Risk Factors

Risk Management Structure

Internal Regulations for Risk Management

We consider risk management to be a key priority to ensure the continuity and stable development of its businesses and endeavor to take an active approach to risk management across our operations. We have established the Recruit Group Risk Management Regulations, which provide a comprehensive risk management structure and reporting system for the entire group, and the Recruit Group Escalation Bylaws, which aim to achieve prompt reporting and information sharing related to major issues within the Company.

Risk Management Committee

The Holding Company established the Risk Management Committee, which serves as an advisory body to the Board of Directors, with Corporate Executive Officers as members. The Committee monitors the status of each of the SBU risk management functions, and engages in comprehensive discussions concerning the risks affecting the Company based on a group-wide risk map addressing the risk items of the Company including each SBU. The Risk Management Committee then selects the high-priority risks of the Company and implements appropriate countermeasures including monitoring policies.

Risk Management Structure in the Holding Company and Each SBU

Because we believe that the viewpoints and perspectives appropriate for responding to such risks differ between Japan and overseas markets, we have assigned separate Corporate Executive Officers in charge of Japan (Risk Management Japan) and overseas (Risk Management International) matters to serve under the Risk Management Division of Recruit Holdings with the aim of responding to the high-priority risks applicable to each relevant region in a manner that is appropriate to the characteristics of such region.

The department in charge of risk management shares information and collaborates with our Internal Audit Department in a timely manner so that our Internal Audit Department can efficiently conduct operational audits of the status of responses to high-priority risks of the Company.

Risk management structure of each SBU is as follows.

  • Subsidiaries of each SBU are required to carry out risk management functions by identifying relevant risks, assessing materiality of such risks, and implementing countermeasures in response to such risks. The SBU Headquarters of each SBU appoints a personnel responsible for risk management within the SBU with the task of overseeing the risk management function of the SBU and monitoring the risk management status related to the business of the SBU including its subsidiaries.
  • The SBU Risk Management Committee convenes on a semi-annual basis in order to assess and discuss the risks concerning the businesses operated under the SBU, determine high-priority risks relevant to the SBU and implement countermeasures, and monitor the risk management status of such risks. The Managing Corporate Executive Officer and Director of the Board in charge of the Risk Management Division of Recruit Holdings also participates in the SBU Risk Management Committee meetings to oversee the status of risk management functions in each SBU.

The Risk Management Division of the Holding Company, which oversees the secretariat of the Risk Management Committee, regularly reports on risk management activities to our Board of Directors, and has established a structure and reporting system that enables the Board of Directors to properly monitor the status of risks affecting the Company and the countermeasures in response to such risks.

Our Risk Management Structure

Our Risk Management Structure

High-Priority Risk and Key Countermeasures

Among the risks that may affect the Company's financial condition, results of operations and cash flows, the high-priority risks that the Directors or the Board and Corporate Executive Officers perceives to be of particular importance and need for countermeasures are as follows.
For a detailed explanation of risks associated with Data Security and Data Privacy which is identified as the high-priority risks below, please refer to "The Company may be subject to liability and regulatory action or suffer reputational damage if the Company is unable to maintain the security and the privacy of its data or maintain effective policies and procedures for the storage, management, usage and protection of personal, confidential or sensitive information. " in the "Risks Related to the Company's Business" below.

High-priority Risk

Risks associated with Data Security and Data Privacy

Risk Awareness

The Company acquires, manages, and utilizes personal information, including the information of a large number of individual users, in each of our SBUs. We believe it is our obligation not only to comply with the laws of each area and country, but also to respect and protect the privacy of individual users in conformance with the expectations of society.

In the unlikely event of an incident involving personal information, this may not only cause great inconvenience to individual users, but we may suffer from a loss in the value and reputation of our brand and confidence in our services from our individual users. We are also aware that we may be subject to business suspension orders, fines and other sanctions by the authorities, as well as lawsuits filed by individual users or business clients, which could seriously harm the Company's operating results.

For this reason, the Risk Management Committee of Recruit Holdings and the Risk Management Committee of each SBU recognize that data security and data privacy are high-priority risks and continue to implement appropriate measures.

Key Countermeasures1

Depending on the importance of the data or information in our possession, as well as the characteristics of the data or information to be protected, we have established structures and reporting systems, and measures necessary for each country and area's laws and regulations. For example, we monitor for unauthorized access, detect and block computer viruses, preserve communications and access records that may be used for investigations, and conduct periodic vulnerability tests.

  • Countermeasures relevant outside of Japan (overseas)
    In order to meet industry requirements with regard to data privacy, we have established standards for responding to the laws and regulations in each jurisdiction, such as the GDPR in Europe, CCPA in the State of California, United States, and others. With regard to data security, we have established reference standards such as NIST, ISOs, and CIS20, according to the business and risk characteristics of each SBU.
  • Countermeasures relevant to Japan
    With regard to data privacy, we have established a "Personal Data Policy" and established a privacy center. With regard to data security, we have established dedicated security departments, such as Recruit-CSIRT, to detect damage at an early stage, implement measures to minimize such damage and prevent data breaches.

The Company is proceeding with the implementation of the above measures upon consideration of the necessity of such measures as well as the order of priority of implementing various measures with respect to each subsidiary within the Company.

1 Here, we describe the key countermeasures that we believe to be effective, as of June 18, 2021 (the date of submission of the Annual Report, translated from Yukashouken Houkokusho for FY2020), in mitigating the anticipated impact of our high-priority risks on the performance of our businesses. However, it is possible that such countermeasures may not be effective due to a number of reasons, including information leakage caused by human error or voluntary acts by our personnel or other parties. In addition, even if such countermeasures are appropriately implemented, there is no guarantee that the risks affecting our businesses will be eliminated. Furthermore, it is possible that the significance or nature of the risks we face may change or that the effectiveness of our measures to address such risks may decrease due to amendments to existing laws and regulations or the introduction of new laws and regulations concerning the handling of personal information in the future, the development of new methods of unauthorized access or computer viruses or other factors.

Risks That May Affect the Company's Financial Condition, Results of Operations and Cash Flows

The Company is subject to a number of risks and uncertainties, including but not limited to those described below. Our business, results of operations, financial condition and cash flows could be materially and adversely affected by any such risks and uncertainties.
In particular, COVID-19 affects many of the individual risks described below. In light of the importance of the risks relating to COVID-19 as of June 18, 2021 (the date of submission of the Annual Report, translated from Yukashouken Houkokusho for FY2020), we have presented an overview of these risks under the section titled "The Company's results of operations could be adversely affected by the recent developments relating to the COVID-19 pandemic in the Company's main operating markets and globally." below.
The following contains forward-looking statements, which reflect the Company's assumptions, estimates and outlook for the future based on the Company's plans and expectations as of March 31, 2021 unless the context otherwise indicates.


Risks Related to the Company's Business

The global spread of COVID-19 has created significant uncertainty, financial market volatility and global macroeconomic disruption. As a result, economic conditions in the Company's main operating markets, including Japan, the United States, Europe and Australia have significantly changed. In response to the outbreak of COVID-19, authorities in various countries implemented and continue to implement numerous measures to try to contain the spread of the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and lockdowns and other restrictions on mobility and targeted activities. The economic impact of the COVID-19 pandemic and the countermeasures adopted in responses thereto remains highly uncertain and may vary significantly in terms of severity and duration depending on the country, and it is possible that the economic slowdown in some or all of the Company's main operating markets could continue for an extended period.
The Company's HR Matching business, which comprises its HR Technology and Staffing segments and the HR Solutions of its Media & Solutions segment, has been negatively affected, as some employers in the Company's operating markets have become cautious on hiring while assessing the current economic situation and adapting to social distancing and other restrictions being imposed in many countries around the world.
Revenue growth in the Company's HR Technology segment and HR Solutions of its Media & Solutions segment may decline in the near term to the extent employers decrease the number of sponsored job advertisements and suspend in-person recruiting events. Due in large part to continuing weakness in economic conditions, revenues in the Company's Staffing segment decreased and this trend may continue to the extent that demand for temporary staff from business clients continues to remain weak or declines further in any of the Company's target markets.
In addition, in the Company's HR Matching business, if it is unable to respond to rapid shifts in business client or individual user needs as a result of changing social and business practices in light of COVID-19, or if economic conditions continue to be negative, it is possible that its business could continue to be impacted over the longer term.
Marketing Solutions in the Media & Solutions segment has also been negatively affected by reduced demand for advertising services due to decreased demand for travel and dining and the cancellation and postponement of wedding ceremonies as a result of the state of emergency and shelter-in-place request in Japan. This may be impacted by more lasting changes in demand for these services in Japan in response to COVID-19 such as fundamental societal shifts in attitudes towards travel, dining or wedding ceremonies. Revenue will continue to decline to the extent business clients temporarily suspend spending on advertising or choose lower priced advertising packages as a result of the weak business environment.
Regarding the Air BusinessTools by Media & Solutions segment, the increase in the number of registered accounts of AirPAY has not been significantly affected by the spread of COVID-19. However, the number of registered accounts, particularly for AirPAY, may increase at a slower rate or decline if business clients choose to suspend their subscriptions in response to the weakened business environment.
In addition to the risks discussed above, the Company's business and financial results may be negatively impacted by COVID-19 due to any of the following:

