GMO internet group,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥213.81B
• Operating Income: ¥44.49B
• Net Income: ¥21.58B
• EPS: ¥132.75

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Strong quarter with meaningful margin expansion and double-digit profit growth, albeit with elevated leverage and opaque cash flow due to missing CF disclosures. Revenue rose 3.7% YoY to 2,138.15, while operating income jumped 24.2% YoY to 444.86, lifting the operating margin to 20.8%. Gross profit reached 1,234.94, implying a robust gross margin of 57.8%, supported by controlled SG&A at 876.69 (SG&A ratio 41.0%). Ordinary income was 414.99 (+19.6% YoY), and profit before tax was 359.62, suggesting notable extraordinary losses or valuation effects between ordinary and pre-tax. Net income increased 33.4% to 136.13, lifting net margin to 6.4%. We estimate operating margin expanded by approximately 343 bps YoY (from ~17.4% to ~20.8%), driven by operating leverage and mix. Net margin likely expanded by roughly 141 bps (from ~5.0% to ~6.4%), despite a high effective tax rate of 40%. Non-operating income of 41.97 (notably 15.80 securities gains and 11.37 interest income) was more than offset by 53.24 in non-operating expenses including 21.55 interest expense. The gap between ordinary income (414.99) and PBT (359.62) implies sizable extraordinary losses; details are not disclosed. Earnings quality cannot be validated as operating cash flow and capex are unreported. Liquidity is adequate (current ratio 118.6%, quick 116.9%), but leverage is very high (D/E 9.90x), likely reflecting financial services exposure within the group. Interest coverage remains strong at 20.6x, mitigating near-term solvency risk. Dividend payout is conservative at 13.4%, with interim distributions (Q1 DPS 17.2 yen, Q3 DPS 7.7 yen) consistent with capacity to continue returns. Forward-looking, sustaining the higher margin profile is the key driver for ROE (6.5% via DuPont), while managing tax rate, extraordinary items, and leverage will determine durability. The absence of cash flow data and segment detail limits visibility into recurring cash generation and capex needs, and should be a priority for monitoring.

Profitability Analysis

ROE decomposition (DuPont): ROE 6.5% = Net Profit Margin 6.4% × Asset Turnover 0.094 × Financial Leverage 10.90x. The most influential change this quarter appears to be margin expansion, as operating income grew +24.2% vs revenue +3.7%, implying stronger operating leverage and mix. Business drivers likely include cost discipline (SG&A ratio 41.0%) and improved unit economics in core services, partially offset by a high tax rate (40%) and net negative non-operating effects. Asset turnover is structurally low at 0.094x, reflecting a large asset base (cash and financial-related assets) relative to revenue, typical for groups with finance/payment businesses; leverage at 10.9x is the principal amplifier of ROE. Sustainability: operating margin improvements can persist if mix and cost control hold, but they may normalize if customer acquisition costs or content/media costs re-accelerate; the 40% tax rate could continue to weigh on net margins. Watch for SG&A growth relative to revenue: with revenue +3.7% YoY and operating profit +24.2%, there is positive operating leverage this quarter; a re-acceleration of SG&A ahead of revenue would be a red flag. Extraordinary losses that depress PBT versus ordinary income may be one-off but require verification; recurring extraordinary charges would undermine quality.

Growth Assessment

Revenue growth of 3.7% YoY is modest, but profit growth is strong due to margin expansion (operating income +24.2% YoY). The operating margin is ~20.8%, up ~343 bps by our estimate, signaling improved cost structure or favorable mix. Net income grew 33.4% despite a 40% effective tax rate, indicating robust underlying performance. Non-operating drivers include 15.80 in investment securities gains and 11.37 in interest income, but these were offset by non-operating expenses (53.24), making growth primarily operating-led. Sustainability hinges on maintaining gross margin near 58% and restraining SG&A near 41% of sales; any deterioration in ad markets, infrastructure cost inflation, or customer acquisition costs could compress margins. Outlook: with leverage high and the tax rate elevated, net margin expansion may be harder to replicate; continued execution in core services and avoidance of extraordinary losses will be key to sustaining double-digit profit growth.

