GMO internet (4784) FY2026 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending December 2026, the Company reported higher revenue and higher earnings, with Operating Income growing faster than Revenue, resulting in improved profitability. Revenue was ¥20.38B (¥19.08B in the same period of the previous year, YoY +6.8%), Operating Income was ¥2.44B (¥1.63B, YoY +49.5%), Ordinary Income was ¥2.41B (¥1.67B, YoY +44.2%), and Net Income was ¥1.65B (¥1.27B, YoY +30.4%). The primary factors behind the earnings growth were higher revenue and earnings in the core Internet Infrastructure Business, as well as improved cost efficiency resulting from a 6.3% year-on-year decrease in selling, general and administrative expenses.

Factors Affecting Performance

【Revenue】Revenue was ¥20.38B, representing a 6.8% increase year on year. The Internet Infrastructure Business (external revenue of ¥17.52B, +12.5%) drove overall performance, while the Internet Advertising and Media Business (external revenue of ¥2.82B, ▲18.4%) continued to contract. The business portfolio has become increasingly dependent on the Infrastructure Business.

【Profit and Loss】Operating Income was ¥2.44B (YoY +49.5%), and the Operating Income margin improved by approximately 342bp, from 8.5% to 12.0%. The gross margin also rose from 33.4% to 33.8%, while selling, general and administrative expenses were contained at ¥4.45B (▲6.3%), making this the primary factor behind the margin expansion. Segment profit in the Infrastructure Business was ¥2.22B (YoY +34.1%, margin of 12.6%), while the Advertising and Media Business generated ¥0.298B (YoY +23.7%, margin of 10.0%) through margin improvement despite declining revenue. Ordinary Income was ¥2.41B, broadly in line with Operating Income, indicating limited distortion from non-operating gains and losses. Net Income was ¥1.65B (YoY +30.4%), confirming growth in both revenue and earnings.

Segment Analysis

Of the total reported segment profit of ¥2.51B, the Internet Infrastructure Business accounted for ¥2.22B (88.1%), making it the core contributor to overall earnings. The business continued to deliver higher revenue and earnings, with external revenue of ¥17.52B (YoY +12.5%) and segment profit of ¥2.22B (YoY +34.1%); its 12.6% margin exceeded the 10.0% margin of the Advertising and Media Business. The Internet Advertising and Media Business contracted to external revenue of ¥2.82B (YoY ▲18.4%), but segment profit increased to ¥0.298B (YoY +23.7%), with its margin improving from 6.7% to 10.0%. Corporate adjustments narrowed from negative ¥0.292B in the same period of the previous year to negative ¥0.076B, contributing to higher consolidated Operating Income. The ability to improve profitability even in a business with a declining share of revenue indicates that improvements in the cost structure are broad-based.

Key Financial Indicators

【Profitability】The Operating Income margin was 12.0%, improving by approximately 342bp from 8.5% in the same period of the previous year, while the Net Income margin rose by approximately 149bp, from 6.6% to 8.1%. The growth rate of Operating Income (+49.5%) substantially exceeded the Revenue growth rate (+6.8%), confirming the emergence of operating leverage.【Cash Flow Quality】Ordinary Income (¥2.41B) and Profit Before Tax (¥2.41B) were identical, with no distortion from extraordinary gains or losses. Net Income represented 68.4% of Profit Before Tax, with income taxes of ¥0.76B (effective tax rate of 31.5%) serving as the primary reduction factor.【Investment Efficiency】Annualized ROE was 46.8%, composed of a combination of an 8.1% Net Income margin, total asset turnover of 1.43x, and financial leverage of 4.03x, indicating a structure with a substantial contribution from leverage.【Financial Soundness】The Equity Ratio was 24.8%, down from 26.6% in the same period of the previous year. The current ratio was 105.6%, the debt-to-equity ratio was 3.03x, and the short-term debt ratio was 68.5%; attention is required regarding dependence on short-term funding and refinancing risk.

Cash Flow Analysis

As the cash flow statement has not been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥14.97B, up from ¥13.89B in the same period of the previous year, indicating an expansion in the cash position. Meanwhile, investment securities increased 307.3% year on year to ¥4.14B, indicating a shift in the use of funds through expanded asset management and investment exposure. Total assets expanded to ¥56.85B from ¥51.53B in the same period of the previous year, suggesting that the Company is in a phase of growth investment. Borrowings totaled ¥11.98B across short-term and long-term debt, while lease liabilities were ¥5.25B, resulting in a capital structure involving fixed funding burdens. Net assets were ¥14.12B, broadly flat compared with ¥14.07B in the same period of the previous year, indicating that the expansion of assets has been supported primarily by debt financing.