  • If the Company is unable to promptly and effectively address changes in the needs and preferences of business clients and individual users, the Company's market share and revenue may be negatively affected.
  • In the case where forecasted financial results decline over the long term, the Company may be required to recognize impairments of goodwill or intangible assets recorded in connection with acquisitions that exceed impairment losses it has already recognized.
  • The Company's liquidity may be negatively impacted if its creditworthiness declines as a result of declining financial performance or a weakening of the business environment, or if the Company is unable to collect, or experience delays in collecting, receivables.
  • Exchange rates may be volatile as a result of unstable currency exchange markets.
  • The Company may be unable to obtain financing on attractive terms or at all due to an economic downturn, volatility in financial markets, increases in interest rates, decreases in its creditworthiness or credit ratings downgrades, declining financial performance or weakening of the business environment.
  • The Company may experience operational or business disruptions, or be forced to suspend certain operations or businesses, in certain operating markets if a large portion of its workforce or third-party service providers, are unable to support our business or are otherwise affected by COVID-19.

The performance of the Company's businesses is generally sensitive to economic, social and geopolitical conditions in its main operating markets, including Japan, the United States, Europe and Australia, as well as global economic conditions more generally.
In the Company's HR Matching business, the results of its operations are sensitive to negative developments in the labor and employment market resulting from economic downturns or uncertainty. In times of negative economic conditions, employers may reduce spending on job advertising and other job placement and staffing services or reduce hiring employees or temporary staff due to cost cutting initiatives or increased access to qualified job seekers without the use of advertising or other third-party services. Any such reduction in spending or hiring by employers would in turn reduce demand for the Company's HR Matching business.
In addition, in the Company's Marketing Solutions in its Media & Solutions segment, adverse economic conditions may affect its business clients' demand for its services due to reduction in advertising expenditures and other cost reduction initiatives or changes in consumer spending activity that negatively affect their businesses. Negative economic trends also typically result in lower sales and downward competitive pressure on the pricing of the Company's services across its businesses, and the Company may be unable to reduce selling and administrative expenses without negatively impacting its market presence, quality of service, infrastructure or capacity to respond to future increases in demand for its services. As a result, the Company's results of operations have historically been negatively impacted by economic downturns.
The outlook for the economy in the Company's main operating markets remains highly uncertain and could be adversely affected by a range of economic, social and geopolitical developments.
In particular, as described in the immediately preceding risk factor, the COVID-19 pandemic and the various countermeasures adopted in response thereto have negatively affected economic activity globally, including consumer and business activity, and the duration and extent of the future impact of COVID-19 remains highly uncertain. Although a number of stimulus and other measures have been implemented by governments and central banks to mitigate the economic impact of the COVID-19 pandemic, there is no assurance that such measures will be effective, and such measures may be discontinued or scaled back in the future.
In addition, with respect to Japan, the economic environment continues to be challenging due to a number of other factors, including continued deflation and longer-term challenges surrounding the impact of unfavorable demographic trends such as the declining birthrate and the decline and aging of the overall population. In the United States, there remains significant economic uncertainty surrounding ongoing political disputes and trade tensions between the United States and China and other major trading partners as well as other trade policies being pursued in the United States. In Europe, the impact of the exit of the United Kingdom from the European Union as well as the volatile political environment in many major European countries remains highly uncertain.
Any of these regional factors as well as factors outside of the Company's main operating markets, including a slowdown of economic growth in China and the potential escalation of geopolitical risks associated with the Middle East and North Korea, could impact the regional economy and the global economy more generally.

The markets in which the Company operates are highly competitive, and competition has generally intensified in recent years across its businesses. In particular, certain of the Company's operating markets have relatively low barriers to entry, which enables new competitors, including those operating in different industries, to enter these markets relatively easily.
In addition, the Company's ability to keep pace with increasingly rapid advances in technology is also a key competitive factor in many of its businesses. If the Company fails to adapt to changes in technology or if its competitors develop more advanced technologies than the Company's, its competitive position and market share could be materially and adversely impacted. The Company may be unable to maintain its competitive position in its operating markets by relying on the strength of its brands, its ability to navigate current laws and regulations, financial resources and individual user and business client bases or other competitive advantages.
The Company's current and potential competitors include large global technology companies, including platform businesses, and a variety of global and regional companies operating in one or more of its target markets. These companies may have more advanced technological resources, more compelling business models, greater financial resources, more competitive pricing or ability to provide such pricing, greater global or regional brand awareness, larger user bases, stronger relationships with business clients, greater access to potential employees, temporary staff and other personnel or superior service, sales, marketing and other resources than the Company does.
Market shares, particularly in Internet-based services in the Company's HR Technology and Media & Solutions segments, have in the past been subject to significant shifts from time to time due to the relative ease for individual users to switch to other services. As a result, the Company's ability to compete effectively depends on its ability to achieve continued innovation and to improve the functionality of existing services and introduce compelling new services in order to effectively respond to the evolving needs and preferences of individual users and business clients.
If the Company fails to keep providing services that gain market acceptance among individual users and business clients and are differentiated from services provided by its competitors, the Company's competitive position and market share could be materially harmed.
The Company's Media & Solutions segment has a strong market position and has achieved the top market share in terms of revenue for many of their core businesses in Japan, which may make future growth for these businesses more challenging relative to other businesses. If the Company is unable to convince its business clients to maintain or increase their spending with it or if the Company is unable to expand its client base, the Company may not be able to continue to grow these businesses. Even if the Company is able to maintain and further increase its market share, the Company's margins may decrease if the Company is forced to undertake additional advertising and marketing expenditures, lower its pricing for existing services or introduce new services with lower profitability to do so.

The Company's business model depends on its ability to offer individual users and business clients services that meet their respective needs and preferences. Accordingly, maintaining the Company's competitive position and market share requires that the Company adapts quickly to changes in such needs and preferences.
For example, increased use of the Internet, social network platforms, mobile devices and other new technologies, such as video conferencing and voice activated speakers, has resulted in information being available more rapidly in real time while new technologies have made it relatively easy for new entrants to build user bases relatively quickly without significant investment. In particular, the Company's ability to offer effective mobile applications that provide individual users with an appealing, easy-to-use mobile experience is an increasingly important factor in maintaining and growing its individual user base and direct user traffic for many of its online services. These and other changes in technology and user behavior have in turn resulted in changes in the needs of the Company's business clients.
The Company must invest significant resources to continually enhance and improve its existing services and to introduce new and innovative features and services that are compelling to individual users and business clients and respond effectively to rapidly evolving technology and the way it is used or implemented by individual users or business clients. If the Company is unable to accurately identify and understand the changes in the needs of its individual users and business clients, including the appropriate balance between such changes in the needs and interests of its individual users and business clients, or if the Company fails to improve or develop its products and services to meet the needs of its individual users or business clients and predict or respond to technological changes in a timely and cost effective manner before its competitors, the Company's individual users and business clients may discontinue use of its products and services.
The Company's businesses are also affected by changes in business client preferences and how and to what extent business clients choose to use its services.
A substantial portion of the Company's revenue is generated from business clients advertising on the Company's online platforms in its HR Technology and Media & Solutions segments. For certain services, the Company provides more flexible arrangements to meet the needs of business clients including SMEs, and contracts with such business clients are sometimes in the form of relatively short-term advertising arrangements. These short-term arrangements may expose it to the risk that the Company's business clients may switch their advertising to its competitors' platforms or reduce the amount of their spending on its platforms, or may not continue to do business with it entirely.
In addition, the Company's business clients could decide to reduce or eliminate the budgets they are willing to commit to it if the Company does not provide effective advertising solutions, or if they do not believe that their investment in advertising with it will generate a competitive return relative to other alternatives.
Individual user preferences may change in a manner that increases the Company's costs, such as expenditures required for development of new features or services or increased expectations for user perks or other programs that result in additional costs.
In addition, initiatives taken to respond to rapid changes in individual user needs or preferences can reduce the profitability of the Company's existing services and business models, and there is no assurance that the Company will be able to adjust its business models, including maintaining the appropriate balance between the needs and interests of its individual users and business clients, or develop new business models that allow it to maintain profitability.

