GREE Holdings (3632) FY2026 Q3 Earnings Report

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Executive Summary

FY2026 Q3 cumulative results: Revenue ¥384.4B (YoY -¥46.9B -10.9%), Operating Income ¥24.2B (YoY -¥12.9B -34.7%), Ordinary Income ¥32.1B (YoY +¥3.2B +11.1%), Net Income ¥18.6B (YoY +¥9.9B +112.8%). Decline in the core Game business revenue and a 540bp deterioration in gross margin led to lower operating profitability, but non-operating income (foreign exchange gains ¥8.2B, interest income ¥3.4B) and special gains (gain on sale of investment securities ¥2.8B) boosted the bottom line, producing a significant increase in net profit. Operating margin was 6.3% (down 230bp from 8.6% prior year), net margin 4.8% (up 280bp from 2.0% prior year), indicating a bifurcation between weak operating performance and uplift from non-operating items.

Drivers of Performance

[Revenue] Revenue ¥384.4B (-10.9%) was driven by contraction in the core Game business. By segment, Game ¥226.3B (-18.8%, composition 58.8%) decreased by ¥52.5B and pulled overall revenue down. In contrast, VTuber Business ¥66.9B (+7.9%, composition 17.4%) and DX Business ¥56.3B (+6.5%, composition 14.6%) expanded steadily. Investment Business ¥16.4B (-37.9%) and IP Business ¥12.7B (-3.9%) contracted, while Others ¥9.7B (+372.2%) grew rapidly from a small base. Gross margin was 46.8%, deteriorating 540bp from 52.2% prior year, suggesting title mix changes in Game and shifts in revenue mix.

[Profitability] Gross profit ¥180.1B (down ¥24.5B) and SG&A ¥155.9B (reduced ¥32.3B from ¥188.1B prior year) indicate cost optimization progress, but gross profit decline could not be fully offset, resulting in Operating Income ¥24.2B (-34.7%). Non-operating income ¥11.9B (interest income ¥3.4B, foreign exchange gains ¥8.2B, dividend income ¥0.2B) and non-operating expenses ¥4.0B (interest expense ¥1.6B, foreign exchange losses ¥9.3B) produced net non-operating profit of +¥7.9B, leading to Ordinary Income ¥32.1B (+11.1%). Special gains ¥3.0B (gain on sale of investment securities ¥2.8B) and special losses ¥0.3B (impairment on investment securities ¥0.3B) resulted in Profit Before Tax ¥34.8B (+26.8%). Income taxes ¥16.2B (effective tax rate 46.7%) and non-controlling interests -¥0.5B yielded Net Income ¥18.6B (+112.8%). Conclusion: lower revenue but higher net profit, with operating-stage decline and reliance on non-operating and special one-off contributions.

Segment Analysis

Game Business: Revenue ¥226.3B (-18.8%), Operating Income ¥27.0B (-8.9%), margin 11.9%. Contraction of the core business pressured company results, but margin held roughly in line with prior year as SG&A reductions provided support despite lower gross margin. VTuber Business: Revenue ¥66.9B (+7.9%), Operating Income ¥8.9B (+60.7%), margin 13.3%, delivering high-margin growth and contributing to company-level margin improvement as its composition expands. DX Business: Revenue ¥56.3B (+6.5%), Operating Income ¥7.0B (-0.3%), margin 12.5%, showing stable performance. IP Business: Revenue ¥12.7B (-3.9%), Operating loss ¥0.6B (turned from profit to loss), margin -4.4%. Investment Business: Revenue ¥16.4B (-37.9%), Operating loss ¥8.6B (expanded by ¥7.4B from prior year loss ¥1.2B), margin -52.2%, a large deficit that reduced company operating profit by approximately 3.5pt. Others: Revenue ¥9.7B (+372.2%), Operating Income ¥5.1B (+600.0%), margin 52.8%, small but highly profitable contribution. Corporate adjustments -¥14.7B (prior year -¥10.2B) suggest increased headquarter expenses.

