FreakOut Holdings (6094) FY2026 Q1 Earnings Report

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Executive Summary

The Company posted higher revenue and substantially higher operating income, primarily due to improved profitability in the Creator Business. Revenue was ¥150.9B (up +9.8% year on year), operating income was ¥6.2B (up +286.3%), ordinary income was ¥10.9B (up +92.0%), and net income attributable to owners of the parent was ¥9.4B (up +115.1%). In addition to operating leverage resulting from an improved gross margin and relatively contained SG&A expenses, non-operating and extraordinary factors—including foreign exchange gains, equity-method investment income, and gains on the sale of investment securities—also boosted net income.

Factors Affecting Performance

【Revenue】Revenue was ¥150.9B, up +9.8% year on year. The Product Business generated ¥90.9B (up +4.5%), while the Creator Business generated ¥59.9B (up +19.1%), with the Creator Business driving growth. The Investment Business was limited in scale, generating ¥0.05B.

【Profit and Loss】Operating income was ¥6.2B (up +286.3%), supported by an improvement in the gross margin to 29.2% (27.0% in the same period of the previous year) and the relative containment of the SG&A expense ratio at 25.1%. Segment profit in the Creator Business was ¥6.8B (11.1% margin), exceeding the ¥4.7B (5.2% margin) generated by the Product Business and becoming the main contributor to consolidated profit. Meanwhile, the segment loss in the Other Businesses expanded to ¥2.8B, including the impact of changes in expense classification associated with the consolidation of head office functions. Ordinary income of ¥10.9B included a foreign exchange gain of ¥2.8B and equity-method investment income of ¥2.2B, while pretax income of ¥11.8B benefited from a ¥1.0B gain on the sale of investment securities. The increase in net income of ¥9.4B was supported not only by improvements in the core business but also by these non-operating and extraordinary factors; overall, the Company achieved higher revenue and higher profit.

Segment Analysis

The Creator Business was the main contributor to consolidated profit. Revenue was ¥59.9B (up +19.1% year on year), segment profit was ¥6.8B (a substantial increase from ¥0.4B in the previous year), and the profit margin was 11.1%, the highest level among the three businesses. The Product Business generated revenue of ¥90.9B (up +4.5%), segment profit of ¥4.7B (up +69.0%), and a profit margin of 5.2%. The Investment Business was small in scale, with revenue of ¥0.05B. The Other Businesses recorded a segment loss of ¥2.8B, which widened from a loss of ¥1.6B in the previous year. Against total segment profit of ¥8.7B, consolidated adjustments amounted to △¥2.5B, resulting in consolidated operating income of ¥6.2B. Comparisons with the same period of the previous year reflect figures restated to incorporate the segment reorganization at the beginning of the current period (the Advertising Business was renamed and reclassified as the Product Business, and the Influencer Marketing Business was renamed and reclassified as the Creator Business). Accordingly, both changes in the underlying businesses and changes in management classifications should be taken into consideration.

Key Financial Indicators

【Profitability】The operating margin was 4.1%, improving from 1.2% in the same period of the previous year, but remains relatively low for the Information and Communications sector. The net profit margin was 6.2%, up from 3.2% in the previous year; however, because it includes nonrecurring factors such as foreign exchange gains, equity-method investment income, and gains on the sale of investment securities, it should be evaluated separately from the earnings power of the core business. 【Cash Quality】Ordinary income of ¥10.9B exceeded net income of ¥9.4B, while non-operating income (a foreign exchange gain of ¥2.8B and equity-method investment income of ¥2.2B) and extraordinary income (a ¥1.0B gain on the sale of investment securities) had a meaningful impact on net income. 【Investment Efficiency】Annualized ROE was high at 30.6%; however, given the equity ratio of 31.2% and the degree of debt utilization, the composition indicates a significant contribution from financial leverage in addition to the net profit margin and asset turnover. 【Financial Soundness】Cash and deposits were ¥151.0B, exceeding interest-bearing debt (including short-term borrowings, long-term borrowings, and bonds), indicating a net cash position. Meanwhile, accounts receivable were ¥125.4B, representing an increase of +26.7% year on year, exceeding the +9.8% growth in revenue; trends in receivables collection therefore warrant close monitoring.

Cash Flow Analysis

Because cash flow statement figures are not included in the disclosed information, cash flow trends are assessed based on changes in the balance sheet. Cash and deposits were ¥151.0B, down from ¥163.7B in the previous year, while accounts receivable increased +26.7% year on year to ¥125.4B, suggesting that the accumulation of working capital accompanying revenue growth may have affected the cash balance. Accounts payable also increased +17.2% year on year to ¥79.7B, reflecting the expansion of procurement and outsourcing transactions. Property, plant and equipment stood at ¥6.1B and intangible assets at ¥47.0B, both remaining broadly flat, indicating that large-scale capital expenditures and intangible asset acquisitions were limited. Long-term borrowings were ¥75.6B, down from ¥80.7B in the previous year, indicating progress in reducing interest-bearing debt.