The markets in which the Company competes are characterized by rapidly changing technologies, which in turn impact individual user and business client demands and the competitive environment more generally. The Company accordingly believes it is critical to continuously invest in and improve its technological capabilities, the functionality of its system infrastructure and the reliability of its products and systems in response to technological innovation.
In addition, because many of the Company's services are provided over the Internet, the Company needs to continuously modify and enhance its platform to keep pace with changes in Internet-related hardware, software, communications and database technologies and standards. If the Company is unable to respond in a timely and cost-effective manner to these rapid technological developments and changes in standards, the Company's platform may become less marketable, less competitive, or obsolete, and its operating results will be harmed. In addition, the Company may be required to make significant investments in order to advance its technological capabilities, which could in turn impact its profitability.
Developing new technology presents significant technical and business challenges and risks, including the following:

  • the Company may invest in technologies or uses of technology that ultimately fail to deliver the benefits the Company anticipates or become obsolete by the time they are launched or fully implemented;
  • the Company must attract, train and retain highly skilled engineers and managers in order to build, maintain and expand its information technology services and achieve innovation, and these engineers and managers may be difficult to recruit and expensive to retain;
  • the number of different types of mobile devices in use, or the applicable technical standards, could further diversify including as the result of the adoption of 5G mobile technology across the Company's operating markets, substantially increasing its product development and modification costs, and the Company may be unsuccessful in developing appealing products for these devices;
  • the Company may fail to maintain or update its technological infrastructure, products and systems to rapidly changing industry or technical standards;
  • the cost of upgrading the Company's technology or implementing and operating new technology may be substantial and such upgrades or implementations may not be cost effective;
  • any upgrades to the Company's technology and infrastructure may not achieve the desired results or may otherwise prove ineffective;
  • the Company may face competition from businesses that have implemented new technology faster than it or make better use of such technology than the Company does;
  • products and services incorporating new technology may contain bugs, defects or other design flaws; and
  • the continuous development of new devices and technologies makes it difficult to predict future trends in the areas in which the Company operates.

In order to achieve further growth of the Company's business, the Company has adopted a number of business strategies as well as its long-term strategic objectives for each of its operating segments. The Company's business strategies entail achieving sustainable growth through the development of a broad, geographically diverse portfolio of businesses and calls for the expansion of existing businesses along with entry into and development of new businesses, in part through prudent use of strategic alliances and acquisitions. Furthermore, the Company's strategies may not be effective, or the Company may be forced to change its strategies in the future due to any number of factors.
The Company has established a number of strategies for each of its operating segments that the Company believes will allow it to achieve long-term revenue and profit growth. However, each of these strategies is subject to a number of risks and uncertainties, including the following:

HR Technology

In the Company's HR Technology segment, the Company intends to pursue continued growth in its online job advertising business primarily through the Indeed and Glassdoor platforms, which the Company recently integrated more closely, while expanding its capabilities through continued growth investments including acquisitions. However, the Company's ability to achieve growth will largely depend on developments in overall economic and employment conditions. In addition, the online job advertising market may not grow at the pace the Company currently anticipates for a number of other factors, including the transition of offline job advertisements to online job advertisements progressing at a slower pace than the Company expects.
The Company may fail to capitalize on anticipated market opportunities for a variety of reasons, such as its failure to adapt to new technologies, the failure of the integration strategy of Indeed and Glassdoor to achieve the intended benefits, changes in the needs of individual users and business clients in the employment market and the constantly evolving regulatory and competitive landscape. As a result, there is no assurance that the Company will be able to achieve growth to the extent the Company expects or at all, or that its investments will achieve the expected benefits.

Media & Solutions

In the Company's Media & Solutions segment, the Company operates its advertising and HR businesses while expanding its SaaS offerings targeting SMEs. The Company may be unable to grow its business in this segment if SMEs do not adopt its SaaS solutions including Air BusinessTools or its advertising services to the extent or within the timeframe the Company expects, or if the Company is required to incur significant costs to acquire new clients, whether due to the Company's failure in effectively acquiring new individual users or SMEs as business clients or the Company's services being less attractive or innovative than those offered by its competitors.


In the Company's Staffing segment, the Company intends to focus on improving profitability across its global operations. However, the Company may experience decreases in profitability, or be unable to achieve improvements in profitability to the extent the Company expects due to the tightening of regulations in any of its major operating environments, or other factors.

The Company also intends to invest in expanding its presence in the market for its HR Matching business. While the Company's HR Matching business currently operates in the online job advertising market through its HR Technology and Media & Solutions segments, the Company also intends to continue expanding technology-driven solutions from its HR Technology segment, such as the recently introduced Indeed Hiring Platform, a product that allows employers to manage the hiring process [ - from posting through interview -] directly on Indeed, with no additional software, that offer different pricing models and create cost efficiencies through automation of traditional human-driven processes in the direct hire, retained search, recruitment automation, and temporary staffing markets.

However, there can be no assurance that the Company will be able to successfully develop and introduce such solutions or that its solutions will gain market acceptance, and the Company may be unable to achieve a return on its investments in these new solutions. Moreover, although the Company has a long-term vision of offering cloud-based recruitment automation solutions that connect job seekers and employers without traditional human-driven processes, there is no assurance that the Company will be able to realize this vision due to a number of factors, including its failure to develop effective solutions or the lack of demand for such solutions materializing or regulatory restrictions. In addition, even if the Company is successful, such development may also result in a reduction in the profitability of its existing traditional businesses.
As the Company expands its existing services or launch new ones, the Company may face intense competition, greater than expected costs in establishing or expanding services and hiring and training the necessary personnel, difficulties predicting market and individual user and business client trends and the performance of its new businesses, returns from new initiatives that are smaller than expected or slower to materialize, unanticipated costs and difficulties, or other challenges that prevent it from successfully realizing its business goals.
On the other hand, it is also possible that the Company may need to exit from existing businesses or withdraw from planned investments or expansions if the Company determines that such business would not yield the desired impact or the growth potential of such business could not justify the required investment outlay. In these cases, such exit or withdrawal may cause the Company to incur substantial costs and its business, financial condition and results of operations could be materially and adversely affected.

As part of the Company's business strategy, the Company has actively engaged in acquisitions, minority investments, joint ventures and other strategic alliances with third parties primarily to expand its businesses globally, acquiring new users, to expand its product and service offerings and acquiring related technologies. For example, the Company acquired Glassdoor, Inc. in June 2018 in order to expand and strengthen its HR Technology segment. The Company intends to continue to pursue acquisitions and other strategic investments or alliances in the future as attractive opportunities emerge.
Acquisitions, strategic investments and alliances entail a number of risks, including, among others:

  • expenses incurred and difficulties in integrating or assimilating the operations, technology, personnel and culture of acquired businesses;
  • the inability to realize the synergy effects, such as technological development, expansion of individual user traffic and business client base or cost reductions, that were anticipated in connection with the transaction;
  • the difficulty in ensuring that an acquisition reaches its required regulatory compliance standards;
  • the potential disruption of, and the distraction of management from, the Company's regular business operations;
  • difficulties and substantial costs in connection with retaining the individual users, business clients, key management or employees of an acquired company;
  • the possibility that strategic alliance partners could later become competitors and utilize the know-how and business relationships they developed or acquired while in partnership with us;
  • the failure to ensure that the companies the Company acquires operate in accordance with its regulatory compliance standards;
  • with respect to foreign acquisitions and global expansion, uncertainty regarding, and changes in, foreign laws and regulations, local restrictions on foreign investments and challenges with respect to different employee/employer relationships, labor conditions, existence of workers' councils and labor unions, cultural, linguistic or operational differences and additional risks arising from the local and regional social, political, regulatory and economic environment;
  • the possibility of overestimating the value of an acquired company, underestimating its legal or contingent liabilities or receiving insufficient indemnification of liabilities or insufficient escrowed amounts or insurance to secure such indemnities from the seller;
  • recording significant goodwill and intangible assets that could be subject to future impairment, as described elsewhere in this section; and
  • incurrence of additional debt in connection with financing acquisitions and investments.

As a result of such risks, the Company may not be able to fully realize the benefits that the Company anticipates from any given transaction, including increased revenue and profits and other expected strategic benefits, within the expected timeframe or at all.
Furthermore, for strategic reasons, the Company has in the past acquired and may in the future acquire target companies that are unprofitable, and the consolidation of such target companies into its overall results may materially and adversely affect its consolidated financial condition and results of operations.

Although the Company conducts due diligence reviews of acquisition targets, there can be no assurance that its due diligence process will disclose all relevant risks, legal, compliance or regulatory issues, losses and other liabilities or that its assessment of the target's risks and liabilities will be accurate. In particular, with respect to acquisitions and investments in the technology sector, the Company may have difficulty accurately assessing the future viability and growth trajectory of target companies or technologies, especially where the relevant technologies are in the early stages of development and still relatively untested or are rapidly evolving in ways that are difficult to predict. As a result of these uncertainties, technology companies the Company acquires may not attain profitability in the timeframe the Company expects or at all, and the Company may be unable to achieve the expected benefits from its investment.

The Company may also face uncertainties when the Company acquires companies with a limited operating history or a management system that requires improvement, which is often the case for early stage companies the Company targets in the technology sector, including potential compliance issues or liabilities that were not identified in due diligence. Accordingly, such risks, losses or other liabilities could have an adverse impact on its business, financial condition and results of operations.

In addition, in cases where the Company acquires non-controlling interests in entities, the Company may not have the capability to effectively monitor or exercise control over the management of the entities in which the Company invests or the direction that the entity will take. As a result, the Company may not be able to cause any companies in which the Company holds non-controlling interests to implement what the Company views as optimal management policies or strategies that would enable it to achieve the expected benefits from strategic investments. This could have an adverse effect on the Company's business, financial condition and results of operations. In addition, joint ventures and other strategic alliances could limit its future flexibility to work with other potential partners.

While the Company intends to continue to explore future opportunities for acquisitions, business alliances and other strategic investments, there is no assurance that the Company will be able to correctly identify attractive opportunities. Even if the Company does correctly identify potential acquisitions, alliances and investments that the Company believes would further its growth strategy, the Company may be unable to negotiate favorable terms with the target company or otherwise be unable to pursue the opportunity due to its inability to secure the necessary financing or obtain necessary regulatory approvals or other reasons.

The Company has operations in a number of countries and regions including Japan, the United States, Europe and Australia, and the Company is working to further expand its businesses globally. However, the performance of its operations in any particular country or region could suffer or might otherwise fail to meet its expectations due to the following factors, among others:

  • adverse economic conditions in the global economy or in its main operating markets as a result of the COVID-19 pandemic;
  • poor regional or national economic and political conditions that could adversely impact, among other things, the advertising spend of its business clients;
  • difficulties complying with legal or regulatory requirements and oversight by local regulators;
  • changes in legal or regulatory requirements that could impact its operating strategies, access to global markets, hiring, and profitability;
  • differing individual user and business client expectations and preferences;
  • lower availability of Internet access and adoption of mobile devices;
  • taxation issues;
  • difficulties adapting to local market practice or local culture and customs;
  • labor disputes or strikes;
  • adverse political developments or general political uncertainty;
  • linguistic and communication difficulties;
  • a worsening of international relations involving any of the countries in which the Company operates;
  • seasonal reductions in business activity;
  • a higher risk of litigation in certain regions;
  • restrictions on share ownership by foreign entities;
  • difficulties hiring and retaining highly skilled management personnel, engineers and other staff;
  • lower brand name recognition; and
  • difficulties in monitoring business the Company conducts across a diverse range of countries and regions.

Unfavorable performance of the Company's global operations for the above reasons or any other factors would have an adverse effect on its businesses and results of operations. In addition, the Company's exposure to the risks discussed above will increase as its global operations continue to expand.

For the Company's businesses to be successful, many of its employees must have high levels of technical skill and know-how, strong client relationships and client management skills, a thorough understanding of relevant markets and other specialized knowledge, and have a strong drive to innovate all of which are in high demand in the Company's industries.

In order for it to remain competitive, grow its businesses and adapt its business models to changing markets, the Company needs to attract, develop and retain talented personnel in a number of areas including management, engineering, sales, and other fields and develop a diverse workforce that brings a wide range of unique backgrounds and perspectives to its businesses. The Company must also continually train its employees to respond to changes in the market for its products and services and evolving technology.

In addition, the Company must also maintain a positive and safe work environment that provides the necessary support and flexibility for its employees and temporary staff in its temporary staffing business, including allowing for remote working arrangements where necessary. Any failure to maintain a positive working environment could result in the infringement of the civil rights of such employees or temporary staff, which could harm the Company's reputation and brands or materially and adversely affect its business, financial condition and results of operations.

Any failure to hire, train, retain, motivate and manage the required workforce may limit the Company's growth, damage its reputation, negatively affect its financial performance, impede its ability to achieve innovation and otherwise harm its business.

In particular, talented and experienced IT engineers have become increasingly important in the Company's HR Technology and Media & Solutions segments. Due to the Company's increasing dependence on and the scarcity of such engineers, the Company's success going forward depends in part on its ability to continue to recruit, train, develop and retain such personnel, which could have a negative impact on its profitability if the Company is required to pay higher compensation to secure or retain qualified personnel.

If the Company loses key personnel, including key members of its management team and engineers, to competitors or at a rate greater than the Company anticipates, or if the Company has difficulty attracting new, highly talented employees, the Company's reputation and its business, financial condition and results of operations could be materially and adversely affected. There is also a risk that a former employee could utilize knowledge and business relationships developed while employed with it in a competing business.

