GMO internet,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥58.34B
• Operating Income: ¥5.63B
• Net Income: ¥-41M
• EPS: ¥14.63

Income Statement

Balance Sheet

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

Verdict: FY2025 Q3 shows a solid profit print with high ROE despite leverage, but the P/L structure includes unusual items and disclosure gaps that limit earnings quality assessment. Revenue posted 583.45 (100M JPY), up +506.4% YoY, indicating a step-change in scale. Operating income reached 56.33, translating to an implied operating margin of roughly 9.6% on reported revenue. Ordinary income was 56.55, slightly above operating income, supported by modest non-operating income of 0.30 and limited non-operating expenses of 0.12. Despite positive ordinary income, profit before tax was reported at -0.16, implying sizable extraordinary losses and/or classification effects under JGAAP. Net income still came in strong at 40.13, yielding a net margin of about 6.9% as per provided DuPont inputs. Gross margin was disclosed at 7.5% and SG&A at 44.13 (7.6% of revenue), though these figures are not internally reconcilable with operating income, suggesting classification differences or partial disclosure within cost lines. Interest expense was 1.32 with interest coverage of 42.67x, indicating strong coverage despite elevated leverage. On the balance sheet, total assets were 500.54 and equity 139.03, resulting in financial leverage of 3.60x and a D/E ratio of 2.60x (flag: high leverage). Liquidity is adequate but not robust with a current ratio of 114.3% and quick ratio of 114.3%, above 1.0 but below the >1.5 comfort benchmark. Cash and deposits were 120.14 and accounts receivable 116.26, underpinning working capital of 41.03. EPS (basic) was 14.63 JPY, and the calculated payout ratio is 47.2%, within a sustainable range in principle. Operating cash flow is unreported, so earnings quality and FCF coverage cannot be validated this quarter. The effective tax rate of -150.0% and the divergence between ordinary income and PBT indicate one-off or non-core items significantly influenced bottom-line mapping. Forward-looking, sustaining the improved scale and operating income while normalizing below-the-line items will be key, and leverage reduction would enhance resilience.

Profitability Analysis

ROE decomposition (DuPont): ROE = Net Profit Margin × Asset Turnover × Financial Leverage = 6.9% × 1.166 × 3.60 ≈ 28.9%. The largest driver appears to be high financial leverage (3.60x) amplifying moderate margin and turnover. Net margin improved to 6.9% on the provided metrics, though the P/L shows unusual classification (ordinary income positive vs PBT negative), implying one-off items affected reported layers; thus, margin quality may be mixed. Asset turnover at 1.166 suggests efficient use of the asset base given the step-up in revenue. The business reason for the margin/turnover uplift likely stems from scale benefits and operating leverage in core internet/services lines, while non-operating/extraordinary items created volatility below operating profit. Sustainability: asset turnover improvements tied to scale can persist if demand holds; however, the margin profile is uncertain due to the noted extraordinary impact and partial disclosure of cost lines. Watch for SG&A trends; SG&A of 44.13 against revenue growth looks contained on a percentage basis, but without YoY comps and granular breakdown, we cannot confirm whether SG&A grew faster than revenue. Overall, ROE is elevated mainly due to leverage and improved turnover; if margins normalize and leverage remains high, ROE could stay robust but at higher financial risk.

Growth Assessment

Top-line growth was exceptional at +506.4% YoY to 583.45, implying either consolidation effects, a step-change in business volume, or reclassification within segments. Operating income of 56.33 indicates strong operating leverage at the current scale. Non-operating income/expenses were minimal, but the gap between ordinary income (56.55) and PBT (-0.16) suggests significant extraordinary losses or adjustments this quarter. Profit quality is mixed: net margin is 6.9%, but bottom-line mapping includes one-off items that cloud recurring earnings. With OCF unreported, we cannot validate cash-backed growth or working-capital intensity behind the scale-up. Outlook hinges on maintaining elevated revenue levels while ensuring that operating income is not offset by recurring extraordinary charges. Focus areas: stabilization of margins, normalization of tax rate from a distorted -150%, and continuity of demand in core internet businesses. If revenue normalizes lower, operating leverage could reverse; if it sustains, margin expansion may continue through scale efficiencies.

