GMO internet (4784) FY2025 FY Earnings Report

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Executive Summary

These financial results demonstrate higher revenue and earnings, together with a significant improvement in profitability, amid substantial changes in the scope of consolidation and business composition. Revenue was ¥785.5B (¥130.0B in the prior year, YoY +504.3%), Operating Income was ¥82.2B (¥1.4B in the prior year, YoY +5816.6%), Ordinary Income was ¥83.5B (¥1.5B in the prior year, YoY +5426.5%), and Net Income was ¥55.4B (¥0.1B in the prior year). The sharp expansion in revenue was attributable to segment reorganization through an absorption-type company split in January 2025 and the addition of 9 newly consolidated companies; it therefore needs to be evaluated separately from simple growth in existing businesses. The Operating Income margin improved substantially to 10.5% from 1.1% in the prior year, while the gross margin declined to 33.1%. The structure was one in which operating leverage driven by the decline in the SG&A ratio (22.6%) led earnings expansion.

Factors Affecting Earnings

【Revenue】Revenue of ¥785.5B was driven by the Internet Infrastructure Business at ¥658.6B (83.9% of total), which achieved a high Operating Income margin of 13.1%. The Internet Advertising and Media Business generated ¥124.9B (15.9% of total), but its Operating Income margin was low at 1.6%, indicating low profitability. Changes in segment classifications associated with the absorption-type company split in January 2025 and the addition of 9 newly consolidated companies were factors behind the sharp increase in revenue, limiting simple year-on-year comparisons.

【Profit and Loss】Operating Income expanded sharply to ¥82.2B from ¥1.4B in the prior year. Although the gross margin declined from 46.0% in the prior year to 33.1%, the SG&A ratio fell significantly from 44.9% to 22.6%, allowing operating leverage associated with the expansion in scale to drive the improvement in profitability. In extraordinary items, extraordinary income of ¥19.8B, including ¥19.3B in government subsidy income, was largely offset by extraordinary losses of ¥20.4B, including ¥18.0B in loss on reduction of fixed asset acquisition costs and ¥2.4B in impairment losses. Consequently, the decline from Ordinary Income of ¥83.5B to Profit Before Tax of ¥82.8B was limited to ¥0.7B. Net Income was ¥55.4B, and the effective tax rate relative to Profit Before Tax was approximately 33.0%. Revenue and earnings increased.

Segment Analysis

The Internet Infrastructure Business generated Revenue of ¥658.6B, Operating Income of ¥86.3B, and an Operating Income margin of 13.1%, making it the de facto driver of consolidated earnings. The Internet Advertising and Media Business generated Revenue of ¥124.9B, Operating Income of ¥2.0B, and an Operating Income margin of 1.6%, indicating a substantial profitability gap. Adjustments against the combined total of the two businesses amounted to negative ¥7.2B, primarily consisting of the elimination of intersegment internal transactions and corporate expenses. Of the ¥2.4B in impairment losses, ¥1.9B was recorded in the Infrastructure Business and ¥0.6B in the Advertising and Media Business, indicating that asset efficiency needs to be monitored in both businesses.

Key Financial Indicators

【Profitability】The Operating Income margin was 10.5%, a substantial improvement from 1.1% in the prior year, while the Net Income margin was 7.1%. The EBITDA margin was 16.3%, indicating earnings power sufficient to absorb ¥46.1B in depreciation and amortization.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥136.7B, reaching 2.5 times Net Income of ¥55.4B. However, as it includes non-cash and temporary factors such as ¥18.0B in loss on reduction of fixed asset acquisition costs and ¥21.7B in changes in consumption taxes and other items, normalized cash-generation capacity may be lower than this level. Against capital expenditures of ¥9.8B, depreciation and amortization was ¥46.1B, leaving the CapEx/depreciation and amortization ratio at only 0.21x, indicating a low level of replacement investment.【Investment Efficiency】ROE was high at 39.4%, but the effect of financial leverage associated with an Equity Ratio of 27.3% made a substantial contribution.【Financial Soundness】The Equity Ratio was 27.3%, and the current ratio was approximately 116.3% (current assets of ¥356.9B / current liabilities of ¥306.9B). Although it exceeded 100%, it cannot be considered ample. Against long-term borrowings of ¥41.2B, interest expense was ¥1.3B, indicating a limited interest burden.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥136.7B, substantially exceeding Net Income of ¥55.4B and the amount based on Profit Before Tax. This includes a non-cash add-back of ¥18.0B for loss on reduction of fixed asset acquisition costs and changes in consumption taxes and other items of ¥21.7B; therefore, pure cash-generation capacity from business operations may be lower than the headline figure. Investing Cash Flow was negative ¥7.1B, with capital expenditures of ¥9.8B as the primary use of funds, resulting in free cash flow of ¥129.6B. Financing Cash Flow was negative ¥63.3B, with the principal uses being dividend payments of ¥41.1B, repayments of short- and long-term borrowings, and lease obligation repayments of ¥11.9B. An increase in trade receivables of ¥6.7B was a source of cash outflow in OCF, confirming an increase in working capital requirements accompanying revenue expansion.

