Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

CEO Behind 5,500% Stock Gain Says His Secret Is Raising Salaries

CEO Behind 5,500% Stock Gain Says His Secret Is Raising Salaries

Masaru Tange, 46, says his business model is an attempt to remove inefficiencies in Japan's software industry.
Masaru Tange says the strategy that turned his company into one of Japan's best-performing stocks may be surprising: He buys smaller firms and boosts their workers' pay.

Tange's Shift Inc., a software tester, acquires other businesses near the bottom of the industry supply chain and raises their engineers' salaries. He says he's able to do this and still charge competitive prices by cutting out layers of companies that serve as middlemen in the outsourcing process. And having more workers leads to higher sales.

Shift's shares have risen more than 5,300% since it went public in 2014, the second-best performance on Tokyo's benchmark stock index. The company's market capitalization has surged to about $2.3 billion, pushing the value of Tange's 33% stake to about $745 million.

Tange, 46, says his business model is an attempt to remove inefficiencies in Japan's software industry, where layers of subcontractors take cuts on orders before passing the work to another company below. It's also, he says, a break from the M&A strategy of buying a business and looking to reduce costs.

"I have a strong urge to rescue these young employees," Tange, Shift's founder, president and chief executive officer, said in an interview. "I want to create a fair working environment through M&A."

Tange grew up in what he describes as an ordinary family in Hiroshima in southwestern Japan, where both his parents were civil servants. He established Shift in 2005 after majoring in mechanical engineering and spending more than five years working for a consulting firm.

Shift started out advising companies on how to improve profits. In 2009, it entered the software testing business.

Tange said he wanted to change engineers' perception that software testing was a second-rate job, including by paying them more money.

For example, for a service where the market price was 2 million yen ($18,320), Shift would charge 1.5 million yen. This would enable it to win customers. At the same time, it would raise the amount paid to the engineer to about 800,000 yen from 500,000 yen. It could do so, Tange said, by getting rid of middlemen.

Shift acquired Yusuke Sato's company in 2016. Since then, the software developer says his salary has jumped by more than 70%.

"Joining Shift was a huge turning point in my career," Sato said.

Shift has 3,308 engineers as permanent employees as of the end of February, up more than 14-fold from 228 at the end of November 2015. The company acquired at least 14 firms during that period.

Increasing engineers leads directly to revenue growth because it enables the company to do more business, according to Go Saito, an analyst at Credit Suisse Group AG who initiated coverage on the stock in February with an outperform rating.

"Sales can be derived by multiplying the number of engineers and the unit price for engineers," Saito wrote in a report that month. "The company has already created a framework for the skills development of engineers, enabling it to cultivate high-quality human resources."

Revenue rose to 28.7 billion yen in the 12 months ended August 2020, more than triple the level three years earlier. Profit increased to 1.6 billion yen, compared to 208 million yen three years before. Shift forecasts that sales will jump to a record 45 billion yen this fiscal year.

Software engineers are underpaid in Japan compared to the US and there's a shortage of them, according to Saito. That's one reason why Shift's model of outsourcing software testing works, he said.

"We're the biggest in Japan in this area," Tange said. "I do see revenue reaching 100 billion yen," he said, referring to the company's goal for the fiscal year ending August 2025.

Shift's soaring shares haven't been immune to pullbacks. They've fallen about 22% from a record in October as investors sold high-growth technology stocks. Even after the drop, the company trades at about 87 times estimated earnings.

For veteran investor Mitsushige Akino, the stock may see more volatility in coming months and could fall in market downturns. But its "fundamentals are solid and Shift is making progress on the vision it laid out," the senior executive officer at Ichiyoshi Asset Management Co. said. "It won't be strange to see more buying of these types of shares if investors focus once more on growth stocks."

Credit Suisse's Saito says the key will be whether Shift is able to continue to increase its number of engineers.

Whether that will happen remains to be seen, but Tange, at least, isn't short of confidence.

"We're just getting started," he said.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
More Than 150,000 Followers for a Fictional Character: The New Influencers Are AI Creations
EU Prepares for War
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
×