DeNA Co.,Ltd. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥83.15B
• Operating Income: ¥24.95B
• Net Income: ¥22.82B
• EPS: ¥206.60

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A strong FY2026 Q2 with sharp profit recovery, aided by both core margin expansion and meaningful non-operating/equity-method contributions, but with a notable gap between net income and operating cash flow. Revenue rose 18.3% YoY to 831.5, while operating income surged 354.1% YoY to 249.5, signaling material operating leverage. Net income jumped 667.7% YoY to 230.3, taking the net margin to 27.7%. Gross margin printed at 58.4% and operating margin at roughly 30.0%, indicating strong cost discipline and/or favorable mix. Based on growth-rate back-solves, operating margin likely expanded by about 2,220 bps YoY (from ~7.8% to ~30.0%). Net margin similarly expanded by roughly 2,340 bps YoY (from ~4.3% to 27.7%). Equity-method income was 43.6, representing 14.7% of profit contribution, and non-operating income ratio stood at 18.9%, both meaningful for bottom-line uplift. EBITDA reached 283.5 with an EBITDA margin of 34.1%, underlining improved earnings capacity relative to revenue scale. The effective tax rate was 23.3%, consistent with normalized profitability. Comprehensive income was 402.4, substantially above net income, implying valuation and/or OCI gains that boosted equity. Cash generation lagged earnings: operating cash flow was 150.6 versus net income of 230.3 (OCF/NI 0.65x), triggering an earnings quality caution. Free cash flow remained positive at 132.1, covering dividends 1.66x, supporting near-term shareholder returns. The balance sheet is conservative with total equity of 2,845 (equity ratio 67.7%) and modest borrowings (short-term 299.2, long-term 46.8). ROE was 8.1% on low leverage (1.42x) and low asset turnover (0.205), indicating profitability improvements were margin-led. ROIC was 6.0%, below the 7–8% target range, suggesting room for further capital efficiency enhancement. Forward-looking, sustainability hinges on recurring operating profitability, stability of equity-method income, and conversion of earnings into cash. Overall, momentum is favorable, but the OCF shortfall and ROIC below target remain the key watch points.

Profitability Analysis

ROE decomposition (DuPont): ROE 8.1% = Net Profit Margin 27.7% × Asset Turnover 0.205 × Financial Leverage 1.42x. The largest delta driver this quarter was the net profit margin, which expanded materially YoY, while leverage stayed low and asset turnover remains structurally modest for the business mix. Business reasons likely include improved unit economics in core businesses (games/sports/other internet services), tight SG&A discipline relative to revenue growth, and incremental lift from non-operating and equity-method income (18.9% non-operating ratio; equity-method 43.6). The step-up in operating margin to ~30% from an estimated ~7.8% last year points to significant operating leverage and mix tailwinds; some portion may reflect one-time or less-recurring factors (e.g., investment-related gains or cost releases). Sustainability: the margin reset is positive but should be treated cautiously until corroborated by cash conversion and multi-quarter consistency; ROIC at 6.0% reinforces that capital efficiency improvement is still in progress. Concerning trend flags: revenue grew 18.3% YoY vs. operating income +354.1% YoY, implying unusually strong operating leverage; we cannot verify SG&A growth vs revenue due to lack of SG&A breakdown, but monitoring SG&A scaling is warranted in subsequent quarters.

Growth Assessment

Top-line growth of 18.3% YoY to 831.5 demonstrates healthy momentum in the portfolio. Profit growth substantially outpaced sales, with operating income +354.1% YoY and net income +667.7% YoY, implying strong operating leverage and supportive non-operating/equity-method contributions. Equity-method income of 43.6 (14.7% contribution) and a non-operating income ratio of 18.9% suggest that part of the profit acceleration comes from outside pure operating activities. EBITDA margin at 34.1% and operating margin near 30% indicate improved mix and/or cost control. However, OCF/NI at 0.65x tempers the quality of growth, signaling timing/working-capital or non-cash items behind earnings. Absent segment detail, durability of revenue growth depends on continued content cadence in games, stable sports/events monetization, and performance of affiliates. Outlook: if revenue sustains double-digit growth and operating margins normalize above the mid-teens with better cash conversion, ROE and ROIC can trend higher; reliance on non-operating items should be considered a swing factor.

