SoftBank Corp. (shares of preferred stock) FY2027 Q1 Earnings Report

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Executive Summary

Revenue and profit increased in the quarter, but the pace of profit growth was slower than revenue growth. While the decline in the effective tax rate boosted the growth of consolidated net income, the increase in net income attributable to non-controlling interests limited the growth of net income attributable to owners of the parent. Revenue was ¥18,147.2B (+9.4% year on year), Operating Income was ¥3,023.0B (+4.0%), and Profit Before Tax was ¥2,811.7B (+4.0%). Consolidated net income, including non-controlling interests, increased by double digits to ¥2,014.9B (+10.5%), but quarterly net income attributable to owners of the parent remained at ¥1,500.7B (+3.3%). The increase in revenue was primarily driven by the expansion of the corporate and financial businesses, centered on Enterprise (+8.1%) and Financial (+26.8%), while the slowdown in profit growth was mainly attributable to the reversal of the gain on remeasurement associated with a business combination (¥145.0B) recorded in the same period of the previous year.

Factors Affecting Results

【Revenue】Revenue was ¥18,147.2B, up +9.4% year on year, with all six segments reporting higher revenue. Financial (+26.8%) and Distribution (+20.3%) maintained high growth, while Media&EC (+10.1%) and Enterprise (+8.1%) also expanded. The core Consumer segment (+4.4%) recorded only modest revenue growth. The revenue mix was Consumer 41.1%, Media&EC 24.3%, Distribution 13.9%, Enterprise 13.5%, and Financial 5.9%. Consumer remained the largest segment, although the contribution of the corporate and financial businesses is gradually increasing.

【Profit and Loss】Operating Income was ¥3,023.0B (+4.0%), and the operating margin declined to 16.7% from 17.5% in the previous year, a decrease of -0.9pt. Gross profit increased +8.3%, and the gross margin was broadly flat at 49.0% (49.5% in the previous year). However, other operating income contracted to ¥37.4B due to the reversal of the ¥145.0B gain on remeasurement associated with a business combination recorded in the same period of the previous year, weighing on the profit growth rate. Financial expenses increased to ¥298.9B (+34.3%), reflecting the impact of higher interest-bearing debt. Meanwhile, the effective tax rate declined to 28.3% from 32.6%, allowing consolidated net income to recover its growth momentum to ¥2,014.9B (+10.5%). However, as net income attributable to non-controlling interests increased substantially to ¥514.2B (+39.0%), quarterly net income attributable to owners of the parent remained at ¥1,500.7B (+3.3%). Revenue and profit increased.

Segment Analysis

By segment, Consumer maintained its largest contribution, with Operating Income of ¥1,529.2B (-0.6%), although profit declined, and a profit margin of 20.5%. Enterprise improved to ¥622.3B (+27.5%) and a profit margin of 25.5%, supported by expanding demand related to cloud computing and AI. Financial recorded the highest profit margin among all segments at 29.5%, with Operating Income of ¥317.6B (+76.0%), driven by the expansion of cashless payments and banking operations. Media&EC declined to ¥666.99B (-5.7%), with its profit margin falling to 15.1% from 17.7%, due to deteriorating profitability in the advertising and e-commerce businesses. Distribution recorded ¥129.2B (+8.2%), but its profit margin remained low at 5.1%. Operating loss in the “Other” segment expanded from ¥124.3B in the previous year to ¥235.3B (+89.3%), with company-wide adjustment items weighing on consolidated profit.

Key Financial Indicators

【Profitability】The operating margin was 16.7%, down -0.9pt from 17.5% in the previous year. The consolidated net profit margin, including non-controlling interests, was 11.1%, broadly unchanged from 11.0% in the previous year. The net profit margin based on income attributable to owners of the parent was 8.3%, down -0.5pt from 8.8%, indicating that profitability assessments differ depending on the attribution of income.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥1,004.2B, and its ratio to consolidated net income declined to 49.9% from 108.1% in the previous year. OCF/EBITDA also contracted substantially to 19.9% from 41.1%, indicating a slowdown in the pace of profit conversion into cash.【Investment Efficiency】ROE was 4.3%, broadly in line with the same period of the previous year. Total asset turnover for the quarter rose slightly to 9.4% from 8.9%.【Financial Soundness】The Equity Ratio declined to 15.1% from 16.0%, a decrease of -0.9pt, while total interest-bearing debt increased to ¥7兆4,213.5B (¥6兆4,845.8B in the previous year, +14.4%). Because deposits, loans, and other items related to the banking business are included in total assets and total liabilities, the Equity Ratio tends to appear relatively low even compared with other industries; this point should be taken into consideration.

Cash Flow Analysis

Cash flow from operating activities was ¥1,004.2B, down -49.1% year on year, while the subtotal before changes in working capital contracted to ¥2,773.4B from ¥3,451.0B in the previous year. The primary factors were the slowdown in the pace of deposit growth in the banking business (+¥945.9B, compared with +¥1,612.2B in the previous year), the absorption of funds due to an increase in loans in the banking business (-¥1,100.2B, compared with -¥426.2B), and an increase in payments of corporate income taxes and other taxes to ¥1,554.7B from ¥1,303.1B. Cash flow from investing activities was -¥3,779.5B, reflecting capital expenditures of -¥1,643.6B and an increase in acquisitions of investment securities and other assets of -¥2,229.9B. As a result, free cash flow (Operating CF + Investing CF) was -¥2,775.3B, representing a wider deficit than the previous year (-¥1,475.5B). Cash flow from financing activities was +¥4,802.5B, primarily due to increased financing through interest-bearing debt, covering funding requirements including dividend payments of ¥2,040.7B through external financing. Cash and cash equivalents at the end of the period were ¥16,457.8B, up +¥2,069.9B from ¥14,388.0B at the beginning of the period.