Due to the nature of the Company's business operations, and the large number of individual users who utilize its services and transmit and store personal information through its systems, the Company possesses a substantial amount of personal, confidential or otherwise sensitive information with respect to current, past or prospective individual users, business clients, and business partners.
The requirements under the Act on Protection of Personal Information of Japan (Act No. 57 of 2003, as amended), or the Act on Protection of Personal Information, which was recently amended in June 2020, that apply to the Company's handling and use of personal information in its Japanese operations are stringent, and the Company is also subject to laws and regulations regarding personal information in the other countries in which the Company operates, such as the General Data Protection Regulation, or the GDPR, in the EU. Furthermore, many individual US states, such as California, which enacted the California Consumer Privacy Act of 2018, or the CCPA, are also increasing regulatory compliance standards regarding the handling and use of personal information.
Certain of these regulations impose fines or direct liability on businesses for data breaches where data security systems are found to be inadequate, in some cases regardless of harm to the affected users, and the potential amount of fines or liability can be substantial. For example, certain violations of the GDPR can result in fines of up to 4% of annual worldwide revenue at the parent company level, and certain violations of the CCPA can result in liability of $750 per person affected by the relevant incident even in cases where individual users experienced no harm. Compliance with these laws and regulations, the requirements and interpretations of which may differ significantly from country to country, has become more complex in recent years due to the increasing awareness of management of personal, confidential and sensitive information.
Accordingly, the cost of complying with these laws and regulations is substantial and has been increasing. In addition, such laws and regulations related to the handling and use of personal, confidential and sensitive information have become stricter in recent years and may become even more stringent in the future, or the Company may change its policies concerning handling and usage voluntarily or in response to violations of applicable laws and regulations, perceived wrongdoing or for other reasons. As a result, it may become difficult for it to utilize certain information that is critical to the Company's existing products and services or to develop new products and services, which in turn may harm its ability to maintain or grow the number of the Company's individual users or business clients.
Authorities in various countries are considering a number of legislative and regulatory proposals concerning data protection, including measures to ensure that encryption of users' data does not hinder law enforcement agencies' access to that data. In addition, as many consumer and data protection laws and regulations have been in force for a relatively short period, the interpretation and application of consumer and data protection laws and regulations are often uncertain and in flux, and it is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with the Company's current data practices.
If the Company fails to comply with any such laws and regulations, the Company could suffer damage to its reputation and its brands, including loss of confidence in its platforms by individual users, business clients or other third parties or in its ability to manage its businesses by current or potential individual users, business clients and business partners. The Company could also be subject to liability or regulatory investigations or legal or other actions from regulators, users or other third parties relating to actual or alleged violations of laws and regulations surrounding data protection and privacy or otherwise. Any new restrictions or limitations relating to data protection and security may result in the deterioration of the quality of the Company's products and services that rely on data and its overall competitive advantage, and possibly result in a loss of individual users or business clients or necessitate a revision or overhaul of its business models and strategies.
The personal and other data the Company collects in connection with its business as well as the technologies the Company uses to manage this data have become increasingly important parts of its business, and the Company relies on the integrity of its systems and security procedures to ensure adequate protection of its data.
However, there can be no assurance that the Company's efforts to ensure the security and proper management of such information will be fully effective. In particular, the Company has in the past experienced cyberattacks of varying degrees targeting its services, and there can be no assurance that such attacks will not occur in the future or that the Company will be able to successfully protect its data from unauthorized access in the event of any future attacks.
In such an event, the number of individual users affected, due to the size of the Company's user base, could be extremely large, potentially resulting in a correspondingly large liability. In addition to cyberattacks, information could be leaked or improperly accessed, used or handled as a result of a range of factors including third-party security breaches, system failures or errors, software bugs, inadequate policies or procedures, employee error, malfeasance, hacking, theft, faulty password management or other irregularity.
Any unauthorized disclosure or use of, or other failures to properly store, manage or protect, personal, confidential or sensitive information, including any failure to obtain valid consent from affected individual users or business clients, could adversely affect the Company's businesses in a number of ways, including legal liability stemming from claims from individual users, business clients, temporary staff or other third parties, or government investigations, actions or sanctions.
The Company may also incur additional expenses associated with updating or strengthening its systems, policies and procedures, either voluntarily or in response to administrative guidance or other regulatory initiatives. In addition, such incidents could create a negative public perception of the Company's operations or harm its reputation and brand, which could in turn decrease its individual users' and its business clients' confidence in it and damage its relationships with them, causing current or potential individual users or business clients to decline to use its services.

The analysis, storage, retrieval, management and security of large amounts of data is an important part of the Company's business. Any impairment in the reliability or availability of, or any security breach in, the Company's information systems due to cyberattacks, systems failures or other factors could:

  • have an adverse effect on its products and services and their continued availability;
  • result in negative publicity about it or its brands or harm its brand strength, reputation and relationships with individual users and business clients;
  • harm the continued adoption of its services by individual users and business clients or negatively impact accessibility, performance and load times of its services, which could cause a loss of individual user or business client traffic on its services;
  • subject it to legal and regulatory risk including litigation, government investigations or other legal actions;
  • result in large monetary judgments or a duty to remediate against us, or result in it voluntarily offering monetary or other compensation to affected parties; and
  • materially and adversely affect its business, results of operations and financial condition.

Although the Company has implemented policies and procedures to address these risks, no system can be designed to be completely immune to breaches or outages. The Company's systems are not fully redundant and its disaster recovery planning may not be sufficient. System interruptions and malfunctions can occur for a number of reasons, including cyberattacks, hacking, computer viruses, sabotage, human error, natural disasters, power failures, software errors, hardware problems, network failures, terrorism, geopolitical conflict, difficulties with the Company's service providers, overwhelming online traffic and similar factors.

In particular, cybersecurity-related attacks, intrusions and disruptions, including through spyware, viruses, phishing, denial of service and similar attacks by criminal organizations, hackers, foreign governments and terrorists, have become increasingly prevalent in the Company's industry. The Company has in the past experienced cyberattacks of varying degrees targeting its services, and there can be no assurance that such attacks will not occur in the future or that the Company will be able to successfully defend its systems from any future attacks.

Certain of its services have also experienced downtime due to systems disruptions or other outages. As the Company expands its information technology-based offerings to support business clients' workflows, the Company may be more likely to experience malfunctions of this kind despite any preventative measures the Company may take, which may result in legal liability for damages or voluntary compensation or other costs or in damage to its reputation.

For example, as part of its efforts to expand operational and management support services for its business clients including SMEs, the Company launched Air BusinessTools, which includes such cloud-based services as point-of-sale (POS) and payment systems. If the Company experiences systems failures in connection with such services, the Company may be held responsible by its individual users and business clients for losses, and the perception of the reliability of its services and its overall reputation could be negatively impacted.

In addition, the Company depends on third parties to provide and maintain certain of its information systems, and accordingly some system problems and failures may be outside of its control. For example, the Company relies on third-party cloud infrastructure providers to host all of its cloud-based services, and its reliance on cloud infrastructure providers will increase as the Company intends to migrate more of its services and data storage to cloud infrastructure in the future. Potential security breaches to the systems of these third-parties, whether resulting from internal or external sources, could significantly harm its business. Furthermore, the cost of developing, maintaining and expanding its information technology infrastructure could also increase substantially in the future.

The Company provides certain of its services to individual users and business clients through software applications and in some cases, such as AirPAY, a payment system service offered through Marketing Solutions in its Media & Solutions segment, hardware devices, including mobile and online applications that are highly technical and complex.
The Company's software applications or hardware devices may contain bugs and other defects that interfere with their intended operation that the Company is unable to detect prior to introducing the relevant service. Any defects the Company does not detect and fix may prevent it from providing its services in a responsive and reliable manner and could cause degradations or interruptions of service, negative experiences for individual users and business clients, repair or remediation costs, delays in the release of new products or versions, difficulties in adequately protecting the data of its individual users and business clients or legal liability from various issues such as loss or leakage of confidential or personal information or under applicable regulatory regimes. In particular, as many of its online services have significant user bases, any defects in the Company's software applications could potentially affect a significant user population.
As a result of any such defects, the Company may suffer damage to its reputation, loss of individual users or business clients, loss of revenue or liability for damages, any of which could adversely affect its business and financial results.
In addition, in certain of its businesses, the Company provides its business clients with platforms through which they operate key business functions, such as online reservations, POS, cash registers, payments, and attracting and connecting with individual users.
If there is any defect in the software used to provide these platform services, the Company's business clients may experience disruptions in their business operations or losses or leakage of sensitive or personal data relating to their business or their users, and the Company expects its exposure to these risks will increase as the Company expands its SaaS business through Air BusinessTools, a comprehensive suite of tools aimed at enhancing the efficiency and productivity of business clients including SMEs, in its Media & Solutions segment.

The businesses that the Company currently operates, as well as those that the Company may operate in the future, span many fields and countries and consequently are subject to a variety of laws and government regulations such as personal information and data protection, electronic communications, consumer reporting, labor, civil rights and social welfare, anti-bribery, taxation and antitrust laws.
Furthermore, the Company is required to obtain government permission or approval or to register for licenses in order to conduct certain of its businesses, and certain of its businesses are subject to supervision and monitoring by regulatory authorities.
Being subject to these laws and regulations exposes its businesses to certain risks. As a general matter, the legal and regulatory structures that apply to the Company's various businesses are complex and even an inadvertent failure to comply with them could result in fines, penalties, losing permission to operate some of its businesses, being ordered to suspend operations, litigation and other legal proceedings and have an adverse effect on its reputation.
Furthermore, future changes in such laws or regulations or entry into new regulated businesses could necessitate costly compliance expenditures and increase the risk that the Company could fail to comply with applicable requirements or miss business opportunities as a result of restrictions imposed or delays caused by responding to such changes in laws or regulations.
Any new or amended laws and regulations may require it to change its business models or practices, or may prevent it from conducting existing businesses or entering into new businesses, which could adversely impact its business and results of operations and impede it from executing its growth strategy as planned.
For example, there have recently been active discussions among companies globally regarding civil rights and social welfare issues, and if the Company is unable to appropriately respond to changes in the laws and regulations concerning such issues, the Company's brand and reputation may be adversely affected. In addition, taxes imposed on the use of social media, digital services or other mobile applications in certain countries, or other actions by governments that may affect the accessibility of its products or users' technology usage patterns in their countries, may cause a decline in its individual users' engagement with its products.