Financial Health

Liquidity: Current ratio 118.6% and quick ratio 116.9% are above 1.0 but below the >1.5 comfort benchmark; no immediate liquidity stress. Working capital is positive at 3,255.14. Cash and deposits (5,032.90) exceed short-term loans (1,915.45), reducing near-term refinancing risk. Solvency: D/E is 9.90x (warning: >2.0), reflecting a highly leveraged balance sheet likely tied to financial services within the group. Interest coverage is strong at 20.64x, providing buffer against rate increases. Maturity mismatch: Current assets (20,720.31) exceed current liabilities (17,465.17), suggesting manageable short-term obligations. Off-balance sheet: No disclosures provided; cannot assess guarantees or contingent liabilities.

Cash Flow Quality

OCF/Net income is unreported; earnings quality cannot be validated against cash generation (flag: data gap). Free cash flow and capex are unreported, so we cannot assess sustainability of reinvestment or the ability to fund dividends and growth without incremental debt. Working capital signals are limited; receivables (404.73) and inventories (307.67) appear modest versus revenue scale, but without period-over-period changes we cannot identify timing effects or manipulation. Extraordinary losses implied between ordinary income and PBT should be monitored for cash vs non-cash nature.

Dividend Sustainability

Payout ratio is a low 13.4%, implying ample headroom relative to earnings. Interim DPS is 17.2 yen (Q1) and 7.7 yen (Q3); full-year DPS is not disclosed. With OCF and FCF unreported, cash coverage is unknown; however, cash on hand (5,032.90) and strong interest coverage suggest capacity to maintain ordinary dividends barring major capex or extraordinary cash outflows. Policy outlook cannot be validated without management guidance; investor returns likely remain conservative given leverage and the need to fund growth.

Risk Assessment

Business Risks:

• Margin sensitivity to advertising demand, infrastructure costs, and customer acquisition expenses
• Execution risk across multiple internet and financial service lines
• Potential recurrence of extraordinary losses depressing pre-tax profit
• Regulatory risks around payments/financial services within the group

Financial Risks:

• High leverage (D/E 9.90x) increases sensitivity to funding conditions
• High effective tax rate (40%) suppresses net margins
• Non-operating volatility (securities gains/losses, valuation changes)
• Liquidity cushion below best-practice benchmark (current ratio <1.5)

Key Concerns:

• Large gap between ordinary income (414.99) and PBT (359.62) suggests extraordinary losses
• Absent cash flow disclosures limit assessment of earnings quality and dividend coverage
• Asset turnover is very low (0.094x), indicating capital intensity or large financial assets relative to revenue

Investment Implications

Key Takeaways:

• Core operations drove strong profit growth: operating income +24.2% on revenue +3.7%
• Operating margin expanded to ~20.8% (up ~343 bps YoY by estimate)
• Net margin improved to 6.4% despite a 40% tax rate
• Leverage is very high (D/E 9.90x) though interest coverage is strong (20.6x)
• Extraordinary losses likely present (ordinary vs PBT gap), monitoring needed
• Cash flow opacity persists; OCF and capex unreported
• Dividend payout conservative (13.4%), indicating flexibility

Metrics to Watch:

• Operating cash flow and free cash flow trends
• SG&A growth vs revenue to gauge operating leverage durability
• Effective tax rate trajectory
• Extraordinary items and valuation gains/losses impacting PBT
• Segment profitability and mix (infrastructure, media/ads, financial services)
• Leverage and interest-bearing debt profile, especially short-term funding

Relative Positioning: Versus domestic internet/service peers, the company exhibits stronger operating margin and profit growth this quarter but carries structurally higher leverage likely due to embedded financial services; near-term fundamentals are solid, yet visibility is constrained by missing cash flow and segment disclosures.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis