GMO internet,Inc. FY2026 Q2 Earnings Report

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Executive Summary

Operating Income increased substantially by +46.2%, significantly exceeding the +7.2% revenue growth rate, with margin expansion in the core businesses driving results. Revenue was ¥41.28B (¥38.51B in the previous year, +7.2%), Operating Income was ¥4.76B (¥3.26B in the previous year, +46.2%), Ordinary Income was ¥4.54B (+39.5%), and Net Income was ¥3.08B (+28.6%). The primary drivers of earnings growth were revenue growth and profitability improvement in the core Internet Infrastructure Business, as well as an expansion in the profit contribution from the Internet Advertising and Media Business.

Factors Affecting Financial Results

【Revenue】Revenue was ¥41.28B, representing a year-on-year increase of +7.2%. By segment, the core Internet Infrastructure Business, which accounted for 86.9% of the revenue mix, led overall performance with revenue of ¥35.89B (+12.2%), while the Internet Advertising and Media Business contracted to ¥5.83B (-14.4%), and Other stood at ¥0.08B (-11.4%). The primary driver of revenue growth was the expansion in scale of the Infrastructure Business, which offset the contraction in the Advertising Business.

【Profit and Loss】Operating Income increased by +46.2% to ¥4.76B, substantially exceeding the revenue growth rate. The gross margin improved to 37.5% (32.8% in the previous year), and the Operating Income margin improved to 11.5% (8.5% in the previous year). SG&A expenses remained controlled at 25.9%, resulting in positive operating leverage. By segment, Operating Income from the Infrastructure Business increased to ¥4.54B (+27.0%, margin of 12.6%). In the Advertising and Media Business, cost efficiency improved despite the smaller revenue base, resulting in a sharp recovery in Operating Income to ¥0.38B (+480.3%, margin of 6.6%). Ordinary Income was ¥4.54B (+39.5%), and Net Income was ¥3.08B (+28.6%). No extraordinary gains or losses were recorded, and the difference between Ordinary Income and Net Income is primarily attributable to income taxes and other taxes (¥1.47B, effective tax rate of approximately 32%). The company achieved both revenue and profit growth, with the primary driver of profit growth being an improvement in the margin structure in addition to revenue expansion.

Segment Analysis

The Internet Infrastructure Business is the core segment, accounting for the majority of company-wide profit, with revenue of ¥35.89B (+12.2%), Operating Income of ¥4.54B (+27.0%), and a margin of 12.6%. The business platform is being expanded following the consolidation of 9 overseas subsidiaries and the recognition of goodwill (¥1.643B in the same period of the previous year). The Internet Advertising and Media Business contracted to revenue of ¥5.83B (-14.4%), but Operating Income sharply recovered to ¥0.38B (+480.3%) and a margin of 6.6% through cost optimization, confirming a bottoming out of its earnings structure. There is a significant difference in margins between the segments, with the high-profitability structure of the Infrastructure Business lifting the company-wide margin.

Key Financial Metrics

【Profitability】The Operating Income margin improved to 11.5% (8.5% in the previous year), and the Net Income margin improved to 7.5% (6.3% in the previous year). The gross margin also increased to 37.5% (32.8% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3.68B, or 1.19 times Net Income of ¥3.08B, indicating a certain level of consistency. However, OCF was only 0.52 times EBITDA, with payments of consumption taxes and other taxes and an increase in working capital constraining cash conversion. 【Investment Efficiency】ROE was 9.0%, explained as the product of a Net Income margin of 7.5%, total asset turnover of 0.549 times, and financial leverage of 2.19 times. In the current period, margin improvement was the primary factor driving ROE higher, while the expansion of total assets associated with the capital increase limited upside in asset turnover. 【Financial Soundness】The Equity Ratio rose substantially to 45.6% (26.6% in the previous year), while cash and deposits increased to ¥33.49B (more than +141% year on year). Current assets of ¥54.17B versus current liabilities of ¥33.16B indicate sound liquidity, and the primary driver of Financing Cash Flow of ¥20.67B was ¥20.26B raised through the issuance of shares.

Cash Flow Analysis

Operating Cash Flow was ¥3.68B, down -41.5% year on year. Against subtotal OCF before changes in working capital of ¥6.12B, changes in working capital, including ¥2.40B in income tax and other tax payments and changes in consumption taxes and other taxes, made a negative contribution, compressing realized cash flow. Investing Cash Flow was -¥4.70B, primarily due to the acquisition of investment securities. Capital expenditures were ¥0.10B, remaining at a minor level substantially below depreciation and amortization expense of ¥2.35B. Financing Cash Flow was +¥20.67B, primarily reflecting ¥20.26B raised through the issuance of shares, and this financing increased cash and deposits to ¥33.49B. Free Cash Flow (OCF + Investing Cash Flow) was negative at -¥1.02B, primarily due to a temporary cash outflow for the acquisition of investment securities. Given the ample cash on hand, concerns regarding funding and liquidity are limited.