Earnings Quality

Operating income of ¥6.2B increased from ¥1.6B in the previous year, confirming improvements in the core business through a higher gross margin and greater SG&A efficiency. Meanwhile, the ¥4.7B difference from ordinary income of ¥10.9B was attributable to non-operating income and expenses, with the ¥2.8B foreign exchange gain being the largest factor. Equity-method investment income of ¥2.2B also boosted ordinary income, and these are volatile items subject to market conditions and the performance of equity-method affiliates. Most of the ¥1.0B in extraordinary income consisted of gains on the sale of investment securities and should be distinguished as a nonrecurring, temporary factor. Against pretax income of ¥11.8B, income taxes and other taxes were ¥1.7B, resulting in a relatively low effective tax rate of approximately 14.5% and a relatively high conversion rate from pretax income to net income. Comprehensive income was ¥10.6B, close to net income of ¥10.1B, with no significant divergence caused by valuation differences on other securities or foreign currency translation adjustments.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year company forecasts (revenue of ¥550.0B, operating income of ¥7.0B, and ordinary income of ¥10.0B) were 27.4% for revenue, 87.9% for operating income, and 108.8% for ordinary income. Operating income and ordinary income were therefore significantly ahead of the standard quarterly progress rate of 25%. Ordinary income had already exceeded the full-year forecast as of Q1, with the high progress rate attributable not only to the improved Q1 gross margin and SG&A efficiency but also to nonrecurring factors such as foreign exchange gains and gains on the sale of investment securities. The Company has made no revisions to either its earnings forecasts or dividend forecasts. Future progress will depend on whether the core operating margin can stabilize at around 5% and on the degree to which nonrecurring items can be replicated.

Shareholder Returns

The dividend forecast is ¥0, and no actual or forecast dividends have been disclosed for either the current period or the same period of the previous year. There has been no revision to the dividend forecast, and no information regarding the acquisition or disposal of treasury shares has been identified within the scope of this report.

Risk Factors

1. Risk of concentration in the business portfolio: The Creator Business is the pillar of consolidated profit, with segment profit of ¥6.8B and a profit margin of 11.1%, resulting in a high degree of dependence on a business that is susceptible to factors such as advertising budgets and changes to platform rules. Growth is concentrated in the Creator Business, which grew +19.1%, compared with +4.5% growth in the Product Business.

2. Financial leverage and capital structure risk: The equity ratio was 31.2%, and total liabilities of ¥290.6B exceeded net assets of ¥132.1B. The high ROE of 30.6% reflects a significant contribution from financial leverage, creating a structure in which fluctuations in equity may also become larger when earnings fluctuate.

3. Risk of dependence on working capital and nonrecurring gains and losses: Accounts receivable increased +26.7% year on year, exceeding revenue growth, necessitating monitoring of collection trends. In addition, ordinary income and net income include a foreign exchange gain of ¥2.8B, equity-method investment income of ¥2.2B, and a ¥1.0B gain on the sale of investment securities; these amounts may change due to market fluctuations.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Returns

Although the Company’s profitability improved from the previous year, both its operating margin and net profit margin remain below the industry median.

Growth and Capital Efficiency

The revenue growth rate was also slightly below the industry median, placing the Company below the median within the industry in terms of both growth and profitability.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue increased +9.8%, while operating income rose sharply by +286.3%, indicating operating leverage from an improved gross margin (29.2%, up +2.2pt year on year) and the relative containment of SG&A expenses. However, the operating margin of 4.1% remains below the industry median of 12.1%, indicating that profitability is still in the process of improving in absolute terms.

2. The Creator Business is driving consolidated profit, with revenue up +19.1% and a profit margin of 11.1%, while the loss in the Other Businesses expanded to ¥2.8B. Because changes in the business portfolio include changes in expense classification associated with the consolidation of head office functions, the impact of management classification changes should also be examined when comparing segments in subsequent periods.

3. Ordinary income and net income include foreign exchange gains, equity-method investment income, and gains on the sale of investment securities. Continuously tracking the level of profit generated by the core business excluding these items will be important for assessing earnings quality.

Theoretical Share Price (Reference Value)

Sensitivity: ¥606–¥641 at ±1% for the cost of equity, and ¥619–¥626 at ±0.1 for ω.

Notes:

• Because net income progress against the full-year forecast (188%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a range of up to +10% (because companies with progress ahead of schedule tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat above the appropriate level.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on 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 benchmark is 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 a professional adviser as necessary.

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