GMO internet,Inc. FY2026 Q2 Earnings Report

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Executive Summary

The Company posted higher revenue and significantly improved profit margins, driven by higher revenue and profit in the Internet Infrastructure Business and improved profitability in the Internet Advertising and Media Business. Revenue was ¥412.8B (+7.2% YoY), Operating Income was ¥47.6B (+46.2%), Ordinary Income was ¥45.4B (+39.5%), and interim Net Income attributable to owners of the parent was ¥30.9B (+28.1%). The Operating Income growth rate, substantially exceeding the revenue growth rate, reflects the fact that an improvement in the gross margin absorbed the increase in the SG&A expense ratio.

Factors Affecting Performance

【Revenue】Revenue was ¥412.8B, up +7.2% YoY. The core Internet Infrastructure Business led growth with revenue of ¥358.9B (+12.2%), while the Internet Advertising and Media Business posted lower revenue of ¥58.3B (-14.4%). The Internet Infrastructure Business accounts for approximately 87% of consolidated revenue and is the primary driver of Company-wide growth.

【Profit and Loss】Operating Income was ¥47.6B (+46.2%), and the Operating Income margin improved to 11.5% from 8.5% in the same period of the previous year, a 3.0pt improvement. The gross margin increased to 37.5% from 32.8% in the previous year, absorbing the increase in the SG&A expense ratio to 25.9% from 24.3%. By segment, the Internet Infrastructure Business’s profit margin improved by approximately 150bp to 12.6%, while the Advertising and Media Business improved substantially to 6.6% from approximately 1.0% in the previous year; however, the latter improvement occurred despite lower revenue, and its sustainability warrants monitoring. Ordinary Income of ¥45.4B was somewhat reduced from Operating Income by non-operating expenses, including interest expense of ¥1.0B and foreign exchange losses of ¥0.2B. The conversion to Net Income of ¥30.8B was primarily attributable to corporate income taxes and other taxes of ¥14.7B against Profit Before Tax of ¥45.4B, representing an effective tax rate of approximately 32.2%. The same period of the previous year included extraordinary items consisting of subsidy income of ¥19.25B and an impairment loss on fixed assets of ¥17.95B; the current period had no such temporary factors and therefore reflects a relatively recurring earnings structure. Overall, the Company achieved higher revenue and profit, representing growth accompanied by improved profitability, with the profit growth rate substantially exceeding the revenue growth rate.

Segment Analysis

The Internet Infrastructure Business generated revenue of ¥358.9B (+12.2%) and segment profit of ¥45.4B (+27.0%), with a profit margin of 12.6%, making it the core business and accounting for approximately 92% of consolidated segment profit. The business has expanded its operating base against the backdrop of goodwill recognition, including ¥1,643 million in the same period of the previous year, associated with the consolidation of nine overseas subsidiaries. Scale economies are reflected in the higher profit margin. The Internet Advertising and Media Business posted lower revenue of ¥58.3B (-14.4%), but segment profit increased substantially to ¥3.8B from ¥0.7B in the previous year, improving its profit margin to 6.6% from approximately 1.0% in the previous year. As this margin improvement occurred despite declining revenue, it is necessary to assess, alongside future revenue trends, whether the earnings recovery is structural or temporary.

Key Financial Metrics

【Profitability】The Operating Income margin was 11.5%, improving by 3.0pt from 8.5% in the previous year, while the Net Income margin also improved to 7.5% from 6.3%. Annualized ROE was 17.9%, supported by the improvement in the Net Income margin as well as the combination of total asset turnover and financial leverage.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥36.8B, or 1.19 times Net Income of ¥30.8B, indicating that earnings were supported by cash. However, OCF represented only approximately 0.52 times EBITDA of ¥71.1B, as changes in consumption taxes and other taxes and payments of corporate income taxes and other taxes constrained cash conversion.【Investment Efficiency】Capital expenditures were ¥1.0B, substantially below depreciation and amortization of ¥23.5B, while investment securities increased by ¥40.6B. The primary driver of investing cash flow was the acquisition of investment securities of ¥42.3B, which differs in nature from ordinary capital expenditures and should be noted.【Financial Soundness】The Equity Ratio was 45.6%, and current assets of ¥541.7B versus current liabilities of ¥331.6B resulted in a current ratio of approximately 163%. Cash and deposits were substantial at ¥334.9B, indicating a high level of repayment capacity relative to interest-bearing debt.

Cash Flow Analysis

Operating Cash Flow was ¥36.8B, down -41.5% from ¥63.0B in the previous year, with an outflow of ¥15.5B due to changes in consumption taxes and other taxes and payments of corporate income taxes and other taxes of ¥24.0B weighing on cash generation. Investing Cash Flow was -¥47.0B, primarily due to the acquisition of investment securities of ¥42.3B, while ordinary capital expenditures were limited to ¥1.0B. As a result, Free Cash Flow was negative at -¥10.2B, meaning that investing expenditures could not be covered by operating activities alone. Financing Cash Flow recorded a substantial inflow of ¥206.7B, primarily consisting of proceeds from the issuance of shares of ¥202.6B, and cash and deposits increased to ¥334.9B, up +141.2% YoY. The increase in cash during the period relied substantially more on capital raising than on internally generated cash flow, making the profitability of the allocation of raised funds, including the acquisition of investment securities, a key focus going forward.