HR Technology

The Company's HR Technology segment is subject to various laws and regulations. For example, in the United States, the Company's activities may be subject to the Communications Decency Act, the CCPA, the Telephone Consumer Protection Act, the Wiretap Act, the Stored Communications Act and the Fair Credit Reporting Act as well as various state legislation covering the same or similar topics. In addition, the Company's HR Technology segment is also subject to other regulations including the GDPR in the EU and the Act on Protection of Personal Information and the Employment Security Act in Japan.
If any new laws and regulations are introduced, or if existing laws and regulations are amended or interpreted in a manner that is unfavorable to us, the Company's HR Technology segment operations may become subject to additional restrictions and costs, and it may require significant time and resources to respond to any new or amended laws or regulations.
For example, there are currently legislative proposals to amend the Communications Decency Act in the United States to significantly increase the Company's potential liability by eliminating or reducing immunities currently available to its platforms which publish material posted by third parties, such as reviews and job solicitations. As another example, the proposed Algorithmic Accountability Act in the United States, similar proposed laws regarding Artificial Intelligence, and interpretations of existing U.S. Civil Rights laws, may require it to undertake additional compliance costs in implementing its search algorithms and may reduce the effectiveness and confidentiality of its algorithms depending on the extent of government intervention.

Other laws may restrict the use of algorithms or background checks regarding potential employee candidates or even the ability to make recommendations regarding candidates, all of which could have a negative impact on its business. In addition, there are a variety of new laws and proposals in the United States on the federal, state and even local levels placing new security and privacy obligations on companies that handle personal data which could place burdens on the Company that may negatively affect its business.

Additionally legislators are examining companies that maintain digital marketplaces, such as the Indeed search engine, and may place restrictions on companies placing their own products on such marketplaces. The applicable laws and regulations in the technology sector are still evolving, particularly in Europe and the United States, and more stringent laws and regulations concerning the technology sector may be implemented in the future.
For example, if new requirements or restrictions are imposed on the collection, use and analysis of information regarding user behavior in connection with its services, the Company may be restricted from using such information as planned and be forced to change its strategy and business practices.
As a result of any of the foregoing, the business, financial condition and results of operations of its HR Technology segment may be adversely affected.

Media & Solutions

In the Company's Media & Solutions segment, the Company's various services are subject to a number of laws and regulations. For example, the Company is subject to personal information and data protection laws relating to individual user and business client data stored on its systems. With respect to the Company's payment business of its Marketing Solutions, which is offered through AirPAY, which is a cloud-based payment service, the Company is also subject to regulations under the Installment Sales Act of Japan (Act No. 159 of 1961, as amended), or the Installment Sales Act, and are operating with the registration from and under the supervision of the Minister of Economy, Trading and Industry.
In addition, the Company's placement service of its HR Solutions operates on a fee basis with the permission of the Minister of Health, Labour and Welfare in compliance with the Employment Security Act. Changes to the applicable regulations could affect the pricing of the Company's fees. Noncompliance with applicable laws, rules and regulations could lead to the loss of permission to operate or being directly ordered to suspend operations.


The Company's Staffing segment is also subject to a number of laws and regulations relating to temporary staffing and employment.
The Company's Staffing segment in Japan operates with a license from and under the supervision of the Minister of Health, Labour and Welfare and is also subject to the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Protection of Dispatched Workers of Japan (Act No. 88 of 1985, as amended), or the Staffing Labor Act and related rules and regulations.
Any business that provides staffing services in Japan but does not comply with applicable laws, rules and regulations, including the Staffing Labor Act, is subject to the risk of being issued a business improvement order, losing its permission to operate as a staffing business or being directly ordered to cease its operations. If temporary workers suffer a work-related accident, the Company may be obligated to make compensation payments as the dispatching agency.
The Company's Overseas operations in the Company's Staffing segment are concentrated in the United States, Europe and Australia. Laws and regulations regarding temporary staffing in these regions may be implemented on a state-by-state (or, in the case of the European Union, member state-by-member state) basis, as well as on a federal, nationwide or region-wide basis. It is also possible that any failure to comply with local laws, rules or regulations in the Company's Overseas operations in its Staffing segment, whether in the United States, Europe, Australia or elsewhere, could result in it losing permission to operate its businesses in the relevant jurisdiction.
In Japan, the Staffing Labor Act was amended to introduce new protections for temporary staff. In addition, regulations that amend the Staffing Labor Act to require less compensation disparity between permanent and temporary workers, which is often referred to as "Equal Pay For Equal Work," came into effect in April 2020. Although these new regulations have not significantly impacted its business, the Company may in the future incur additional costs as a result, which could negatively impact the financial results of its Staffing segment.
Further reforms may be proposed in the future that would introduce additional restrictions on permitted staffing in certain industries and provide additional protections for temporary staff, which could negatively impact the Company's business and results of operations.
As a general matter, future changes in employment-related laws and regulations in Japan and overseas could necessitate costly compliance expenditures and increase the risk that the Company could fail to comply with the applicable requirements.

Changes related to any of the above could materially and adversely affect the Company's business, financial condition and results of operations.

The Company is subject to litigation and other legal and arbitration proceedings in the ordinary course of its business.
The Company may in the future be subject to claims, allegations, lawsuits, including class action lawsuits, minimum statutory penalties and regulatory investigations regarding antitrust or competition law violations, patents and other intellectual property, the protection of personal information, data privacy and security, consumer protection, tax, labor and employment, commercial disputes, content generated by its individual users, goods and services offered by advertisers or publishers using its platforms, false or deceptive advertising, delivery of services and alleged actions or other issues relating to the monitoring of its temporary staff, among other matters, from individual users, business clients, competitors, regulators and others, including proceedings originally commenced against third parties such as its individual users and business clients. These proceedings can be expensive and disruptive to its normal business operations.
In addition, the Company cannot be certain that its services, products and features do not infringe on the intellectual property rights of others, and the Company may be subject to infringement claims from third parties. In certain countries non-practicing entities have purchased patents for the sole purpose of filing lawsuits based on these patents or obtaining license fees on them. These proceedings are often protracted and costly, regardless of the merit of the claims involved, and the results may be difficult to predict. The Company cannot be certain that it will succeed in defending future claims, that judgments will not be rendered against it or that any reserves the Company set aside or insurance policies will be adequate to cover any such judgments.
A determination adverse to it in any of these legal proceedings could result in significant costs, penalties or fines or require the Company to pay royalty fees and modify its services and products in order to provide non-infringing substitutes or cease the use of certain services, products or features altogether, which could materially and adversely affect its brands, reputation, business and results of operations.