Earnings Quality

Against Operating Income of ¥2.44B, non-operating income was limited to ¥0.04B (including ¥0.02B in dividend income and ¥0.01B in gains on investment business partnerships), representing 0.2% of Revenue and indicating limited dependence on non-operating income. Non-operating expenses were ¥0.07B, primarily consisting of ¥0.04B in interest expenses and ¥0.02B in foreign exchange losses. Ordinary Income was ¥2.41B, only approximately 1.1% below Operating Income, indicating limited distortion from non-operating gains and losses. No extraordinary gains or losses were recorded, and Profit Before Tax and Ordinary Income were identical at ¥2.41B. Net Income of ¥1.65B represented 68.4% of Profit Before Tax, with the difference from Ordinary Income primarily attributable to income taxes of ¥0.76B (effective tax rate of 31.5%). Accordingly, the earnings growth for the period was based on improved core operating profitability, with no evidence of an uplift from temporary factors.

Earnings Forecast and Guidance

Q1 progress against the full-year plan (Revenue of ¥82.00B, Operating Income of ¥9.46B, Ordinary Income of ¥9.10B, and Net Income of ¥5.90B) was 24.9% for Revenue, 25.8% for Operating Income, 26.5% for Ordinary Income, and 28.0% for Net Income. All figures were within ±3pt of the standard progress rate of 25%, representing performance slightly ahead of plan. The Company has not revised its earnings or dividend forecasts, and current progress can generally be described as being in line with the plan.

Shareholder Returns

The dividend per share for Q1 was ¥6.02 (commemorative dividend of ¥2.12 and regular dividend of ¥3.90), at the same level as Q1 basic EPS of ¥6.02. The full-year dividend forecast is ¥21.51, compared with forecast full-year EPS of ¥20.05; the Payout Ratio calculated using dividends alone as the numerator is expected to be approximately 107.3%, indicating a dividend level exceeding forecast earnings. The Company plans quarterly dividend payments combining commemorative and regular dividends. The fact that the forecast Payout Ratio exceeds 100% indicates that achievement of the full-year earnings plan is directly linked to the sustainability of capital returns and therefore requires monitoring.

Risk Factors

1. Capital Structure and Refinancing Risk: The debt-to-equity ratio of 3.03x and short-term debt ratio of 68.5% are both at cautionary levels, indicating high dependence on short-term funding, including short-term borrowings of ¥8.20B. Changes in the lending stance of financial institutions or refinancing interest rates could affect funding costs.

2. Concentration of the Business Portfolio: While external revenue in the Internet Advertising and Media Business continued to contract, declining 18.4% year on year, the Internet Infrastructure Business accounted for 88.1% of reported segment profit. Profit concentration in a single business is increasing.

3. Sustainability of the Payout Ratio: The forecast Payout Ratio is approximately 107.3%, exceeding forecast earnings. If the full-year earnings plan (Q1 progress rate of 28.0%) falls short, the Company’s ability to accumulate retained earnings could weaken.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin was broadly in line with the industry median, while the Net Income margin was slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate was below both the industry median and the lower bound of the industry IQR, placing the Company among the relatively slower-growing companies in the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Income margin improved from 8.5% in the same period of the previous year to 12.0%, and operating leverage was observed, with the earnings growth rate (+49.5%) substantially exceeding the revenue growth rate (+6.8%). The 6.3% year-on-year decrease in selling, general and administrative expenses was the primary factor behind the improvement.

2. The core Internet Infrastructure Business continued to deliver higher revenue and earnings and accounted for 88.1% of reported segment profit, while the Internet Advertising and Media Business increased segment profit through margin improvement despite declining revenue, indicating changes in the business structure.

3. The full-year dividend forecast of ¥21.51 exceeds the full-year forecast EPS of ¥20.05, with the Payout Ratio expected to reach approximately 107.3%. The degree to which the full-year earnings plan is achieved will determine the sustainability of this dividend level.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥91–¥95 for a ±1% change in the cost of equity, and ¥92–¥94 for a ±0.1 change in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly available data; it is not a forecast of the market stock price or a recommendation of any specific investment action, nor does it predict or guarantee future stock prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific issue. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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