Financial Health

Liquidity appears solid but is partially unobservable: current assets are 1,264.5, while current liabilities are unreported, so the current ratio is not calculable—no explicit warning can be made. Cash and equivalents were 964.0, comfortably exceeding short-term borrowings of 299.2, limiting near-term refinancing risk. Total liabilities are 1,203.9 against total equity of 2,845, implying a conservative liabilities-to-equity of ~0.42x and an equity ratio of 67.7%. Interest-bearing debt detail is incomplete, but reported short-term and long-term loans total 346.0. No immediate maturity mismatch is evident given cash on hand versus short-term loans; however, absent full current liabilities disclosure, a residual uncertainty remains. Off-balance sheet obligations are not disclosed in the provided data.

Cash Flow Quality

OCF/Net Income is 0.65x (<0.8), indicating weaker cash conversion this quarter and an earnings quality caution. Operating CF was 150.6 versus net income of 230.3; the gap may reflect working capital build or non-cash/valuation effects flowing through profit. Free cash flow was strong at 132.1 (OCF 150.6 minus capex and other investing outflows), providing a buffer for capital allocation. Dividend payments of 72.4 were covered 1.66x by FCF, and capex at 21.4 appears manageable relative to OCF. No overt signs of working capital manipulation are evident from the limited disclosures, but the OCF shortfall versus NI warrants monitoring in subsequent quarters for normalization.

Dividend Sustainability

The calculated payout ratio is 34.5%, comfortably within a sustainable range (<60%). FCF coverage of dividends was 1.66x, suggesting adequate room to maintain current distributions and optionality for modest reinvestment. Balance sheet strength (equity ratio 67.7%, low borrowings relative to cash) further underpins dividend resilience. Policy outlook depends on sustaining cash conversion and profit levels; if OCF normalizes closer to NI and ROIC improves toward 7–8%, incremental returns (dividends/buybacks) could be supported. Given partial data (annual DPS unreported), the analysis focuses on payout ratio and FCF coverage rather than policy specifics.

Risk Assessment

Business Risks:

• Hit-driven performance risk in core entertainment/digital content businesses impacting revenue volatility.
• Execution risk in sustaining high operating margins after a sharp YoY step-up.
• Affiliate performance volatility: equity-method income of 43.6 (14.7% contribution) introduces earnings variability.
• Goodwill (303.6) and intangibles (198.4) impairment risk if project economics weaken.
• Regulatory and platform policy risk around digital monetization and consumer protection.

Financial Risks:

• Earnings quality risk: OCF/NI at 0.65x indicates weaker cash conversion in the quarter.
• Dependence on non-operating items (non-operating income ratio 18.9%) to support bottom line.
• Short-term borrowings of 299.2 create rollover exposure, though mitigated by 964.0 in cash.
• ROIC at 6.0% below 7–8% target range, pointing to capital efficiency headroom.

Key Concerns:

• Sustainability of ~30% operating margin without continued non-operating support.
• Conversion of earnings into cash (OCF/NI < 0.8) and potential working capital swings.
• Potential sensitivity to affiliate results and market valuation movements (comprehensive income materially above net).

Investment Implications

Key Takeaways:

• Strong topline (+18.3% YoY) with outsized operating leverage: operating income +354.1% YoY.
• Material margin reset: operating margin ~30% vs ~7.8% a year ago; net margin 27.7%.
• Non-operating and equity-method contributions meaningful (18.9% ratio; equity-method 43.6).
• Cash conversion lag (OCF/NI 0.65x) tempers the quality of earnings.
• Balance sheet conservative (equity ratio 67.7%) with cash exceeding short-term debt.
• FCF covers dividends 1.66x; payout ratio 34.5% supports sustainability.
• ROE 8.1% on low leverage (1.42x) and low asset turnover (0.205); ROIC 6.0% indicates room to improve.

Metrics to Watch:

• OCF/Net Income trend and working capital movements.
• Operating margin sustainability and SG&A scaling versus revenue.
• Equity-method income run-rate and composition.
• ROIC progression toward 7–8% target range.
• Capex discipline and FCF consistency relative to dividends.
• Any goodwill/intangible impairment indicators.
• Breakdown of non-operating income and OCI drivers impacting comprehensive income.

Relative Positioning: Relative to domestic digital entertainment/internet peers, DeNA shows stronger near-term margin performance and a conservative balance sheet, but mid-level ROE and below-target ROIC point to ongoing efficiency improvement needs; earnings quality (cash conversion) is a key differentiator to monitor.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis