteriorate. The Company conducts prior screening, but there is also a risk that contingent liabilities or unrecognized liabilities may come to light after the fact.

Yoshikazu Tanaka, Chairman and President and Representative Director, has played an important role since the Company's founding in business promotion and decisions regarding management policy and business strategy. If it becomes difficult for him to continue management execution, this may have a significant impact on business operations and financial results. The Company is promoting information sharing and delegation of authority at the Board of Directors and Management Committee, and is working to develop an organizational structure that eliminates excessive dependence on a specific individual, but the dependence risk still remains.

The Company utilizes M&A, business and capital alliances, and joint ventures for the purpose of expanding business scale and diversifying revenue sources. If issues that could not be identified through prior due diligence, such as contingent liabilities or unrecognized liabilities, arise at an acquired company, or if business development does not proceed as planned, recovery of investment may become difficult, which may affect financial results. Similar risks may also arise if the synergy effects initially expected with an alliance partner are not realized, or if the alliance is dissolved. The Company conducts detailed prior due diligence on financial condition and contractual relationships when carrying out M&A, and makes decisions after carefully examining the risks.