Deep Value – ItoKuro [6049.T] Deep Dive – 08/01/2025
Products
ItoKuro has a portfolio of websites – all of similar nature. This is important in understanding what the business does, providing more specificity than you’d derive from ‘school recommendation/referral sites’. It’s portfolio of websites is as follows:
Jyuku Navi - high school and below (including cram schools) searching and comparison site, 100k listed classrooms and c.19m visitors per year, promoted via customer discounts on education through gift cards.
Minna-no-Gakkou-Jyoho - providing information on school selection, from kindergarten to university in all regions of Japan.
Komodo Booster - explores a fully-covered curriculum for infants up to primary school, while allowing users to apply for trial lessons - a risk-free way of boosting the customer experience at zero cost to both sides, with chances of greater revenues if booked.
Kateikyoshi-Hikaku-Net - a tutor search site for students looking for tutoring agencies, with a ranking system based on region and requested information (specific).
Igakubu-Yobikou-Guide - med school preparation site, providing teaching methods, curriculum, and case studies from those who’ve passed (for credibility’s sake). We’re particularly fond of this site as its purpose is more specific, which we want more of.
Igakubu-Juken-Manual - university information for those who wish to become doctors, covering 82 universities, alongside information on entrance exams and fees. Closely tied to Igakubu-Yobikou-Guide.
Comolib - More of a destination affair, showing places you can go with your kids, e.g. theme parks or leisure facilities.
Customer Demographics
Operating in one segment in one country, the demographic of ItoKuro’s customers is pretty straightforward: Japanese citizens, parents (average age of 30 - going by consensus demographic data), appreciative of traditional values (the education system in Japan has played an enormous part in the development of their culture). We get no judgments about the wealth of typical customers or anything of the sort, but we know they can afford private tuition - judging by how revenues are generated from the performance-based fee-paying system.
How the Company Reaches Customers
Advertising and partnering with other media - ItoKuro conducts seasonal campaigns, aligning with the school calendar year (Apr - Mar). They partner with the same schools who are on the websites. ItoKuro, practically, is conducting an affiliate program of a diversified range of schools, so their popularity depends on both the reputation of the schools they cover (out of their hands), and the quality of the service provided. If the campaign turns out effective, advertising spending is likely to boost the user base. Their SGA expense is split into the following:
[Note: Depreciation may be a mistranslation]
It’s evident that they’re prioritising advertising increasingly. Higher advertising expenses have been necessary to keep up with competition, who’re following suit. Their competition includes private businesses e.g. Benesse and ‘Study in Japan’ (gov-approved info site). If they hadn’t laid out this capital, it’s probable they would’ve lost their competitive advantage. Not ideal.
Word of mouth - pretty self-explanatory, so we’ll keep this brief. The advantage being zero cost past maintenance being accounted for. Low capital requirements for growth are always preferred. It’s the quickest method of propagating their reputation. People can talk far more quickly than they can advertise otherwise. The reason for this is fundamentally psychological. At a simple level, people feel the need to lay out their experiences to other people with similar characteristics, so they can exchange information in a way that builds a connection - classic herd behaviour, clear as ever. Some things never change.
Search engine optimisation – while not as important as the above, due to being somewhat indirect, is still worthy of consideration. SEO is similar to their primary activity - managing software effectively for bottom line - a similar game. Searchers who submit a query which result in Itokuro ranking highly will be looking for something relating to school recommendation, if not actually ItoKuro. There’s a big difference between being advertised to people who’re already looking for the service you provide (especially considering their services are extremely specific) and people who aren’t looking for you who’re much less likely to care because they’re not looking. So, while it’s indirect, it’s the most effective in terms of gaining site users. The implication of this is a loop of optimised SEO —> more users —> more schools want to go on the site because of the popularity —> performance based-fee —> more revenue —> more room to advertise via e.g. SEO.
Pricing Strategy
The Performance-based billing system is the framework for all of ItoKuro’s websites. Users make inquiries for information materials on schools via portal sites and they receive compensation according to the results. It’s cheaper for customers that way. Who, with a sound mind, would want to pay to find something you then have to pay for again? The costs required to grow the business are low, so the most important growth catalysts are quality of the software and the resulting reputation. We’ll go over this elsewhere.
