| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥371.7B | ¥417.3B | -10.9% |
| Operating Income | ¥74.1B | ¥138.0B | -46.3% |
| Profit Before Tax | ¥497.5B | ¥158.7B | +213.5% |
| Net Income | ¥336.3B | ¥110.8B | +203.6% |
| ROE | 14.8% | 4.6% | - |
The Q1 of the fiscal year ending March 2027 was characterized by the simultaneous occurrence of declining revenue and profit in the core businesses and a substantial increase in net income driven by share of profit or loss of equity-method investments. Revenue declined to ¥371.7B (-10.9% YoY), while Operating Income fell to ¥74.1B (-46.3% YoY). In contrast, Profit Before Tax surged to ¥497.5B (+213.5% YoY), and Net Income attributable to owners of the parent rose sharply to ¥334.4B (+198.5% YoY; ¥336.3B and +203.6% YoY on a consolidated total quarterly profit basis). This increase in net income was attributable to share of profit or loss of equity-method investments of ¥405.7B, including gains on the sale of shares in affiliates, which accounted for 81.5% of Profit Before Tax, in contrast to the decline in profitability at the operating level. By segment, the Game Business decelerated significantly, with revenue down 33.2% and Operating Income down 62.0%, while the SportsSmartCity Business expanded, with revenue up 16.0% and Operating Income up 24.4%, highlighting the divergent performance across businesses.
【Revenue】Revenue declined 10.9% YoY to ¥371.7B. By segment, SportsSmartCity recorded the largest growth among all segments, with revenue of ¥131.6B (35.4% of total, +16.0%), demonstrating progress toward becoming a core business. Meanwhile, Game revenue contracted significantly to ¥120.8B (32.5% of total, -33.2%), becoming the primary cause of the company-wide revenue decline. LiveStreaming revenue was ¥97.2B (26.2% of total, -2.3%), remaining broadly flat, while HealthcareAndMedical and NewBusinessesAndOthers recorded modest declines to ¥16.1B (-3.3%) and ¥5.9B (-10.6%), respectively.
【Profit and Loss】Gross Profit was ¥194.0B, with a gross margin of 52.2%, down 7.3pt from 59.5% in the same period of the previous year, as the decline in Game revenue reduced the contribution of the high-margin business and lowered the gross margin. SG&A expenses remained at ¥119.8B, slightly below ¥123.1B in the same period of the previous year, but were insufficient to offset the ¥54.4B decline in Gross Profit. Consequently, Operating Income fell 46.3% YoY to ¥74.1B, and the Operating Margin declined to 19.9% from 33.1%, a decrease of 13.2pt. Profit Before Tax surged to ¥497.5B (+213.5% YoY), primarily due to the highly one-off nature of share of profit or loss of equity-method investments of ¥405.7B, compared with ¥17.1B in the same period of the previous year. This should be evaluated separately from recurring operating profit and loss. Net Income attributable to owners of the parent reached ¥334.4B (+198.5% YoY), but the substantial gap between Profit Before Tax and Operating Income indicates that the results featured a dual nature: declining revenue and profit at the operating level, but increased profit at the final stage due to equity-method investment gains.
SportsSmartCity made the largest contribution to Operating Income (company-wide total of ¥7,426 million, before adjustments), at ¥45.5B (61.3% of total), maintaining the highest margin among all segments at 34.6%. Game remained the largest earnings contributor, with Operating Income of ¥38.3B (51.6% of total), but this represented a sharp 62.0% YoY decline, with its margin also falling to 31.7%. LiveStreaming recorded Operating Income of ¥9.9B, with a margin of 10.2%, remaining broadly in line with the previous year and providing a stable earnings base. HealthcareAndMedical reported an Operating Loss of ¥7.5B (44.7% YoY improvement, narrowing loss), while NewBusinessesAndOthers reported an Operating Loss of ¥5.7B (-83.9% YoY, widening loss); both remain in the investment phase and are weighing on company-wide profit. Overall, the segment results for the period were characterized by a polarization between the structural growth of SportsSmartCity and the sharp deceleration of Game.
【Profitability】The Operating Margin was 19.9%, down 13.2pt from 33.1% in the same period of the previous year, while the gross margin also deteriorated to 52.2% from 59.5%. On a Profit Before Tax basis, however, the substantial contribution from share of profit or loss of equity-method investments has caused the effective profitability indicators to diverge from operating performance. 【Cash Flow Quality】Operating Cash Flow (OCF) turned negative at -¥49.4B, creating a substantial gap from Net Income attributable to owners of the parent of ¥334.4B and indicating a decline in the conversion of current-period profit into cash. 【Investment Efficiency】ROE was 14.8%, but given the significant contribution of share of profit or loss of equity-method investments to Net Income, returns from the core businesses are likely more subdued than the headline figure suggests. 【Financial Soundness】The Equity Ratio was 71.6%, up 1.8pt from 69.8% in the same period of the previous year. Interest-bearing debt remained extremely low, consisting of short-term borrowings of ¥9.2B and long-term borrowings of ¥0.4B, indicating a conservative financial foundation.
Operating Cash Flow (OCF) turned negative at -¥49.4B, compared with +¥69.5B in the same period of the previous year. The primary drivers of cash outflows were income taxes paid of ¥154.6B and a ¥75.6B decrease in trade payables. Investing Cash Flow was +¥315.3B, compared with -¥12.9B in the same period of the previous year, supported by ¥365.7B in proceeds from the sale of shares in affiliates. Without this inflow, Investing Cash Flow would likely have been negative. Financing Cash Flow was -¥451.6B, compared with -¥92.7B in the same period of the previous year, primarily due to ¥363.1B in treasury share repurchases and ¥69.3B in dividend payments. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was positive at +¥265.9B. However, its source was the non-recurring investing activity of selling shares in affiliates, and it should be noted that the company’s cash-generation capacity from operating activities themselves has declined. Cash and cash equivalents decreased from ¥1030.5B at the beginning of the period to ¥844.3B at the end of the period.
Of Profit Before Tax of ¥497.5B for the period, share of profit or loss of equity-method investments of ¥405.7B accounted for 81.5%, representing a substantial gap from recurring Operating Income of ¥74.1B. This share of profit or loss of equity-method investments is believed to include gains on the sale of shares in affiliates, and its highly one-off nature should be taken into consideration. Financial income also increased to ¥18.4B from ¥7.5B in the same period of the previous year, increasing the proportion of non-operating income. Comprehensive Income attributable to owners of the parent was ¥289.5B, below Net Income of ¥334.4B. The difference was attributable to Other Comprehensive Income of -¥44.9B, primarily comprising valuation losses of -¥43.2B on investments in equity instruments. In addition, the fact that Operating Cash Flow (OCF) fell below Net Income and turned negative indicates a divergence between accrual-based earnings and cash-basis cash flow. In evaluating earnings quality for the period, it is therefore necessary to distinguish operating fundamentals from one-off investment gains and losses.
The full-year earnings forecast is Revenue of ¥1,540B and Operating Income of ¥150B (-19.8% YoY). The Q1 progress rates were 24.1% for Revenue and 49.4% for Operating Income, with Operating Income achieving a high progress rate 24.4pt above the standard quarterly progress rate of 25%. This appears to reflect the high-margin operation of SportsSmartCity. However, Operating Income was approximately half the level recorded in the same period of the previous year, and achievement of the full-year forecast on a core basis may vary depending on the performance of the Game Business from the second half onward.
Dividend payments during Q1 amounted to ¥69.3B, representing a Payout Ratio of approximately 20.7% relative to Net Income attributable to owners of the parent of ¥334.4B. At the same time, the company repurchased ¥363.1B of treasury shares, bringing total shareholder returns, including dividends and share repurchases, to ¥432.4B. However, Net Income is heavily dependent on share of profit or loss of equity-method investments, while Operating Cash Flow (OCF) is negative. Accordingly, the sources of shareholder returns are partly supported by cash inflows from investing activities, namely ¥365.7B in proceeds from the sale of shares in affiliates. The dividend forecast for the fiscal year ending March 2027 was undetermined as of the date of this report.
Declining profitability of the Game Business: Revenue declined sharply to ¥120.8B (-33.2% YoY), while Operating Income fell to ¥38.3B (-62.0% YoY), indicating a significant impact on company-wide profit. Operating Income from this business accounted for 51.6% of total segment profit before adjustments (¥7,426 million), so any delay in recovery could have a material impact on full-year performance.
Earnings quality (dependence on share of profit or loss of equity-method investments): Of Profit Before Tax of ¥497.5B, ¥405.7B (81.5%) was attributable to share of profit or loss of equity-method investments, a considerable portion of which is believed to represent one-off factors associated with the sale of shares in affiliates. The substantial gap from underlying earnings power at the Operating Income level (¥74.1B) requires monitoring when assessing the sustainability of the earnings level.
Declining cash-generation capacity: Operating Cash Flow (OCF) deteriorated to -¥49.4B from +¥69.5B in the same period of the previous year, creating a substantial gap from Net Income attributable to owners of the parent of ¥334.4B. The factors included increased income taxes paid (¥154.6B) and a decrease in trade payables (-¥75.6B). Recovery of cash-generation capacity from the core businesses will be a key focus going forward.
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 19.9% | 8.1% (2.3%–15.9%) | +11.9pt |
| Net Profit Margin | 90.5% | 5.9% (1.6%–10.7%) | +84.6pt |
Both the Operating Margin and Net Profit Margin significantly exceed the industry median. However, it should be noted that the exceptionally high Net Profit Margin is substantially attributable to the one-off contribution from share of profit or loss of equity-method investments.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -10.9% | 9.3% (0.4%–16.9%) | -20.2pt |
The Revenue Growth Rate is substantially below the industry median and remains below the lower bound of the IQR (0.4%).
※Source: Compiled by the Company
The sharp increase in Net Income was driven primarily by the highly one-off factor of share of profit or loss of equity-method investments (¥405.7B), while Operating Income decelerated by 46.3% YoY. When evaluating the earnings figures, it is necessary to distinguish recurring operating profit and loss from one-off investment gains and losses.
In terms of segment structure, SportsSmartCity achieved double-digit growth in both revenue and profit while maintaining a margin of 34.6%. Meanwhile, Game, previously the largest earnings contributor, experienced substantial declines in both revenue and profit, indicating an ongoing shift in the center of gravity of the business portfolio.
The full-year progress rate for Operating Income was high at 49.4%, but Operating Income was approximately half the level recorded in the same period of the previous year, and Operating Cash Flow (OCF) also turned negative. Both the conservatism of the full-year guidance and the cash-generation capacity of the core businesses will be key points to monitor in future earnings results.
This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, and you should consult a professional as necessary.
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