| Metric | Current | Prior | YoY |
|---|---|---|---|
| Revenue | ¥254.7B | ¥285.2B | -10.7% |
| Operating Income | ¥14.7B | ¥21.1B | -30.6% |
| Ordinary Income | ¥20.7B | ¥21.6B | -3.9% |
| Net Income | ¥12.2B | ¥9.3B | +28.9% |
| ROE | 1.3% | 1.0% | - |
GREE Holdings FY2026 Q2 consolidated results show revenue of 254.7B yen (YoY -10.7%) and operating income of 14.7B yen (YoY -30.6%), representing declines in both topline and core profitability. Ordinary income reached 20.7B yen (YoY -3.9%), partially recovering from operating income levels due to non-operating gains including 6.3B yen in FX gains and interest income. Net income increased to 12.2B yen (YoY +28.9%), benefiting from 2.8B yen in investment securities sales gains recorded as extraordinary income. However, operating cash flow of 5.7B yen remained limited at 0.47x net income, indicating weak cash conversion. The company maintained strong liquidity with 512.6B yen in cash and deposits against total assets of 1,243.1B yen, while total debt stood at 90.0B yen, resulting in a conservative debt-to-equity ratio of 0.33x.
[Profitability] Operating margin was 5.8%, declining from prior year as SG&A expenses remained elevated relative to the 10.7% revenue decline. Gross profit margin maintained a strong 46.6%, but administrative burden compressed operating profitability. Net profit margin reached 4.8%, supported by non-operating and extraordinary gains. ROE stood at 1.3%, calculated from net profit margin of 4.8%, total asset turnover of 0.205, and financial leverage of 1.33x, indicating room for improvement in capital efficiency. The effective tax rate of 48.1% represents a significant earnings headwind. [Cash Quality] Cash and deposits totaled 512.6B yen, providing short-term debt coverage of 5.70x against current liabilities of 192.1B yen. Operating cash flow to net income ratio of 0.47x and cash conversion rate of 0.34x suggest earnings quality concerns regarding cash realization. Accounts receivable of 73.6B yen translates to days sales outstanding of approximately 106 days, indicating extended collection periods. [Investment Efficiency] Total asset turnover of 0.205 reflects relatively low asset utilization efficiency. Capital expenditure remained minimal relative to depreciation, suggesting potential underinvestment in business infrastructure. Working capital of 899.4B yen is substantial but heavily concentrated in cash, limiting operational efficiency. [Financial Health] Equity ratio stood at 75.2%, improving from 70.5% in the prior period, reflecting strong capitalization. Current ratio of 568.1% indicates exceptional short-term liquidity. Debt-to-equity ratio of 0.33x and debt-to-capital ratio of 8.8% represent conservative leverage levels. However, debt-to-EBITDA of 5.39x warrants monitoring from a covenant perspective given the EBITDA decline.
Operating cash flow generated 5.7B yen, representing 0.47x of net income and indicating that earnings were not fully converted to cash during the period. The gap between net income of 12.2B yen and operating cash flow suggests working capital absorption or timing differences in cash collection. Investing cash flow totaled negative 4.6B yen, primarily reflecting minimal capital expenditure as the company maintained existing asset base rather than expanding. Financing cash flow showed a significant outflow of 114.9B yen, driven by bond redemption of 90.0B yen and other debt repayments, representing active deleveraging efforts. Free cash flow of 1.1B yen remained limited after minimal capex, providing constrained capacity for shareholder returns relative to dividend commitments. Cash and deposits increased 24.1B yen from prior period end to reach 512.6B yen, maintaining robust liquidity buffers despite the substantial debt repayment activities. The balance sheet structure with 75.2% equity ratio and current ratio exceeding 500% confirms strong financial stability, though the weak operating cash generation relative to reported earnings warrants attention for sustainability of capital allocation policies.