The advantages of the performance-based billing system:
Quality is encouraged -If they drop the quality of their software, people will stop using their services, reducing referrals and performance fees.
Low-cost revenue growth. They don’t have to lay down much money moving forward - it isn’t capital intensive. The majority of costs are fixed, or at least growing more slowly than revenues. You could argue that the more people on their sites the higher the costs of running the sites will be. That’s true... But the marginal revenue far exceeds the marginal cost (c. JPY15) of an additional user. To illustrate this point, their revenues are JPY2.1Bn. So unless they have about 140mn users (exceeding the population of Japan, their sole market) at JPY15 each - they’ll always increase their margins with each new customer who enrolls.
The disadvantages of the performance-based billing system:
Increased reliance on two customer groups, schools and website users. Despite ItoKuro’s simplicity, the difference from other businesses is that to bring in revenues there’s a greater task at hand. They have to both attract users to their site, and the schools have to be appealing. The small advantage is that ItoKuro doesn’t procure a high portion of the total data shown on their websites. However, this is matched by the pitfall that they have no control over the curriculum schools offer, and considering people pick schools based-off reputations, which puts ItoKuro somewhat at the mercy of the schools.
Note - this isn’t much of a disadvantage, as the history of the companies operating results show (accessible in first report).
It’s cyclical, which comes from parents opting for state-paid education more often during economic hardship (c.90% of Japanese students are enrolled in these). While they cover a range of pupil ages, the Japanese school calendar goes Apr-Mar (which coincidentally aligns with the tax year). So, revenues are near 100% weighted around October months - a typical pre-booking period. The upside being that if any expenses come up in the winter months, it’s likely they will have more than adequate cash on hand - which their NCAV would suggest (accessible in the first report).
Industry Ties Overview
The industry most similar to ItoKuro’s operation is the Ed Tech (ET) industry. ItoKuro is too niche for data to exist on its sub-industry, but we can assess the industry (a much more generalized concept) for some insight. If people are interested in ET, there’s nothing to suggest that they wouldn’t have interest in school recommendations - they couldn’t be looking for anything else. It’s highly likely that if ET is heading in a particular direction, ItoKuro will follow, albeit likely to a differing degree. Same activity = similar outcomes. That’s the link here. The goal of ET is to improve education by developing the technology infrastructure – the same as ItoKuro.
What concerns us with the industry?
Tech-oriented industries are considerably speculative. Perceptions about where the industry is going are being thrown about, and no one seems to agree. It’s for this reason we don’t try - an industry is considerably more complex than a business. It’ll always be harder to understand two businesses than one - the required mental spend is disproportionately higher considering how everything links together, which you must reevaluate every time you consider a new variable. Anyone could go on practically forever about the economy it’s in, where people’s preferences will go, or whatever it is that gathers attention. The truth of the matter is the chances that you know what’s going on any more than the next person is very low - quite possibly zero. While people feel some, or often more than some, wrongly founded conviction, we prefer to forego this bias. We don’t see the point in making things more complicated than they need to be. The less decisions the better. It’s for exactly this reason that we won’t go astray in talking about the economy, or what the size of the industry will be 10 years from now – we can’t talk about something we didn’t think about. We don’t gain any understanding of how things work by looking at trends or anything of the sort. If the past was an accurate proxy for the future, value opportunities wouldn’t exist.
This is exactly why the industry is only worth its basics. It’s open to interpretation, and our interpretation is that it’s too unpredictable. We won’t attempt the impossible. There are situations in which it would be worth at least hazarding a guess, like if you’re being paid to do it, but that doesn’t make you right. We don’t have a crystal ball for ItoKuro either, but the advantage you get with net-nets is that our concern with business growth is minimal.
Conclusion - Where the Competitive Advantage Lies
The competitive advantage here lies in the simplicity of the business model with low capital requirements for organic growth. ItoKuro has a business in providing the school recommendation/research system – it doesn’t get simpler than that. The performance-based fee-paying model means that margin expansion is available at low opportunity cost, and actual costs, due to a high proportion of costs being fixed. It’s closely tied to the ET industry, still going in a direction no one can predict, but operates within its own niche - so less competition and less to think about.