Earnings Quality

Profit growth in the quarter was supported not only by the revenue growth effect from core operations but also by the decline in the effective tax rate (32.6%→28.3%), which lifted consolidated net income to ¥2,014.9B (+10.5%). At the same time, other operating income contracted to ¥37.4B from ¥145.0B in the previous year due to the reversal of the ¥145.0B gain on remeasurement associated with a business combination recorded temporarily in the same period of the previous year, restraining Operating Income growth. The current period also included a gain of ¥24.2B associated with the loss of control of a subsidiary, which was also a non-recurring item. As net income attributable to non-controlling interests rose substantially to ¥514.2B (+39.0%), net income attributable to owners of the parent (¥1,500.7B, +3.3%) grew more slowly than consolidated net income, highlighting the need to consider the difference in attribution when assessing the quality of profit growth. Comprehensive income was ¥2,185.1B, exceeding consolidated net income by ¥170.1B, with other comprehensive income, including foreign currency translation adjustments for foreign operations of +¥112.0B, making a positive contribution. Contract liabilities increased to ¥1,889.3B from ¥1,690.6B in the previous year (+11.8%), confirming the accumulation of deferred revenue in line with revenue growth.

Earnings Forecasts and Guidance

Against the full-year company forecasts, the revenue progress rate was 24.2% (¥18,147.2B / ¥75,000B), the Operating Income progress rate was 27.5% (¥3,023.0B / ¥11,000B), and the progress rate for net income attributable to owners of the parent was 26.8% (¥1,500.7B / ¥5,600B). All were around or above the simple progress benchmark of 25%, with the progress of Operating Income and net income slightly exceeding that of revenue. No revisions were made to the earnings or dividend forecasts during the quarter. While the strong growth of Enterprise and Financial is supporting achievement of the full-year plan, profitability trends in Media&EC and other businesses could affect progress in the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥8.80 per share, with no revision as of the end of the quarter. Based on approximately 47,846.8 ten-thousand shares outstanding, excluding treasury shares, the annual total dividend is estimated at approximately ¥4,209.7B, resulting in a Payout Ratio of approximately 75.2% against the full-year forecast of ¥5,600B in net income attributable to owners of the parent. Dividend payments during the quarter were ¥2,040.7B (¥2,015.9B in the previous year). Total shareholder returns, including dividends to non-controlling interests of ¥437.95B, amounted to ¥2,557.4B, exceeding comprehensive income of ¥2,185.1B for the quarter. Total equity declined -0.6% to ¥46,385.1B from ¥46,684.6B at the end of the previous fiscal year. No treasury shares were repurchased during the quarter, and shareholder returns were primarily in the form of dividends.

Risk Factors

1. Funding Efficiency and Liquidity Risk: Operating CF contracted to ¥1,004.2B (-49.1% year on year), while free cash flow was negative at -¥2,775.3B. Current liabilities were ¥89,223.1B against current assets of ¥56,728.3B, resulting in a current ratio of approximately 63.6%, below 1x. Short-term funding therefore remains highly dependent on external financing, including the raising of interest-bearing debt.

2. Risk of Increasing Interest-Bearing Debt and Higher Interest Costs: Total interest-bearing debt increased to ¥7兆4,213.5B (¥6兆4,845.8B in the previous year, +14.4%), while financial expenses expanded to ¥298.9B (¥222.5B in the previous year, +34.3%). Financial expenses may increase further depending on future interest rate conditions.

3. Goodwill Concentration and Media&EC Profitability Risk: Goodwill amounted to ¥2兆1,980.1B, equivalent to 47.4% of total equity of ¥46,385.1B, and remained at a high level. Operating Income in the Media&EC segment declined to ¥666.99B (-5.7% year on year), while its profit margin fell to 15.1% from 17.7%. The structure makes consolidated profit margins susceptible to profitability trends in the advertising and e-commerce businesses.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Return

The company’s operating margin and net profit margin both substantially exceed the industry median, placing the company among the top performers in the IT and telecommunications industries.

Growth and Capital Efficiency

The revenue growth rate was broadly in line with the industry median, placing the company in the middle of the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Regarding the quality of profit growth, there was a difference between the growth rates of consolidated net income (¥2,014.9B, +10.5%) and net income attributable to owners of the parent (¥1,500.7B, +3.3%), reflecting the increase in net income attributable to non-controlling interests (+39.0%). The presence of non-controlling interests in growth drivers such as Financial and Enterprise may affect future growth in net income attributable to owners of the parent.

2. The operating margin declined to 16.7% from 17.5%, but the primary factor was the reversal of the gain on remeasurement associated with a business combination (¥145.0B) temporarily recorded in the previous year. The gross margin itself was broadly flat at 49.0% (49.5% in the previous year). This confirms that underlying profitability excluding temporary factors was maintained.

3. Operating CF contracted -49.1% year on year, and free cash flow was negative at -¥2,775.3B. Trends in deposits and loans in the banking business and increased corporate tax payments were contributing factors, making future cash flow trends an item warranting monitoring.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson type with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥74–¥78 at ±1% for the cost of equity, and ¥75–¥76 at ±0.1 for ω.

Notes:

• Net income is substantially compressed relative to Operating Income due to tax burdens, acquisition-related expenses, and non-controlling interests (Net Income ÷ Operating Income 51%). This value reflects that compression at face value, and if these factors are temporary, the underlying earnings power may be higher.
• Goodwill represents a high proportion of total equity, and the assumptions would change substantially if impairment were recognized.
• Equity at the end of the quarter is used, resulting in a timing difference from the full-year forecast.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It is not a recommendation to invest 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 a professional adviser as necessary.

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