The Company believes that the brand identity the Company has developed has significantly contributed to the success of its business and will continue to be a significant competitive factor going forwards. The Company depends on our brands and reputation to maintain and expand its user base, which in most businesses comprises mainly general consumers who tend to have a relatively high level of sensitivity to and awareness of brand and reputation. Our business clients, which include a large number of SMEs, are also highly sensitive to our brand and reputation.
The Company's brand and reputation could be harmed due to a number of factors, including defects or errors in its services, cyberattacks and other cybersecurity breaches, failure to adequately protect individual user and business client data, inadequate investments to maintain and enhance its brand and reputation, its competitors' achieving greater brand recognition, adverse media coverage or rumors including on the Internet or social network platforms about it or its business, regardless of whether such content is true or not, misconduct by its employees or its temporary staff, claims against it by its temporary staff or employees relating to its employment practices, unpermitted use of its brands by a third-party, unfavorable litigation or other factors, regardless of whether such damage was caused by its fault or the fault of others.
Furthermore, as the use of technology and data in its business has become increasingly important, the use of algorithms such as artificial intelligence in its services and its use and management of data on its platforms could lead to negative outcomes or be viewed negatively by some individual users and business clients and adversely affect its reputation and brands.
In addition, in the event that the Company, or one of its individual users or business clients in any of its businesses, engage in misconduct or inappropriate behavior or acts through its platforms or engage in illegal activity such as infringement of third-party intellectual property, violation of personal privacy rights, libel or any other illegal act or malfeasance, its reputation and that of its brands could be materially damaged directly or by association due to its relationship with such individual user or business client.
For example, for certain of our platforms such as our job search engines that provide content or host advertisements that come from or can be influenced by third parties, its reputation or brands may be negatively affected if its individual users or business clients engage in misconduct, illegal activity or other inappropriate behavior such as web spam, phishing, impersonating other people or organizations or posting false, misleading or inappropriate job information or user generated content (UGC) such as employer information or other information. The Company has limited ability to affect the behavior of our individual users and business clients, and even in the event that we are able to do so our proposed solution may not be satisfactory to all affected parties. In such cases we could be subject to claims or legal proceedings, face harm to our and our brands' reputation, business and results of operations.
The Company is also subject to the risk that third parties could imitate its products or services or use its brands, trademarks, logos or other intellectual property without permission.
Although the Company believes it has in place robust protections for its intellectual property, there can be no assurance that these measures will be successful in preventing others from infringing its intellectual property rights and damaging its and its brands' reputation. Effective intellectual property protection may not be available in every country in which our products and services are made available. In addition, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights, particularly as policing the Internet for improper use of our brands, trademarks and logos increases in difficulty as the Internet expands. Other parties could also initiate claims or legal proceedings alleging that we infringe their proprietary rights, which may result in the loss of our ability to use certain brands, trademarks or logos, which could damage our market presence and reputation.

The Company relies on third-party service providers in a number of critical areas of its business. The occurrence of any of the below, including the termination or deterioration of its relationships with such third-party service providers, could materially and adversely affect its competitiveness and its business, financial condition and results of operations.
Certain of the Company's services in its HR Technology and Media & Solutions segments rely on Internet search engines provided by global technology companies primarily for the purposes of ensuring its individual users access to its online platforms. User traffic on the Company's online platforms can be significantly impacted by changes in the search algorithm of the search engine operators or as a result of actions by its competitors that render online search results through its third-party search providers less favorable to us, which would in turn impact its business and presence among users.
The Company's HR Technology segment also relies on third-party publisher networks to drive traffic to its platforms by adding its content to their websites. Any failure of such publisher networks to effectively promote its services could result in reduced user traffic and harm to its business and competitive position.
The Company also offers mobile applications through the platforms of third-party global technology companies to enhance the accessibility of its services and expand its individual user traffic. If the Company becomes unable to provide its applications through these platforms, either due to vendor policies, platform updates or otherwise, the Company's ability to expand its mobile user base and increase user traffic on its services would be adversely affected.
Furthermore, the Company relies on third-party data center providers in its operations, and any disruption or interruption to the data center service or deterioration of the network performance of such service, as well as any increase in server usage fees or other additional costs, could materially and adversely affect the Company's competitiveness and its business, financial condition and results of operations.
The Company also relies on third parties to provide certain payment methods and payment processing services, including the processing of credit card transactions. As a general matter, any third party that has access to data on its systems is a potential entry point for unauthorized access, which exposes it to the risk of security breaches of such third-party systems.
The Company also makes use of third-party sales agents or media agencies to manage sales to, and other relationships with, the Company's business clients to enhance its sales ability and maintain a cost structure that allows it to respond more flexibly to economic volatility. However, the Company's reliance on such sales agents involves certain risks. In particular, because the Company generally works closely with these sales agents over long periods of time, the loss of a sales agent reduces the strength of its sales network and could result in the loss of business clients and transfer of know-how to a competitor.
Additionally, the Company exerts less direct control over third-party sales agents compared to its own employees, and the agents' actions in the course of their work for it or otherwise may harm its reputation or expose it to litigation.
The Company's online services also more generally depend on the ability of the Company's individual users and business clients to access its services through the Internet. Currently, this access is provided by companies that have significant market power in the broadband and Internet access marketplace, and these providers may take measures that could degrade, disrupt, or increase the cost of user access to certain of its products by restricting or prohibiting the use of their infrastructure to support or facilitate its offerings, or by charging increased fees to the Company or its users to provide its offerings.
The Company's services may also be subject to government-initiated restrictions or blockages in some jurisdictions. Any such interference or disruption of access to its online services through the Internet could result in a loss of existing individual users and business clients and increased costs, and could impair its ability to attract, maintain or increase the number of users, customers and advertisers, thereby harming its revenues and growth.
Furthermore, any limitation from the Company's third-party Internet access providers on the use of third-party cookies could reduce its ability to provide targeted information to its individual users and negatively impact various areas of its business.

As part of its strategy to expand its business, the Company engages in advertising, sales and marketing activities in order to increase recognition of new or existing services and expand its individual user and business client bases. The Company is substantially dependent on its advertising, sales and marketing operations to maintain brand recognition and user traffic on its services and to acquire new business clients and enhance client satisfaction with its services.
In particular, as many Internet users rely on search engines to refer them to products and services, the Company's HR Technology segment and Media & Solutions segment depend in part on various such search engines to generate user traffic on its websites, particularly when the Company expands into new markets or business areas where the Company does not have an established presence. Thus, maintaining a strong search engine ranking is an important factor in the Company's success in those businesses, and the Company may be required to incur expenses to enhance its search engine rankings as the Company seeks to maintain and expand the market presence of certain businesses. However, there is no guarantee that such efforts to enhance its search engine rankings would yield the outcome the Company desires.
The Company may also engage in other advertising including online, television and radio advertising to increase awareness of its services on the Internet and more generally among potential individual users and business clients. In the Company's Staffing segment, the Company may also rely on advertising to increase registered temporary staff, particularly in markets where there are labor shortages.
Although the Company may undertake significant additional advertising, marketing and sales costs in order to expand certain businesses, the Company's efforts may not be effective in building its brand recognition or expanding its business to the extent the Company expects or at all.

Despite any preparatory measures the Company takes, the Company's business operations, technology infrastructure, employees and physical assets will remain subject to the risk of fire, earthquakes, tsunamis, typhoons, hurricanes and other natural disasters, blackouts and other power losses, acts of terrorism, criminal cyberattacks, power loss, pandemics and other catastrophic events. Any of these events could impact the Company's ability to provide its services or otherwise operate its business, including due to disruptions affecting the workforce the Company needs to operate its business including its employees, employees of its service providers and its temporary staff, business restrictions under stay-at-home orders and other government measures or damage to its properties.
In particular, any of these catastrophic events could result in disruptions to its operations, including failure of its information systems or data servers that have not been backed up, and in such circumstances its ability to successfully implement its business continuity plan will be crucial to its recovery. In the event that the Company experiences a system failure or systems delays, particularly if these issues are widespread within its infrastructure, or are unable to fully implement its business continuity plan, the Company may be unable to offer certain products and services, and even if they are available, the Company's Internet-based products and services may experience increased load times or other disruptions.
In such an event, the Company's individual users may become dissatisfied and reduce their usage of its products and services or switch to those of its competitors. In addition, disruptions to the business or information systems of its individual users and business clients could damage its brand and reputation and lead to reduced revenues for us, errors in the transactions that the Company is involved in, or other problems.
In addition, large-scale natural disasters could have secondary adverse effects, such as the destruction or incapacitation of or other harm to its business clients' business operations or deterioration in economic conditions generally or cause its individual users to refrain from engaging in lifestyle activities.
Any of these outcomes could impair its business operations and materially and adversely affect its business, results of operations and financial condition.

The Company may be required to record a significant charge on its consolidated financial statements during the period in which any impairment of its non-current assets is determined. Impairment may result from, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services the Company provides, challenges to the validity of certain registered intellectual property, disposals of group assets, changes in its strategies and a variety of other factors.
Accordingly, any determination of impairment of goodwill or other intangible assets could have a material adverse effect on the Company's results of operations.
Moreover, to the extent that the Company acquires early stage companies that have not achieved profitability, the Company may be subject to impairment risk relating to any goodwill and intangible assets recorded in connection with the acquisition.
In addition to goodwill and intangible assets, the Company's other non-current assets, including property and equipment and investments in associates and joint ventures, are also subject to the risk of impairment.
Furthermore, the Company also holds equity securities of certain companies it considers to be necessary business partners in order to maintain and strengthen business relationships with these companies to support its long-term growth. The Company generally recognizes changes in the fair value of these securities as part of other comprehensive income, which has the effect of increasing or decreasing its retained earnings. Declines in the value of such securities could thus have an adverse effect on its financial condition.