Earnings Quality

Between Ordinary Income of ¥83.5B and Net Income of ¥55.4B, extraordinary income of ¥19.8B, primarily consisting of ¥19.3B in government subsidy income, and extraordinary losses of ¥20.4B, consisting of ¥18.0B in loss on reduction of fixed asset acquisition costs and ¥2.4B in impairment losses, were present in a nearly offsetting manner. Profit Before Tax was ¥82.8B, representing only a modest decline from Ordinary Income. Non-operating income was ¥3.1B, or 0.4% of Revenue, and included foreign exchange gains of ¥1.9B, but its impact on overall earnings was limited. While OCF reaching 2.5 times Net Income appears favorable at first glance, it was supported by non-cash and timing-related factors such as loss on reduction of fixed asset acquisition costs and changes in consumption taxes and other items. From an accrual perspective, normalized levels in the following fiscal years need to be confirmed. Accounts receivable increased sharply by 244.6% year on year to ¥121.3B, and the effectiveness of collection management accompanying revenue growth will influence earnings quality going forward.

Earnings Forecast and Guidance

For the next fiscal year (the fiscal year ending December 2026), the Company expects Revenue of ¥820.0B (YoY +4.4%), Operating Income of ¥94.6B (YoY +15.0%), Ordinary Income of ¥91.0B (YoY +9.0%), and EPS of ¥21.51. The plan calls for Operating Income growth to exceed Revenue growth, premised on maintaining the profitability of the core Internet Infrastructure Business and improving the profitability of the low-margin Internet Advertising and Media Business. As the current period’s year-on-year figures were extreme due to the effects of segment reorganization and newly consolidated companies, the next fiscal year forecast has stronger significance as a measure of underlying single-year growth.

Shareholder Returns

Annual dividends totaled ¥20.26, comprising ¥4.61, ¥4.17, ¥5.84, and ¥5.64 per quarter, and were approximately equivalent to basic EPS of ¥20.28. The Payout Ratio is indicated as 1.0% based on Net Income for the current period, an extremely low figure; however, this may result from differences between the basis for calculating total dividends and the definition of Net Income. Given that annual dividends of ¥20.26 are approximately equal to EPS, the actual level of dividend returns is high. No new share repurchases were identified, and dividends are the primary form of shareholder returns. The Company also forecasts a dividend of ¥21.51 for the next fiscal year, equal to EPS, suggesting a dividend policy linked to earnings growth.

Risk Factors

1. Concentration in the core business: The Internet Infrastructure Business accounts for 83.9% of Revenue and the majority of Operating Income. Price competition, customer attrition, and service disruptions in this business could have a significant impact on consolidated results.

2. High financial leverage: The Equity Ratio remains at 27.3%, and the Company has relatively high reliance on debt, with total liabilities of ¥374.6B versus net assets of ¥140.7B. Although debt-servicing capacity itself is strong, with Operating Income of ¥82.2B against interest expense of ¥1.3B, this capital structure makes downside volatility in ROE more pronounced when earnings deteriorate.

3. Expansion of working capital: Accounts receivable increased 244.6% year on year to ¥121.3B, and an increase in trade receivables generated a cash outflow of ¥6.7B in OCF. The risk of deteriorating collection terms or increased bad debts accompanying revenue growth needs to be monitored.

Industry Benchmark (For Reference; Company Research)

Profitability and Returns

The Company’s profitability is slightly below the industry median, suggesting that the high profitability of the core business is being partially offset by the low profitability of the Advertising and Media Business.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median; however, this includes the effects of business reorganization and newly consolidated companies and therefore needs to be interpreted separately from the organic growth rate of existing businesses.

※Source: Company research

Key Points from the Financial Results

1. The Operating Income margin improved substantially from 1.1% in the prior year to 10.5%. An operating leverage structure was confirmed in which the significant decline in the SG&A ratio (44.9%→22.6%) more than offset the decline in the gross margin (46.0%→33.1%). Whether this earnings improvement derives from the business structure or represents a temporary scale effect can be determined by observing trends in the gross margin and SG&A ratio from the next fiscal year onward.

2. OCF of ¥136.7B was 2.5 times Net Income and appears strong at first glance. However, it includes non-cash and temporary factors such as ¥18.0B in loss on reduction of fixed asset acquisition costs and ¥21.7B in changes in consumption taxes and other items, making confirmation of normalized cash-generation capacity a key focus going forward.

3. The Company has a high degree of dependence on the core Internet Infrastructure Business (83.9% of Revenue and an Operating Income margin of 13.1%). Improvement in the profitability of the low-margin Internet Advertising and Media Business (Operating Income margin of 1.6%) is a structural point of focus that will determine the trend in consolidated profitability.

Theoretical Share Price (Reference Value)

Sensitivity: ¥95–¥100 at cost of equity ±1%; ¥96–¥99 at ω±0.1.

Note:

• Goodwill amortization of ¥0.6 per share is added back to earnings (for non-cash expense treatment and comparability with IFRS companies).

(Calculation model: Residual income model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated values based solely on publicly disclosed data; these are not forecasts of market share prices or recommendations of specific investment actions, and do not predict or guarantee future share prices.)

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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. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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