Key Financial Metrics

[Profitability] Operating margin 6.3% (down 230bp from 8.6% prior year), Net margin 4.8% (improved 280bp from 2.0% prior year). Gross margin 46.8% (down 540bp from 52.2%) reflects changes in the Game business revenue mix. ROE 2.0% (improved 1.1pt from 0.9% prior year) improved due to higher net income but remains low. [Cash Quality] Cash and deposits ¥507.1B plus short-term investment securities ¥86.9B produce immediate liquid assets ¥594.0B, representing 48.0% of total assets. Days Sales Outstanding (DSO) 63 days (accounts receivable ¥66.2B ÷ daily sales ¥1.06B) is slightly above industry standard, indicating lengthening collection. Contract liabilities ¥32.7B (prior ¥37.9B) suggest drawdown of advance receipts. [Investment Efficiency] Total asset turnover 0.311x (prior 0.325x) shows efficiency deterioration as revenue decline outpaced asset reductions. Financial leverage 1.31x (prior 1.42x) provides limited contribution to capital efficiency. [Financial Soundness] Equity Ratio 76.4% (up 6.4pt from 70.0% prior year), Current Ratio 633% (current assets ¥1,126.2B / current liabilities ¥177.8B), Quick Ratio 633%—extremely strong liquidity. Interest-bearing debt ¥90.0B (long-term borrowings ¥90.0B) yields Debt/Capital 8.7% and Interest Coverage 15.1x (Operating Income ¥24.2B / interest expense ¥1.6B), indicating conservative leverage.

Cash Flow Analysis

No cash flow statement disclosure was provided, but balance sheet movements were analyzed to infer cash trends. Cash and deposits ¥507.1B increased ¥18.6B from ¥488.5B prior year, and the ¥18.6B increase nearly matches Net Income ¥18.6B, suggesting cash generation from operations. Short-term investment securities ¥86.9B rose sharply by ¥86.4B from ¥0.5B prior year, indicating active use of surplus funds and liquidity management. Investment securities ¥53.0B declined ¥46.3B from ¥99.3B prior year, reflecting cash inflows from disposals (special gain ¥2.8B). Interest-bearing debt was ¥90.0B (long-term borrowings), down ¥70.0B from ¥160.0B prior year (total), with reduction including decreased near-term corporate bond liquidity (corporate bonds maturing within 1 year ¥60.0B, fixed corporate bonds ¥17.0B), indicating deleveraging. Accounts receivable ¥66.2B (prior ¥71.5B) decreased with revenue, but DSO 63 days remains long, warranting attention to collection cycle. Decline in contract liabilities ¥32.7B (prior ¥37.9B) suggests drawdown of advance receipts and weak new bookings, indicating weaker forward revenue recognition. Considering modest increase in cash and sale of investment securities, free cash flow generation from operations appears limited, with high dependence on non-operating and special factors.

Quality of Earnings

Separating recurring and one-off factors: Operating Income ¥24.2B (-34.7%) points to weakness in recurring earnings, while non-operating income ¥11.9B (3.1% of revenue) centered on foreign exchange gains ¥8.2B and interest income ¥3.4B is volatile. Non-operating expenses ¥4.0B included foreign exchange losses ¥9.3B, which net against foreign exchange gains ¥8.2B to a net foreign exchange impact of -¥1.1B, showing sensitivity to currency movements. Special gains ¥3.0B (gain on sale of investment securities ¥2.8B) are clearly one-off and lack repeatability. The gap between Ordinary Income ¥32.1B and Net Income ¥18.6B is primarily due to high income taxes ¥16.2B (effective tax rate 46.7%), so heavy tax burden compresses bottom-line earnings. Comprehensive income ¥19.0B exceeded Net Income by ¥0.4B as positive foreign currency translation adjustments ¥5.5B outweighed negative valuation differences on available-for-sale securities ¥-4.9B. The structure of offsetting operating declines with non-operating and special items raises sustainability concerns; recovery in operating margin and narrowing losses in the Investment business are key to improving quality of earnings. Lengthening DSO and declining contract liabilities are warning signals for future cash generation.

Forecasts & Guidance

No full-year earnings forecast was disclosed, but a year-end dividend forecast of ¥21.5 per share was provided. Dividend forecast was revised this quarter, suggesting a review of dividend policy or changes in earnings outlook. With cumulative 9-month Revenue ¥384.4B and Operating Income ¥24.2B, progress to full-year forecast is not provided; full-year dividend achievability will depend on Q4 performance. The current Net Income ¥18.6B versus total dividend payout of approximately ¥36.9B (outstanding shares 179.7 million - treasury shares 7.9 million × ¥21.5) exceeds cumulative earnings, so accumulation of full-year profits is prerequisite for dividend sustainability.

Shareholder Returns

No dividend was paid in the cumulative period (interim dividend ¥0); year-end dividend forecast ¥21.5 per share. Using weighted average shares outstanding during the period 171.6 million shares (outstanding 179.7 million shares less treasury shares 7.9 million shares), total dividend payout is approximately ¥36.9B. Dividend payout ratio versus Net Income ¥18.6B is about 198%, an extremely high level, but this is based on 9-month cumulative figures and is expected to normalize as full-year Net Income accumulates. Given cash and deposits ¥507.1B and low leverage (Debt/Capital 8.7%), capacity to pay dividends is sufficient, but given operating-stage weakness and dependence on non-operating/special items, sustaining stable dividends requires recovery in operating cash generation and monetization of the Investment business. Dividend forecast was revised this quarter, reflecting management’s reassessment of dividend policy or earnings outlook. No share buyback was disclosed; shareholder returns are via dividend only.

Risk Factors

1. Business concentration risk: Game business accounts for 58.8% of revenue, and an 18.8% decline in that business lowered overall revenue by 12.9pt. Shortened title lifecycles and high hit-dependency amplify performance volatility; underperformance of core titles can intensify earnings swings. While VTuber and DX growth provide diversification, scale remains limited, making Game re-growth and portfolio optimization essential.

2. Investment Business earnings volatility risk: Investment Business recorded Operating loss ¥8.6B (margin -52.2%), reducing company operating profit by ~3.5pt. Earnings can swing significantly due to market conditions and valuation losses; investment securities held ¥53.0B declined ¥46.3B year-on-year and recorded impairment ¥0.3B, leaving valuation risk on holdings.

3. High tax burden risk: Effective tax rate 46.7% (Income taxes ¥16.2B / Profit Before Tax ¥34.8B) substantially exceeds typical 30% range, compressing net margin. Persistent high tax burden may reflect regional mix, recoverability of deferred tax assets, or tax adjustments; delayed normalization of tax rate would limit net margin improvement.

Industry Benchmark (Reference — Company Analysis)

Profitability & Returns

Both operating and net margins are below industry medians, placing profitability in the lower half within IT & Communications.

Growth & Capital Efficiency

Revenue growth of -10.9% is well below the industry median +10.4%, positioning the company in the lower ranks for growth.

Source: Company aggregation of public financials

Earnings Highlights

1. Operating weakness and dependence on non-operating items: Operating Income ¥24.2B (-34.7%), Operating margin 6.3% (down 230bp from 8.6%) show weakness at the operating stage, while Net Income ¥18.6B (+112.8%) was boosted by foreign exchange gains ¥8.2B, interest income ¥3.4B, and gain on sale of investment securities ¥2.8B. Quality of earnings depends on one-off non-operating and special items; sustainability requires Game re-growth and reduction of Investment losses. A 540bp deterioration in gross margin points to title mix changes; introducing high-margin titles and improving operational efficiency are keys to restoring operating margin.

2. Progress in portfolio diversification but challenges in monetization: VTuber Business achieved Revenue ¥66.9B (+7.9%) and Operating Income ¥8.9B (+60.7%), margin 13.3%, and DX Business maintained margin 12.5%. While dependence on Game (composition 58.8%) is easing, Investment Business operating loss ¥8.6B (margin -52.2%) subtracts ~3.5pt from company profit. Scaling VTuber and DX and turning Investment into a profit contributor will be critical for optimizing the portfolio, improving capital efficiency (ROE 2.0%, total asset turnover 0.311x) and stabilizing results. Although dividend forecast ¥21.5 per share is payable from cash ¥507.1B, strengthening operating cash flow is essential to sustain dividends.

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This report was generated by AI analyzing XBRL financial statement data and is an automated earnings analysis document. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the Company from public financial data and are provided for reference only. Investment decisions are your responsibility; consult a professional advisor as needed.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was operationally weaker, although reported net income recovered sharply on foreign-exchange gains and securities-sale gains. Revenue declined 10.9% year on year to ¥38.44bn. Operating income fell 34.7% to ¥2.42bn, substantially underperforming the sales trend. Gross profit declined 20.0% to ¥18.01bn. The gross margin compressed 540bp year on year to 46.8% from 52.2%. Operating margin compressed 230bp to 6.3% from 8.6%. SG&A expense declined 17.7% to ¥15.59bn, faster than the revenue decline, demonstrating some cost flexibility. However, the reduction in SG&A was insufficient to offset the much larger gross-profit contraction. Ordinary income nevertheless increased 11.1% to ¥3.21bn. This divergence from operating income was driven principally by ¥0.82bn of foreign-exchange gains, compared with foreign-exchange losses in the prior-year period, as well as higher interest income. Profit attributable to owners of parent rose 112.4% to ¥1.91bn, with basic EPS increasing to ¥11.14. Below-the-line results also included a ¥0.28bn gain on sales of investment securities, which supports reported earnings but is not a recurring operating profit source. The effective tax rate was elevated at 46.7%, leaving a tax burden of 0.549 and limiting conversion of pre-tax income into earnings. The balance sheet remains exceptionally liquid, with cash and deposits of ¥50.71bn and a 633.3% current ratio. Capital efficiency remains weak, with reported ROE of 2.7% and ROIC of 3.3%, indicating that the large net-cash-rich asset base is not currently generating adequate returns. Segment results show that VTuber growth and margin expansion are becoming more important offsets to the declining game business, but they do not yet fully compensate for the core business contraction. The FY2026 dividend forecast of ¥21.50 per share raises the importance of a meaningful operating recovery or further capital-allocation support through the fiscal year end.

Profitability Analysis

The reported DuPont ROE of 2.7% is decomposed into a 5.0% net profit margin, 0.414x asset turnover, and 1.31x financial leverage. The low asset-turnover component is the principal structural constraint, reflecting a balance sheet with ¥50.71bn of cash and deposits against cumulative nine-month revenue of ¥38.44bn. Financial leverage is conservative and contributes little incremental lift to shareholder returns. Net margin appears adequate at 5.0% in isolation, but it was supported by non-operating FX gains and a gain on sales of investment securities rather than by underlying operating momentum. Annualized ROA, calculated using annualized nine-month profit attributable to owners and average total assets, is approximately 2.0%, below the 3% concern threshold. The operating deterioration originated in gross-profit pressure: revenue fell 10.9%, while gross profit fell 20.0%, producing 540bp gross-margin compression. SG&A declined 17.7%, faster than revenue, so expense control partially mitigated the gross-profit shortfall. Nevertheless, the 230bp decline in operating margin to 6.3% shows that cost actions did not fully protect profitability. Interest coverage remained strong at 15.12x, and the 1.439 interest-burden ratio reflects net non-operating financial gains rather than debt stress. The high effective tax rate of 46.7% is material, with only 54.9% of pre-tax profit translating into net income. Under JGAAP, no material goodwill or intangible-asset amortization distortion is evident from the reported balance-sheet figures. The key issue for profitability is therefore not leverage or acquisition accounting, but restoring gross-margin performance and raising revenue productivity from the substantial capital base.