Ordinary income of 20.7B yen versus operating income of 14.7B yen reflects a positive non-operating contribution of approximately 6.0B yen, primarily comprising FX gains of 6.3B yen and interest and dividend income. Non-operating income represents roughly 2.4% of revenue, indicating moderate reliance on financial and currency-related gains rather than core business operations. The company recorded extraordinary gains of 2.8B yen from investment securities sales, which boosted pre-tax income to 23.5B yen. This one-time gain contributed significantly to the 28.9% year-over-year increase in net income despite the 30.6% decline in operating income. The divergence between operating profit trends and net income improvement highlights dependence on non-recurring items. Operating cash flow of 5.7B yen remained below net income of 12.2B yen, with the operating CF to net income ratio of 0.47x indicating that less than half of reported earnings were converted to cash. Accrual ratio stood at 0.5%, suggesting limited accrual-based earnings management concerns, but the cash conversion rate of 0.34x and extended accounts receivable collection period of 106 days signal working capital efficiency challenges. The earnings composition shows core operational profitability under pressure while one-time gains from investment sales and favorable FX movements supported bottom-line results, raising questions about earnings sustainability and quality.
Revenue decline risk remains significant as Q2 revenue fell 10.7% year-over-year, with operating income declining 30.6% due to operating leverage effects. The Game segment generating 14.7B yen in sales and VTuber Business contributing 4.4B yen show concentrated revenue exposure, while the Investment segment reported negative operating income of 233M yen. Continued revenue pressure without corresponding cost structure adjustments would further compress profitability. Dividend sustainability risk emerges from the calculated payout ratio of 211.7% based on period-end dividend of 14.50 yen per share against limited free cash flow generation of 1.1B yen. Operating cash flow of 5.7B yen covers only 0.47x of net income, and free cash flow coverage of dividends at 0.04x indicates current dividend levels exceed cash generation capacity, suggesting potential policy revision requirements. Financial covenant and tax burden risks are present with debt-to-EBITDA ratio of 5.39x elevated relative to conservative leverage metrics, while the effective tax rate of 48.1% significantly constrains net profitability. The high tax burden combined with extended accounts receivable collection of 106 days and weak cash conversion create structural headwinds to sustainable earnings and cash flow generation.
[Industry Position] (Reference - Proprietary Analysis)
GREE Holdings operates in the digital entertainment and gaming services sector. The company's operating margin of 5.8% and net profit margin of 4.8% reflect the current period's revenue challenges and cost structure pressures. ROE of 1.3% indicates below-average capital efficiency relative to typical industry participants which generally target mid-to-high single-digit ROE levels. The equity ratio of 75.2% substantially exceeds industry median levels, as digital entertainment companies typically maintain equity ratios in the 50-65% range, positioning GREE as highly capitalized. The revenue decline of 10.7% year-over-year contrasts with industry participants that have generally maintained flat to modest growth trajectories in recent periods. The company's minimal capital expenditure relative to asset base differs from industry peers pursuing active content development and platform investments. GREE's debt-to-EBITDA of 5.39x appears elevated compared to the sector median of 2-3x, driven by the significant EBITDA decline rather than aggressive leverage. The exceptionally high current ratio of 568.1% and substantial cash holdings of 512.6B yen reflect conservative liquidity management beyond typical industry practice. Industry participants generally maintain current ratios in the 200-300% range with more active deployment of cash into growth investments or shareholder returns.
※ Industry: Digital Entertainment and Gaming Services, Comparison: Historical periods and general industry characteristics, Source: Proprietary analysis
Operating profitability deterioration requires management attention as the 30.6% decline in operating income against a 10.7% revenue decline demonstrates negative operating leverage, with SG&A expenses remaining sticky relative to topline contraction. The operating margin compression to 5.8% from prior year levels indicates need for cost structure realignment to restore profitability trajectory. Near-term earnings were supported by non-recurring items including 2.8B yen in investment securities sales gains and 6.3B yen in FX gains, which enhanced net income by 28.9% year-over-year despite core business headwinds. These one-time gains mask underlying operational challenges and create uncertainty regarding sustainable earnings power absent such contributions. Cash generation quality warrants monitoring given operating cash flow to net income ratio of 0.47x, accounts receivable collection extending to 106 days, and free cash flow of only 1.1B yen. The calculated dividend payout ratio of 211.7% substantially exceeds cash generation capacity, suggesting current shareholder return policy may require recalibration unless operational cash flows improve meaningfully. The company maintains exceptional financial flexibility with 75.2% equity ratio, 512.6B yen cash position, and conservative debt levels of 90.0B yen, providing substantial capacity to weather operational challenges and invest in business recovery initiatives.
This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.