Financial Health

Liquidity is acceptable but below comfort levels for a fast-growing platform business: current ratio 114.3% and quick ratio 114.3%. No explicit warning for current ratio (<1.0) as it is above threshold, but it is below the >1.5 benchmark. Working capital stands at 41.03, supported by cash and deposits of 120.14 and receivables of 116.26. Solvency: D/E is high at 2.60x (warning: >2.0), and financial leverage is 3.60x; equity buffers are modest relative to assets. Long-term loans total 44.67; short-term loans and total interest-bearing debt are unreported, limiting full leverage assessment. Maturity mismatch risk appears manageable in the near term given current assets exceed current liabilities, but reliance on current liabilities (287.58) warrants monitoring if short-term debt or payables dominate. Interest coverage is robust at 42.67x on operating income, providing cushion for debt service. Off-balance sheet obligations are not disclosed; no assessment possible.

Cash Flow Quality

Operating cash flow is unreported; OCF/Net Income cannot be calculated, preventing a definitive earnings quality assessment. Free cash flow data are unavailable, so we cannot confirm coverage for dividends or capex. Working capital movements are opaque due to unreported inventories and cash flow statements; no clear signs of working capital manipulation can be inferred. Given rapid revenue growth, watch for rising receivables (currently 116.26) and any elongation of collection cycles that could depress OCF relative to NI. Until OCF/NI can be validated (>1.0 preferred; <0.8 would be a flag), treat earnings quality as unverified.

Dividend Sustainability

The calculated payout ratio is 47.2%, inside the <60% benchmark for sustainability. However, DPS is unreported and quarterly DPS is zero in Q1 and Q3, suggesting either back-half weighting or policy timing specific to this issuer. With OCF and FCF unreported, we cannot confirm cash coverage of dividends. Balance sheet capacity exists but is constrained by high leverage (D/E 2.60x); prudence suggests aligning payout with cash generation once OCF normalizes. Policy outlook: stable-to-cautious payout likely appropriate until visibility on cash flows and extraordinary item normalization improves.

Risk Assessment

Business Risks:

• Execution risk in scaling operations after a +506% YoY revenue surge
• Margin volatility given unusual mapping between ordinary income and PBT
• Customer concentration or segment concentration risk (not disclosed) amid rapid scale-up
• Regulatory and compliance risks inherent to internet/services businesses

Financial Risks:

• High leverage: D/E 2.60x and leverage 3.60x increase sensitivity to earnings downturns
• Liquidity buffer modest: current ratio 1.14x, below the >1.5 comfort level
• Cash flow visibility risk due to unreported OCF/FCF; potential mismatch between NI and cash
• Extraordinary item volatility (PBT negative vs positive ordinary income) impacting bottom line

Key Concerns:

• Negative profit before tax despite strong operating/ordinary income implies material one-off losses
• Effective tax rate at -150% indicates non-recurring effects and reduces comparability
• Limited disclosure in SG&A breakdown and cash flows impedes quality assessment
• Receivables of 116.26 need monitoring for collection risk post rapid growth

Investment Implications

Key Takeaways:

• Strong operating performance with 56.33 operating income and interest coverage of 42.7x
• High ROE at 28.9% driven by leverage (3.60x) and improved turnover (1.166)
• Balance sheet leverage is the primary weakness (D/E 2.60x)
• Earnings quality unverified due to missing OCF and extraordinary item noise (PBT -0.16)
• Liquidity adequate but not ample (current ratio 1.14x)

Metrics to Watch:

• Operating cash flow and OCF/NI (target >1.0)
• Normalization of PBT vs ordinary income; identification of extraordinary items
• Receivables turnover and DSOs given AR of 116.26
• Net debt and interest-bearing debt disclosure; trajectory of D/E
• Tax rate normalization from distorted -150% effective rate
• Operating margin stability as scale effects mature

Relative Positioning: Versus domestic internet/service peers, profitability optics are strong at the operating and ordinary levels, but bottom-line volatility and high leverage place the company toward the higher-risk, higher-return quadrant; liquidity is thinner than leaders with stronger cash flow disclosure.

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