Growth Assessment

Revenue contraction was led by the game business, where sales declined 18.8% year on year to ¥22.61bn. Game segment profit fell 8.9% to ¥2.70bn, implying that segment-level cost discipline cushioned, but did not reverse, the effect of declining sales. VTuber business revenue increased 8.1% to ¥6.67bn and segment profit increased 60.7% to ¥0.89bn. VTuber segment margin expanded to 13.4% from 9.0%, making it the strongest reported segment on both growth and margin momentum. DX revenue grew 9.4% to ¥5.54bn, while segment profit was broadly stable at ¥0.70bn; its margin eased to 12.7% from 13.9%. IP revenue declined 3.1% to ¥1.27bn and moved to a ¥0.56bn segment loss from a ¥0.31bn profit. Investment business revenue declined 37.9% to ¥1.64bn and swung to a ¥0.86bn loss from a ¥0.12bn profit, creating a meaningful drag on aggregate segment earnings. Other businesses increased revenue to ¥0.71bn and segment profit to ¥0.51bn. The game business remains the core business by operating-income contribution, but its sales decline remains the central growth constraint. Segment profit before corporate costs fell 16.6% to ¥3.89bn, while corporate-cost adjustments widened by ¥0.45bn to negative ¥1.47bn. Accordingly, growth in VTuber and DX must both continue and become larger relative to the game base to offset the mature game's decline and rising central costs. The six newly consolidated subsidiaries may affect comparability and should be assessed against subsequent revenue and margin development.

Financial Health

Financial health is strong on liquidity and balance-sheet solvency. Current assets were ¥112.62bn, exceeding current liabilities of ¥17.78bn by ¥94.84bn. The current ratio and quick ratio were both 633.3%, providing a substantial liquidity buffer. Cash and deposits of ¥50.71bn alone were 2.9 times current liabilities. Long-term loans were ¥9.00bn, while the reported debt-to-equity ratio was a conservative 0.31x and debt-to-capital was 8.7%. A ¥6.00bn current portion of bonds payable is readily covered by cash, limiting maturity-mismatch risk. Total liabilities declined to ¥29.24bn from ¥39.25bn in the prior-year period, while total equity increased to ¥94.46bn. Equity represented 76.4% of total assets, and the reported capital adequacy ratio improved to 75.0% from 70.0%. Investment securities fell ¥4.63bn year on year to ¥5.30bn, reducing exposure to listed-investment valuation fluctuations but also indicating portfolio monetization or reallocation. Short-term investment securities and operational investment securities together remain material relative to the asset base and merit monitoring because their returns and valuation can affect non-operating earnings. Contract liabilities of ¥3.27bn provide some operating funding and generally represent obligations to deliver future services. The balance-sheet strength provides flexibility for shareholder returns, investment, and debt repayment, but the low ROIC means investors should focus on whether excess liquidity can be deployed more productively.

Notable B/S Changes

Investment securities: -¥4.63bn (-46.6%) to ¥5.30bn - indicates material portfolio monetization, valuation change, or reallocation; the ¥0.28bn gain on sales of securities shows that investment activity contributed to current-period profit. Intangible assets: +¥0.04bn (+100.0%) to ¥0.08bn - percentage growth is high from a very small base and remains immaterial at 0.0% of total assets. Total liabilities: -¥10.02bn (-25.5%) to ¥29.24bn - deleveraging strengthened the capital adequacy ratio to 75.0% and reduced financial risk. Bonds payable: -¥6.00bn (-77.9%) to ¥1.70bn, alongside a ¥6.00bn current portion of bonds payable - debt maturity classification and repayment/refinancing execution should be monitored, though cash coverage is strong.

Cash Flow Quality

Dividend Sustainability

The company forecasts a FY2026 year-end dividend of ¥21.50 per share, while no Q2 dividend was paid. Relative to cumulative nine-month basic EPS of ¥11.14, the proposed year-end dividend exceeds earnings generated to date. Using annualized nine-month EPS of approximately ¥14.85 solely as an indicative run-rate measure, the dividend payout ratio would be approximately 145%. This level is above the 100% warning threshold and would not be supported by run-rate earnings alone. The balance sheet has considerable capacity to support the payment, with ¥50.71bn of cash and deposits and ¥94.46bn of total equity. However, sustainable dividend coverage ultimately depends on the recovery of operating earnings, especially in the game business, rather than on gains from FX movements or securities sales. The dividend outlook should therefore be viewed in conjunction with fourth-quarter operating-profit delivery and capital-allocation policy.

