Expectations for the Cube, Couldn’t read IR, it become difficult to makes stock balance firstly positive in third year / 4488:AI inside

 

I think I first heard about AI inside in the beginning of 2020. Stock price of AI inside in 2020 was awesome as I remember. Double-bagger! Triple bugger! I was looking at the chart shape like a rising dragon and thinking, “Too expensive to buy. However, AI inside mocked me waiting for dips, AI inside’s stock price did not have any dips, and it went up and up. 

Nov 11 2020, AI inside announced its financial results for the 2nd quarter of 2020, showing an 88% increase in sales and a 209% increase in operating profit compared to the 1st quarter. The stock price hit new high of 96,000 yen on Nov 16, probably due to the results. That’s 8-bagger! But after this peak, stock price plummeted. 

And I was much awaited bought stocks of AI inside for 70,800 yen on Nov 26 2020. 

What attracted me to AI inside? 

AI inside has launched an AI OCR called DX Suite. As of the end of March 2021, the company had more than 10,000 contracts for DX Suite (including DX Suite OEM products). And according to the AI OCR solution vendor sales and market share forecast for fiscal 2019, DX Suite has a 64% market share. This system facilitates the conversion of customer handwritten slips, survey postcards, handwritten receipts, various application forms, handwritten faxes, etc. into digital data through high-precision scan OCR reading using AI. 

However, ”Learning Center” caught my attention. This system allows you to create the AI you want to create with an intuitive user interface without having to write code. 

How to create AI, 

1) Input data and have the AI learn to make decisions such as “B” for “A” and “C” for “B”.  

2) Let the AI make decisions, and if it makes a wrong decision, correct it. The more training samples you have, the better the AI system will be. 

Staff members who understand the needs of own work can create their own AI. It is very difficult to explain to programmers that you want them to create this kind of AI and have them understand it. However, with the “Learning Center”, you can create your own AI without relying on programmers. I was most attracted to “Learning Center” of AI inside. 

 

AI inside with no dip 

AI inside was listed on the TSE Mothers on December 25, 2019. The initial price of 12,600 yen was much higher than the public offering price of 3,600 yen, showing the high expectations of the company. The stock started the year at 12,350 yen and continued to grow steadily, reaching 96,000 yen in November 2020. That’s eight baggers in just one year! If you owned 100 shares, benefit was +8,365,000 yen. if you owned 200 shares, benefit was +16,730,000 yen! If you owned 300 shares…. Shall we stop now? 

I first entered AI inside at 70,800 yen on November 26, 2020. This was right after the stock plummeted from highest price 96,000 yen. I entered the stock when I thought it had stopped falling. After that, the stock passed for about three months without any major movement. During that time, I was buying the stock from time to time. I thought there was no problem because the business performance was good. 

There may be some misunderstandings, so I’d like to explain that I can’t buy AI inside shares in units of 100 shares. Because the minimum trading unit is normally 100 shares in Japan. If you buy 100 shares of 70,000 yen stock, the price will be 7 million yen. There was no way I could afford to buy such expensive shares. What I did was to use “SBI Neo Mobile Securities”, which allows you to buy stocks in units of 1 share. This system has recently been launched by many companies, including “LINE Securities”. The disadvantage of this system is that you can’t buy or sell shares at flexible timing. The disadvantage of this system is that you cannot buy or sell when you want, and you can only buy at certain times. There are good points and bad points depending on the wishes of the user, so if you are interested, please check it out. After three months of stalemate, the 3Q earnings announcement has finally come. 

Although net sales increased slightly compared to the 2Q, operating income decreased, a result that could be seen as a slowdown in growth. The stock price dropped significantly from about 70,000 yen to 50,000 yen, a drop of about 30%.  

For a moment, I wondered about the item in “Financial Results for the Third Quarter of Fiscal Year 2010”,announced on February 12, 2021. I thought, “What?” 

“In the first half of the year, the number of DX Suite subscribers increased rapidly through campaigns and other means. In the second half of the year, we have no campaingn plans to increase the number of subscriptions. We aim to increase the number of using times AI is used by focusing on support, functional enhancements, and infrastructure enhancements that will satisfy the needs of customers in order to improve the experience of the rapidly growing number of customers.” 

I thought for a moment, “Is something wrong? We already know current situation, because we are in future compared with this announcement. If you read it from the perspective of knowing the current situation, it could be read as, “We don’t have much time to develop new business because we have to focus on keeping the rapidly increasing number of customers. 

It was also announced that there were mistakes in the financial results presentation materials. The numbers in the company’s important financial documents were also wrong. What should we think? 

In addition, on February 12, 2021, it was discovered that President Toguchi had sold his own shares. President Toguchi owns 53% of AI inside. If one person owns more than 50% of the shares, the company is considered a family company and is subject to taxation on retained earnings, which amounts to several hundred million yen. He commented that this had been planned for some time. 