Quality of Earnings

No extraordinary gains or losses appear to have been recorded in the current period, and earnings are primarily generated by operating activities, indicating good earnings quality. Non-operating income was ¥0.05B (approximately 0.1% of revenue), while non-operating expenses were ¥0.28B (including ¥0.10B in interest expense and ¥0.02B in foreign exchange losses), both of which had a limited impact. The difference between Ordinary Income of ¥4.54B and Net Income of ¥3.08B is primarily attributable to income taxes and other taxes of ¥1.47B (effective tax rate of approximately 32%). Comprehensive Income was ¥3.01B, broadly in line with Net Income of ¥3.08B. The effects of foreign currency translation adjustments of +¥0.04B and valuation differences on securities of -¥0.11B were small, resulting in a limited divergence from Net Income. OCF was 1.19 times Net Income, indicating a certain level of accrual quality. However, cash conversion was delayed by the increase in working capital, and continued monitoring of cash generation capacity would be useful.

Earnings Forecast and Guidance

The first-half progress rates against the full-year forecasts (Revenue of ¥82.00B, Operating Income of ¥9.46B, and Ordinary Income of ¥9.10B) were 50.3% for Revenue, 50.4% for Operating Income, and 50.0% for Ordinary Income, with all metrics progressing broadly in line with plan. Net Income was ¥3.08B in the first half against a full-year forecast of ¥5.90B, representing a progress rate of 52.3% and somewhat front-loaded progress, reflecting margin improvement through cost efficiency measures. No revisions have been made to the earnings forecasts, and contract liabilities of ¥10.84B (+5.9% year on year) provide a certain level of support for the second-half revenue outlook.

Shareholder Returns

First-half dividend payments were ¥6.02 per share in Q1 (including a commemorative dividend of ¥1.61) and ¥4.85 in Q2 (including a commemorative dividend of ¥1.65), for a cumulative total of ¥10.87. The full-year dividend forecast is ¥21.51, implying a Payout Ratio of approximately 107% against the full-year forecast EPS of ¥20.05. Given cash and deposits of ¥33.49B and low leverage (Equity Ratio of 45.6%), short-term dividend sustainability is considered strong. However, as the Payout Ratio is expected to exceed 100%, future dividend levels will depend on the balance between cash generation capacity and the company’s capital allocation policy.

Risk Factors

1. Business concentration risk: The Internet Infrastructure Business accounts for 86.9% of Revenue, making the overall results relatively more sensitive to price competition and regulatory developments in that business, as well as fluctuations in communications and electricity costs.

2. Working capital and cash conversion risk: OCF remained at ¥3.68B, down -41.5% year on year, and cash conversion efficiency declined to 0.52 times EBITDA. The factors include income tax and other tax payments and an increase in working capital, and potential improvement going forward warrants attention.

3. Investment securities price volatility risk: Investment securities increased by +399.8% year on year to ¥5.08B, increasing the impact of market price fluctuations on the financial statements.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The company’s profitability is below the industry median and ranks at a below-midlevel position within the IT and communications industry.

Growth and Capital Efficiency

The Revenue growth rate is substantially below the industry median, indicating a relatively moderate level of growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Margin improvement in the core Internet Infrastructure Business (Operating Income margin of 12.6%, profit growth of +27.0%) is driving company-wide earnings, and the continued realization of positive operating leverage is noteworthy as a qualitative change in the earnings structure.

2. The Equity Ratio increased to 45.6% and the financial base was strengthened through substantial financing (¥20.26B in proceeds from the issuance of shares). However, total asset turnover remained at 0.549 times, making the utilization of the funds raised a key focus from an asset efficiency perspective.

3. The Payout Ratio based on the full-year dividend forecast is expected to be approximately 107%. Together with the sluggish growth in OCF (-41.5% year on year), the balance between cash generation capacity and the allocation of funds to shareholder returns and growth investment will be a key focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥137–¥144 at Cost of Equity ±1%, and ¥140–¥141 at ω±0.1.

Notes:

• Goodwill amortization of ¥0.6 per share has been added back to earnings (as a non-cash expense and to enhance comparability with IFRS companies).
• 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 disclosed data and is not a prediction of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of XBRL earnings summary data. It does not recommend investment in any specific security. The 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 with professionals as necessary.

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