Earnings Quality

The flow from Operating Income to Net Income in the current period did not include extraordinary gains or losses and therefore reflects an earnings structure based on recurring business profit and loss. By contrast, the same period of the previous year included temporary factors consisting of subsidy income of ¥19.25B and an impairment loss on fixed assets of ¥17.95B; caution is therefore required when making a simple year-on-year comparison. Non-operating income was limited at ¥0.5B, consisting primarily of dividends received and other items, while non-operating expenses were ¥2.8B, including interest expense of ¥1.0B and foreign exchange losses of ¥0.2B, resulting in Ordinary Income being somewhat reduced from Operating Income. OCF was 1.19 times Net Income, indicating limited concern regarding earnings quality from an accruals perspective. However, the OCF-to-EBITDA ratio was low at approximately 0.52 times, and the fact that tax payments and changes in working capital constrained cash conversion should be considered when assessing earnings quality. Comprehensive Income was ¥30.1B, slightly below Net Income of ¥30.8B, with an unrealized gain or loss on securities of -¥1.1B being the primary difference; the divergence between the two remained limited.

Earnings Forecasts and Guidance

The full-year Company forecast calls for revenue of ¥820.0B (+4.4%), Operating Income of ¥94.6B (+15.0%), and Ordinary Income of ¥91.0B (+9.0%). Progress rates against first-half results were 50.3% for revenue, 50.4% for Operating Income, and 49.9% for Ordinary Income, representing only minor deviations from the standard 50% progress rate. No revisions have been made to the earnings forecast, and the plan remains in place in line with first-half results.

Shareholder Returns

Dividends for the first half were ¥6.02 per share in Q1 and ¥4.85 per share in Q2, both including commemorative dividends, while the full-year Company forecast for annual dividends is ¥21.51 per share. Annual dividends of ¥21.51 per share exceed forecast EPS of ¥20.05 per share, resulting in a forecast Payout Ratio of approximately 107%. This Payout Ratio is calculated by dividing dividends alone by Net Income and is distinct from the Total Return Ratio, which includes share buybacks. As Free Cash Flow was -¥10.2B during the period, dividends are not structured to be funded solely by post-investment cash flow; however, cash and deposits of ¥334.9B and funds obtained through financing cash flow support short-term payment capacity.

Risk Factors

1. Concentration in the core business: As the Internet Infrastructure Business accounts for approximately 92% of segment profit, changes in demand for this business and in the competitive environment could have a substantial impact on Company-wide earnings.

2. Weak cash conversion: OCF was approximately 0.52 times EBITDA of ¥71.1B, while capital expenditures were limited to ¥1.0B versus depreciation and amortization of ¥23.5B. If infrastructure renewal investment is delayed, future service quality and competitiveness could be affected.

3. Short-term debt structure and Payout Ratio: The proportion of short-term liabilities, including short-term borrowings and long-term borrowings due within one year, is relatively high. Although cash and deposits of ¥334.9B mitigate this risk, the trend in the liability structure warrants monitoring. In addition, the full-year forecast Payout Ratio is approximately 107%, and maintaining this dividend level while Free Cash Flow is negative indicates a high degree of reliance on earnings growth or cash on hand.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both of the Company’s profitability metrics are below the industry median, placing the Company at a relatively low level within the industry.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, placing the Company at a disadvantage within the industry in terms of growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. With Revenue growth of +7.2% versus Operating Income growth of +46.2%, the profit growth rate substantially exceeded the revenue growth rate, indicating that the Company is in a growth phase accompanied by improved profitability. A 470bp improvement in the gross margin absorbed the increase in the SG&A expense ratio, expanding the Operating Income margin by 3.0pt to 11.5%.

2. OCF remained at approximately 0.52 times EBITDA, while capital expenditures were approximately 4% of depreciation and amortization. The substantial increase in cash and deposits was primarily attributable to capital raising through the issuance of shares, making the level of capacity for investment and shareholder returns funded by internally generated funds a key area to monitor going forward.

3. Full-year forecast annual dividends of ¥21.51 per share exceed forecast EPS of ¥20.05 per share, and the Payout Ratio is expected to reach approximately 107%. Continuing a high dividend level while Free Cash Flow is negative indicates a high degree of reliance on earnings growth or cash on hand.

Theoretical Share Price (Reference Value)

Sensitivity: ¥137–¥144 at ±1% for the cost of equity, and ¥140–¥141 at ω±0.1.

Notes:

• Goodwill amortization of ¥0.6 per share has been added back to earnings (due to its non-cash nature and to improve comparability with IFRS companies).
• Net assets as of the end of the quarter are used (there is a timing discrepancy relative to 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 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does 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. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

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