Two weeks later, on Feb 26, 2021, it was announced that Kimitaka Nakazawa, Executive Officer and CDO, would be stepping down due to personal reasons. 

Here is Mr. Nakazawa’s background: until Feb. 25, he was the Chief Data Officer (CDO), Executive Officer of AI inside Inc. He is a graduate of the University of California, Berkeley, School of Environmental Economics and Policy. After graduating from the U.S. industry-academia collaboration program “GalvanizeU Data Science” as a Master, he has been involved in a wide range of data analysis projects in Japan and the U.S., including insurance, health technology, manufacturing, real estate, finance, payment, and e-commerce. In July 2017, he joined anypay, Inc. as a CDO, where he is responsible for a wide range of internal data utilization. He transferred his personal machine learning platform business to AI inside Co., Ltd. and has been responsible for basic AI development of AI inside as an analysis expert. he joined the company as an executive officer CDO in August 2019 and has been leading the data engineering department. He is what we call a programmer at heart. 

It would not be an exaggeration to say that AI development at AI inside rests on the shoulders of Kimitaka Nakazawa, Executive Officer and CDO. 

Prior to the announcement of financial results on May 12, 2021, a major announcement was made on April 28. AI inside, an artificial intelligence (AI) development startup, announced that it expects sales of 1.763 billion yen, or about 40% of its total sales, to decline in the fiscal year ending March 2022 after receiving notice from its partner NTT West that it will not renew part of its contract. 

A large number of customers have cancelled their subscriptions to AI inside’s OEM (Original Equipment Manufacturer) products sold by NTT West, and AI inside’s President and CEO, Choi Toguchi, commented in an interview as follows 

NTT West had been running a free campaign since January 2008 and was able to get a large number of contracts because there were no cancellation fees. However, outside of NTT West, the cancellation rate is low, and about 70-90% of customers end up signing a full contract, so they did not expect this. President Toguchi commented about the question that many companies would cancel their contracts if they could digitize their existing data. 

“Many companies have not yet completely digitized their documents, and are still managing orders and other documents both on paper and digitally. We are aware that there are many companies that use OCR on a regular basis, rather than just ‘scanning the past documents and that’s it,’ as you mentioned” 

 

AI inside as black history 

AI inside’s stock price plummeted after the announcement on Apr-28, 2021 that sales of 1.763 billion yen, or about 40% of total sales, were expected to decrease in the fiscal year ending March 2022 due to NTT West’s notification that it would not renew some of its contracts. I had placed an order to sell all of my shares in the market on the morning of April-29. But I was unable to sell because stock price hit limit low. I was finally able to sell my shares on May 7 after GW at 16,200 yen. Stock price of AI inside was 96,000yen, almost 100,000 yen. But in July 14, 2021, the price has dropped to 12,120 yen, 1/8th of what it was six months ago. 

When I heard the announcement on April 28, I immediately placed an order to sell all of my shares, and on May 7, the transaction was finally executed, resulting in a loss of 380,000 yen. It was my biggest loss ever for one stock. I have no regrets about this. As I knew with a high probability that it would take many years for AI inside to recover its sales and reflect them in the stock price. So I decided that it would not be efficient to tie up my money in such a dying stock. We decided that it would be inefficient to tie up our money in such a dying stock, and that we should invest in other promising stocks. 

The only thing I regret is that I could have sold the stock at more than three times the price I actually sold it for, if I had sold it when I felt that something was wrong. 

1) Feb-12, 2021 : “In the first half of the fiscal year, the number of DX Suite subscribers increased rapidly through campaigns and other means. In the second half of the year, we do not plan to conduct campaigns to increase the number of subscriptions. We aim to increase the number of times AI is used by focusing on support, functional enhancements, and infrastructure enhancements that will satisfy the needs of customers in order to improve the experience of the rapidly growing number of customers” 

2) Feb-12, 2021 : The company also announced that there was an error in its financial results presentation materials.  

3) Feb-12, 2021 : It was discovered that President Toguchi had sold his own shares. 

4) Feb-26, 2021 : It was announced that Kimitaka Nakazawa, Executive Officer and CDO, would be stepping down due to personal reasons. 

5) Apr-28, 2021 : It expects sales of 1.763 billion yen, or about 40% of its total sales, to decline in the fiscal year ending March 2022 after receiving notice from its partner NTT West that it will not renew part of its contract. 

I should have realized and withdrawn my money from the stock of AI inside in February 2021. I realized that I need to keep my antennas sensitive to the stocks I own, as they are my most important assets. I suffered the highest loss in my history on one stock. So It made it difficult for me to realize my vow to make a positive balance in my third year of investing in stocks.    I feel that I have gone far from achieving my goal, but I think it was a good learning experience. 

No, but I regret that I was dull. I won’t do it again. 

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