Growing Need for Digital Signatures Gives Japan Firm a 22-Fold Return
Growing Need for Digital Signatures Gives Japan Firm a 22-Fold Return
(Bloomberg) -- The coronavirus pandemic is yanking corporate Japan into the 21st century, forcing businesses to embrace digital signatures and boosting the shares of Bengo4.com Inc., one of the few local providers of the service.
Shares of the 240-person firm, whose name is a Japanese play on “lawyers-dot-com,” hit a record on Wednesday, giving the Tokyo-based company a market valuation of about 191 billion yen ($1.77 billion), a 22-fold gain from its 2014 public debut. Revenue for its cloud-based signing service is set to double this year, fueling growth, president Yosuke Uchida said.
While DocuSign Inc. and other firms have been offering web services for signing contracts and legal documents for more than a decade, Japanese bureaucrats and businesses have remained steadfastly loyal to paper, “hanko” chops or stamps and the fax machine. Now, they’re being pushed into the digital age as consumers, employees, companies and government offices restrict their movements to prevent the spread of the pathogen that has infected almost 5 million worldwide and killed 323,000.
“There’s no question that usage of electronic contracts will become widespread,” Uchida said in an interview. “The day will come when using electronic contracts becomes the usual practice. The virus has significantly advanced that timing.”
Uchida estimates Japan’s market for cloud-based signing can reach 400 billion yen over the next few years, and he’s aiming to take an 80% share. This means revenue for Bengo4.com’s cloud-signing service, which Uchida estimates at around 1.3 billion yen for the year ending March 2021, will have to double in growth for several years. The company doesn’t set mid-term goals but has targets on an yearly basis, the president said. “This is an extremely fast-growing business,” Uchida said.
Bengo4.com started out as a legal marketing and directory website in 2005, but later added cloud-signing services to fuel faster growth. The founder, a lawyer, set out to deal with the massive amounts of documents attorneys in Japan prepare for clients, and saw little value in physically stamping contracts.
At first, Bengo4.com had to overcome skepticism surrounding the enforceability of digitally-signed contracts if questioned in court. While Japanese law allows for contracts to be signed digitally, decades-old legislation on electronic signatures requires parties to take a number of time-consuming steps to prove their authenticity, according to Uchida.
Bengo4.com’s signing service decided to steer clear of such complicated steps but won the trust of businesses, backed by the fact that the company has a client pool of tens of thousands of lawyers, Uchida said. With Japanese law granting freedom of form in business contracts, so long as the legitimacy of the agreement between parties can be proved, there’s no need to abide by electronic signing rules, he said. The technology behind Bengo4.com’s service is accepted by businesses and hasn’t been a problem thus far, he said.
Prime Minister Shinzo Abe has called for an urgent review of traditional office practices in Japan, which were blamed both for causing delays in the spread of vital information during the coronavirus outbreak, and for forcing workers to board crowded trains and show up at offices just to physically stamp documents. Even so, Japan has been able to keep the outbreak mostly under control, with 16,000 infected and 763 deaths. Last week, the government lifted its state of emergency for 39 of the country’s 47 prefectures, with more to come this week, although Tokyo and some other dense economic centers remain under restrictions.
JPMorgan initiated coverage of Bengo4.com in September with a buy rating, citing “strong growth” in digital signatures. Sales for the service will reach about 4.5 billion yen in three years and 12 billion yen in five years, according to analyst Haruka Mori.
The ratio of companies using electronic contracts between multiple departments and business partners is at 22%, suggesting “large scope for penetration,” Mori wrote in a September note, citing a survey by JIPDEC, a group promoting the use of technology among businesses.
“The use of cloud-based electronic contract services is still very limited, and given the advantage of these services in terms of convenience and price, we think they are likely to drive further use of electronic contracts,” Mori wrote.
Bengo4.com’s shares are up 150% from a low on March 13. The stock is the third-best performer in Japan’s Mothers’ index this year, among companies with a market capitalization of more than 100 billion yen.
“The biggest advantage we had was that we were the first to provide a cloud-based signature service that was easy to use,” Uchida said. “I can see that investors have huge expectations for us. Our company is still small, but the understanding is that we have a lot of growth potential.”
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