Risk Assessment

Business risks include High priority: Game business revenue declined 18.8% to ¥22.61bn. As the largest segment by operating-profit contribution, continued title aging, user-spending volatility, and competition in mobile games could further pressure group revenue and earnings., High priority: The investment business recorded a ¥0.86bn segment loss after a ¥0.12bn profit in the prior-year period. This demonstrates earnings volatility associated with investment valuations and portfolio performance., Medium priority: The IP business moved from a ¥0.31bn profit to a ¥0.56bn loss despite only a 3.1% revenue decline, indicating material margin sensitivity in the development, licensing, and content mix., Medium priority: VTuber business execution is increasingly important because it is the fastest-growing profit contributor. Growth may be affected by talent retention, creator popularity concentration, platform-policy changes, content-production costs, and competition., Medium priority: Corporate-cost adjustments widened to negative ¥1.47bn from negative ¥1.02bn, raising the risk that overhead growth dilutes benefits from segment-level improvements..

Financial risks include High priority: FX gains were ¥0.82bn, equivalent to 33.7% of operating income. This exceeds the quality-alert threshold and means ordinary income is materially exposed to exchange-rate movements; the current-period benefit may reverse., High priority: The effective tax rate was 46.7%, producing a tax burden of only 0.549. A persistently high tax charge would constrain earnings conversion and dividend coverage., Medium priority: ROIC of 3.3% is below 5%, signaling that the large cash and investment balance is generating returns below an acceptable capital-efficiency level., Medium priority: Investment securities declined 46.6% to ¥5.30bn, and gains on sales of securities supported pre-tax income. Future monetization gains are not a substitute for recurring operating earnings., Low priority: The ¥6.00bn current portion of bonds payable requires refinancing or repayment, although liquidity coverage is ample..

Key concerns include Reported net-income growth of 112.4% overstates underlying operating momentum because operating income declined 34.7%., Gross-margin compression of 540bp is the most important operating-quality signal and requires stabilization for a durable earnings recovery., The projected ¥21.50 year-end dividend is high relative to annualized nine-month EPS, increasing dependence on cash reserves or stronger fourth-quarter profitability., The group has strong solvency, but low ROE of 2.7% and ROIC of 3.3% make capital allocation and return improvement central to the medium-term equity narrative..

Investment Implications

Key takeaways include Underlying profitability weakened: revenue fell 10.9%, operating income fell 34.7%, and operating margin declined to 6.3%., VTuber is the standout segment, with 8.1% revenue growth, 60.7% profit growth, and a 13.4% segment margin., Net-income growth was driven materially by FX gains and a securities-sale gain, reducing comparability with operating results., Liquidity and solvency are substantial, with ¥50.71bn in cash and a 633.3% current ratio., Capital returns are constrained by low efficiency: reported ROE was 2.7% and ROIC was 3.3%..

Metrics to watch include Game business revenue trend and segment margin, VTuber revenue growth and segment-profit margin, IP business path from loss to profitability, Investment business valuation gains/losses and segment profitability, Gross margin and corporate-cost adjustment, Foreign-exchange gains or losses relative to operating income, Effective tax rate and net-income conversion, FY2026 operating-profit delivery relative to the dividend commitment, Cash balance, investment-security movements, and use of excess capital.

Regarding relative positioning, The company is positioned as a financially resilient digital-content and technology group, with unusually strong liquidity and low balance-sheet risk. Relative to profitability benchmarks, however, its 6.3% operating margin is below the 8% threshold for a good profile, while ROE and ROIC are below preferred capital-efficiency levels. VTuber and DX demonstrate more attractive growth characteristics than the legacy game business, but the group requires a larger contribution from these businesses and a recovery in gross-margin quality to improve its relative earnings profile.