The Company is subject to income taxes in Japan and many foreign jurisdictions. Significant judgment is required in determining its worldwide provision for income taxes. In the ordinary course of the Company's business, there are many transactions and calculations where the ultimate tax determination is uncertain. The Company regularly is under audit by tax authorities in different jurisdictions.
Economic and political pressures to increase tax revenue in various jurisdictions may make resolving tax disputes favorably more difficult. Although the Company believes its tax calculations are reasonable, the final determination of tax audits, and any related litigation in the jurisdictions where the Company is subject to taxation could be materially different from its historical tax calculations. The results of an audit or litigation could have a material effect on its consolidated financial statements in the period or periods in which that determination is made.
The Company earns a portion of its operating income from outside Japan, and any repatriation of funds currently held in foreign jurisdictions to Japan may result in higher effective tax rates for us. In addition, there is risk that the Company's tax exposure could be adversely affected if, for example, tax related laws and regulations, including the interpretation thereof, change due to political or economic conditions in the jurisdiction in which the Company operates.
Further, because the Company is subject to tax examinations by relevant tax authorities on a regular or irregular basis, it is difficult to accurately predict their timing and results. The Company's exposure to the above tax risks could materially and adversely affect its business, results of operations and financial condition.
The Company may also become subject to new taxes applicable to online businesses based on changes in tax laws and regulations and enforcement of such laws and regulations by tax authorities. In particular, France, the United Kingdom, Italy, Austria, and other countries have enacted or are considering digital services taxes, which could lead to inconsistent and potentially overlapping international tax regimes.
However, there are a number of uncertainties surrounding the actual procedures for applying any of these taxes, and the financial impact of any such taxes on the Company's business and results of operations is unclear.
In addition, in the United States, the Company may become subject to increased state sales taxes in connection with possible changes to its service offerings. In addition, state tax authorities may assert additional state taxes are owed based on interpretations of the current law.
Any changes to international tax laws could impact the tax treatment of the Company's foreign earnings and adversely impact its effective tax rate. Further, changes to tax laws and additional reporting requirements could increase the complexity, burden and cost of compliance.
Due to the large and expanding scale of the Company's international business activities, any changes in taxation of its activities or the combined effect of tax laws in multiple jurisdictions may increase its worldwide effective tax rate, increase the complexity and costs associated with tax compliance (especially if changes are implemented or interpreted inconsistently across tax jurisdictions), and adversely affect its results of operations and financial condition.

The Company has substantial operations outside Japan and have significantly expanded its global businesses in recent years. The Company principally conducts its global business transactions in foreign currencies, in particular the US dollar, the Euro and the Australian dollar.
Foreign currency-denominated assets and liabilities are reported in the relevant local currencies and then translated to Japanese yen at the period-end applicable exchange rate, while foreign currency-denominated results of operations are reported in local currencies and then translated to Japanese yen using the spot exchange rate at the date of the transaction or a rate that approximates such rate.
As a result of these factors, fluctuations in foreign currencies against the Japanese yen may adversely affect the impact of favorable results or amplify the impact of unfavorable results at the Company's overseas subsidiaries.
Although the Company may enter into derivatives transactions to hedge a portion of its foreign currency exchange rate risk, there is no assurance that its hedging efforts will be effective in protecting the Company against exchange rate fluctuations. Depending on the size of the exposures and the relative movements of currency exchange rates, if the Company chooses not to hedge or fail to hedge its exposures effectively, the Company could experience a material adverse effect on its results of operations and financial condition.
Furthermore, volatility in foreign exchange rates could negatively affect economic conditions in the Company's operating markets, potentially leading to decreased advertising spending by its business clients or harm its ability to execute acquisitions or other strategic transactions abroad, which is an important piece of its strategy for growth globally, at an acceptable price.

Although the Company finances its operations and investment activities primarily through operating cash flows, the Company also obtains financing through loans from banks and other financial institutions and issuing bonds in the capital markets. The Company may incur additional indebtedness in the future depending on the overall funding environment including interest rate trends. Increases in interest rates could substantially increase its financing costs and may impair its ability to borrow necessary funds on a timely basis.
In addition, the Company's creditworthiness may decline in the future due to adverse changes in the Company's financial condition or business, which would negatively affect its ability to obtain additional borrowings in the future on terms that are acceptable to the Company or at all.
The Company may enter into additional borrowings in the future that may subject it to covenants or other restrictions that can impede its ability to manage its operations.
If the Company fails to comply with such covenants, the repayment of the principal of, or accrued interest on, the Company's loans could be accelerated or the Company could be required to post collateral to secure its borrowings. The Company may also have difficulties in obtaining additional financing on acceptable terms to the extent that its credit ratings decline.
In addition, as a holding company with no business operations of its own, the Company relies on cash flows from subsidiaries to meet its obligations, including to service any debt obligations. The Company's subsidiaries may be restricted in their ability to pay cash dividends or to make other distributions to it and therefore, the Company's ability to meet its obligations may be adversely affected by such restrictions.

The Company's operating results may fluctuate as a result of a number of factors, many of which are outside of its control.
As a result, comparing its operating results on a period-to-period basis may not be meaningful, and you should not rely on its past results as an indication of its future performance. The Company's operating results in future periods may fall below market expectations as well as its internal business objectives or financial targets. For example, although its HR Technology segment has been a key growth driver in recent years, it is uncertain whether its HR Technology segment will continue to achieve revenue growth at the expected pace or at all. Any of these events could cause its stock price to fall. Each of the risk factors listed in this section in addition to the following factors may affect the Company's operating results:

  • its ability to continue to attract and retain individual users and business clients to its services, including by successfully responding to changes in individual user preferences and business client needs;
  • its ability to keep pace with rapid changes in technology;
  • the amount of revenues and expenses generated and incurred in currencies other than Japanese yen, and its ability to manage the resulting foreign exchange risk;
  • the amount and timing of advertising expenses, other operating expenses and capital expenditures related to the maintenance and expansion of its businesses;
  • its focus on long-term goals over short-term results;
  • acquisitions and other strategic investments;
  • introduction of new businesses, products, services and technologies; and
  • changes in economic conditions or the business environment, including due to the impact of the COVID-19 pandemic.

Because its businesses are changing and evolving, the Company's historical operating results may not be useful to you in predicting its future operating results.

The trading price of its common stock has been, and is likely to continue to be, volatile. In particular, the Company's operating results may fluctuate significantly due to a number of factors, including the various risk factors discussed in this section, which could negatively affect its stock price.
In addition, the trading price of the Company's common stock may fluctuate significantly in response to numerous other factors, many of which are beyond its control, including:

  • the financial projections the Company may provide to the public, any changes in these projections or its failure to meet these projections;
  • actions of securities analysts who initiate or maintain coverage of the Company, changes in financial estimates by any securities analysts who follow it, or its failure to meet these estimates or the expectations of investors;
  • additional shares of its common stock being sold into the market by the Company, its existing stockholders, or in connection with acquisitions, or the anticipation of such sales;
  • changes in the Company's dividend policy or planned share repurchases;
  • investor sentiment with respect to the Company's competitors, its business partners, and its industry in general;
  • announcements by the Company or its competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;
  • changes in operating performance and stock market valuations of technology companies in the Company's industry, including its competitors;
  • price and volume fluctuations in the overall stock market, including as a result of trends in global political or economic conditions;
  • the inclusion, exclusion, or deletion of the Company's stock from any trading indices;
  • media reports regarding the Company's business and financial performance;
  • lawsuits threatened or filed against us, or developments in pending lawsuits;
  • developments in anticipated or new legislation or regulatory actions; and
  • other events or factors, including those resulting from pandemics, war or incidents of terrorism, or responses to these events.

Broad market and industry fluctuations and general economic, political and market conditions, such as recessions, interest rate changes or foreign currency exchange fluctuations, may negatively impact the market price of the Company's common stock regardless of its actual operating performance.