LY Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥995.37B
• Operating Income: ¥214.53B
• Net Income: ¥203.04B
• EPS: ¥19.77

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

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

AI Financial Analysis

Executive Summary

LINEヤフー株式会社 (46890) reported solid FY2026 Q2 (cumulative) results under IFRS, highlighted by resilient topline growth and stronger operating leverage. Revenue rose 7.6% YoY to 9,953.67 (100M JPY), while operating income grew faster at 24.2% YoY to 2,145.26, evidencing improved efficiency and cost discipline. We estimate gross profit at 7,352.82 (revenue minus cost of sales), implying a robust gross margin of approximately 73.9%, consistent with a digital platform model with high fixed-cost absorption. Operating margin expanded to about 21.6%, and EBITDA margin was 29.5%, supported by D&A of 793.66. Net income surged 58.5% YoY to 1,383.13, lifting net margin to 13.9% and lowering the effective tax rate to 19.3%. DuPont analysis shows ROE at 3.9% (net margin 13.9% × asset turnover 0.095 × financial leverage 2.98x), which is modest but improving given profit momentum. Operating cash flow was strong at 2,668.94, nearly 1.93x net income, indicating high earnings-to-cash conversion. However, investing cash outflows were sizable at -2,589.26, resulting in slim free cash flow of 79.68; this reflects continued investment intensity in growth and platform assets. Financing cash outflows of -2,549.34 were driven by share repurchases of -1,501.00 and dividends of -417.17, signaling an active capital return stance despite tight FCF in the period. The balance sheet shows total assets of 104,739.68 and total liabilities of 57,394.31, with reported equity ratio of 27.8%, indicating moderate leverage for a platform business. Debt-to-equity is 1.63x (based on reported ratio), and cash and equivalents of 10,439.44 provide a liquidity cushion, though current asset details are unreported. While reported ROA is unavailable, a simple point-in-time estimate using net income suggests ~1.3% on total assets for the period (non-annualized), which would be higher on an annualized basis. Profit quality appears solid as cash generation outpaced accounting profit, and EBITDA comfortably covers non-cash charges. Dividend payout ratio is a manageable 34.8% on earnings, but FCF coverage is thin at 0.17x this half, making capital returns reliant on future cash generation or balance sheet flexibility. Overall, the company demonstrates healthy operating momentum, strong cash conversion, and disciplined cost management, balanced against investment needs and a moderately leveraged capital structure. Data gaps (notably gross profit disclosure, liquidity detail, and interest expense) constrain deeper ratio analysis, but available metrics point to improving fundamentals.

Profitability Analysis

ROE decomposition (DuPont): Net profit margin 13.9% × asset turnover 0.095 × financial leverage 2.98x = ROE 3.9% (reported and calculated aligned). Operating profitability: Operating income 2,145.26 on revenue 9,953.67 implies an operating margin of ~21.6%. We estimate gross profit at 7,352.82 (100M JPY), indicating a gross margin of ~73.9%, consistent with scalable digital services and higher fixed-cost absorption. EBITDA of 2,938.92 yields a 29.5% margin, with D&A equal to 27% of EBITDA, suggesting moderate capital intensity and ongoing platform amortization. Margin quality: Net margin of 13.9% benefited from lower effective tax (19.3%); non-operating items are unreported, so below-OP drivers beyond tax cannot be fully assessed. Operating leverage: Revenue +7.6% YoY versus operating income +24.2% YoY signals positive operating leverage from cost optimization and mix. Asset efficiency: Asset turnover at 0.095x is low on a point-in-time basis (likely reflecting large balance sheet and half-year revenue); improvement would enhance ROE. Overall, profitability trends are favorable with broad-based margin expansion and strong operating leverage.

Growth Assessment

Revenue grew 7.6% YoY to 9,953.67 (100M JPY), indicating steady top-line expansion. Operating income rose 24.2% YoY to 2,145.26, outpacing revenue growth and reflecting improved cost leverage and potentially favorable mix. Net income increased 58.5% YoY to 1,383.13, aided by operating momentum and a 19.3% effective tax rate. EBITDA growth (implied by OI + D&A) and margin at 29.5% support the view that growth is translating into cash-generative operations. Sustainability: With high gross margins (~73.9%) and strong OCF/NI (1.93x), earnings quality appears supportive of continued growth, though revenue details by segment are unreported. Investment outlook: Investing CF of -2,589.26 suggests ongoing reinvestment in platforms, data centers, or intangibles, which should underpin medium-term growth but pressures near-term FCF. Outlook: If revenue growth remains mid-single-digit to high-single-digit and operating discipline persists, further incremental margin expansion is plausible. Key unknowns include contribution from non-operating items and segment mix, which could affect sustainability of net margin gains.

Financial Health

Total assets are 104,739.68 and total liabilities 57,394.31, with reported equity ratio of 27.8%, indicating moderate leverage typical for a large digital platform. Debt-to-equity ratio stands at 1.63x (based on reported figures), suggesting reliance on liabilities alongside equity funding. Liquidity: Cash and equivalents are 10,439.44, providing an operational buffer; current assets and current liabilities are unreported, so current/quick ratios cannot be assessed. Solvency: Interest-bearing debt is unreported; interest coverage cannot be calculated, limiting solvency analysis precision. Equity base totals 35,138.47, with capital surplus 18,800.31 and retained earnings 8,380.17, indicating accumulated internal capital to support investments and buybacks. Cash balance plus positive OCF mitigates near-term funding risk despite negative FCF and active shareholder returns.

Cash Flow Quality

Operating cash flow of 2,668.94 is 1.93x net income (1,383.13), indicating strong cash conversion and low accrual risk. EBITDA of 2,938.92 (OI + D&A) aligns with OCF strength, with D&A at 793.66 underscoring non-cash components of operating expenses. Free cash flow is modest at 79.68, derived from OCF 2,668.94 plus investing CF -2,589.26; capex is unreported, and investing CF likely includes capex plus strategic investments. Working capital detail is unreported, but OCF performance suggests no material adverse working capital drag in the period. The gap between solid OCF and low FCF indicates elevated reinvestment intensity, which may normalize if investment cadence moderates. Overall, earnings quality appears high given OCF outpacing reported earnings, though sustainability depends on the trajectory of investing outflows.

Dividend Sustainability

The calculated payout ratio is 34.8%, which is reasonable versus earnings capacity. Cash coverage is weaker: FCF coverage of dividends is 0.17x in the period, reflecting FCF of 79.68 against dividends paid of -417.17. Capital returns also include sizeable buybacks of -1,501.00, making total shareholder distributions materially exceed FCF and rely on OCF and balance sheet liquidity. With cash and equivalents of 10,439.44 and ongoing OCF, near-term dividend capacity appears supported, but sustainability improves if investing cash outflows moderate or OCF scales further. Policy outlook: While explicit dividend policy is unreported, the combination of dividends and buybacks suggests an intent to balance growth investment with shareholder returns; pacing may remain sensitive to FCF generation and leverage metrics.

Risk Assessment

Business Risks:

• Revenue mix and segment reliance are undisclosed; concentration risk in key platforms or advertising could elevate cyclicality.
• Competitive intensity in digital advertising, commerce, and fintech could pressure pricing and user monetization.
• Execution risk around large-scale platform investments implied by substantial investing cash outflows.
• Regulatory and data privacy requirements may increase compliance costs and constrain data-driven monetization.
• Macroeconomic softness could dampen ad spending and discretionary commerce activity.

Financial Risks:

• Moderate leverage (equity ratio 27.8%, debt-to-equity 1.63x) may constrain flexibility if cash generation weakens.
• Low FCF (79.68) versus shareholder returns (dividends and buybacks totaling ~1,918) increases reliance on ongoing OCF and cash balance.
• Interest coverage cannot be assessed due to unreported interest expense; hidden refinancing risk cannot be ruled out.
• Liquidity ratios are unreported, limiting visibility into short-term funding headroom.

Key Concerns:

• Sustainability of heightened investing cash outflows and impact on medium-term FCF.
• Potential normalization of the effective tax rate from 19.3%, which would reduce net margin.
• Visibility on non-operating items is limited, creating uncertainty in below-OP profit durability.

Investment Implications

Key Takeaways:

• Topline grew 7.6% YoY with stronger operating leverage, lifting operating income by 24.2%.
• Margins are robust: ~73.9% gross margin, ~21.6% operating margin, and 29.5% EBITDA margin.
• Cash conversion is strong with OCF at 1.93x net income, supporting earnings quality.
• Free cash flow is thin (79.68) due to heavy investing outflows, despite solid OCF.
• Capital returns are sizable (dividends 417.17 and buybacks 1,501.00), exceeding period FCF.
• Balance sheet shows moderate leverage (equity ratio 27.8%, D/E 1.63x) with cash of 10,439.44 providing a buffer.
• ROE at 3.9% reflects modest asset turnover; further efficiency gains could lift returns.

Metrics to Watch:

• Revenue growth trajectory and any segment disclosures to assess mix and sustainability.
• Operating margin progression and cost discipline, including D&A intensity.
• OCF to net income ratio and working capital trends as indicators of earnings quality.
• Capex and broader investing cash flows to gauge FCF normalization potential.
• Capital allocation pace (dividends and buybacks) versus internally generated cash.
• Leverage and equity ratio trends, along with any disclosure on interest-bearing debt and coverage.
• Effective tax rate normalization and its impact on net margin.

Relative Positioning: Within Japanese internet/platform peers, the company demonstrates stronger-than-average operating margins and cash conversion, balanced by moderate leverage and elevated reinvestment that compresses near-term FCF; ongoing execution on cost and monetization should be pivotal for sustained ROE uplift.

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