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

GMO Internet Group (9449) delivered solid year-to-date results for FY2025 Q3 under JGAAP on a consolidated basis, with revenue of ¥213.8bn (+3.7% YoY) and operating income of ¥44.5bn (+24.2% YoY). The growth gap between revenue and operating income indicates meaningful margin expansion, likely reflecting operating leverage and/or mix effects toward higher-margin businesses. Gross profit of ¥123.5bn translates to a robust 57.8% gross margin, underscoring the structural profitability of core internet services. Operating margin improved to approximately 20.8%, a strong level for a diversified internet/services group with financial components. Ordinary income was ¥41.5bn, slightly below operating income due to non-operating costs including ¥2.2bn in interest expense, yet interest coverage remains healthy at 20.6x. Net income rose 33.4% YoY to ¥13.6bn, with a net margin of 6.37%, implying some below-the-line headwinds such as taxes or minority interests. Based on net income and reported income tax expense (¥14.4bn), the implied effective tax rate approximates 51% (using implied pre-tax profit of c. ¥28.0bn), which is elevated versus typical ranges and likely influenced by special items, consolidation effects, or non-tax-deductible items. Balance sheet scale is large (total assets ¥2.283tn), with total equity of ¥209.3bn and total liabilities of ¥1.961tn, yielding high financial leverage (assets/equity ≈ 10.9x) and a low equity ratio near 9.2% (despite the reported 0.0% figure, which appears undisclosed in XBRL). Liquidity appears adequate on headline metrics, with a current ratio of 120.1% and quick ratio of 118.5%, supported by modest inventories (¥26.0bn). Working capital is positive at ¥325.2bn, offering some buffer against short-term volatility, though current assets and liabilities likely include sizable financial balances (e.g., customer deposits/segregated assets) inherent to the group’s financial services. DuPont decomposition is consistent with a leverage-driven ROE: net margin 6.37%, asset turnover 0.094x, and financial leverage 10.90x, yielding ROE of 6.50%. The low asset turnover is consistent with an asset-heavy balance sheet typical of financial subsidiaries and platform-related receivables. Cash flow statements were not disclosed (zeros), limiting assessment of cash conversion and free cash flow quality; thus, conclusions on earnings quality rely primarily on accrual metrics. Dividend information was also not disclosed (zeros), so payout and FCF coverage cannot be evaluated this quarter. Overall, GMO achieved healthy operating momentum and margin expansion despite modest top-line growth, while maintaining strong interest coverage but operating with structurally high leverage and a low equity ratio. Key watchpoints include the sustainability of higher margins, normalization of the effective tax rate, and the evolution of financial liabilities and liquid assets within the group structure. Data limitations (notably cash flows, DPS) constrain a full view of cash generation and capital return policy for FY2025 Q3.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin 6.37% × Asset Turnover 0.094 × Financial Leverage 10.90 ≈ ROE 6.50% (aligned with reported). Gross margin is 57.8% (¥123.5bn/¥213.8bn), highlighting structurally strong unit economics across core services. Operating margin of approximately 20.8% (¥44.5bn/¥213.8bn) improved significantly YoY, evidencing operating leverage and/or favorable business mix; ordinary income at ¥41.5bn suggests limited non-operating drag relative to operating income. Net margin at 6.37% is much lower than operating margin, driven by below-the-line items (interest expense ¥2.2bn and taxes ¥14.4bn, plus potential minorities/one-offs). Interest coverage is strong at 20.6x (operating income/interest expense), indicating comfortable servicing of interest costs even with high balance-sheet leverage. The implied effective tax rate based on net income and tax expense is roughly 51%, elevated versus standard corporate levels and likely reflecting consolidation effects, adjustments, or jurisdictional mix; margin could normalize if these effects abate. Operating leverage is evident (operating income +24.2% vs revenue +3.7%); sustaining this will require continued cost discipline and mix support, as revenue growth alone is modest. Asset turnover is low (0.094x), consistent with the group’s financial assets and customer balances, which depress turnover while enabling scale. Overall margin quality appears solid at the gross and operating levels, but translation to net income is constrained by tax and below-the-line factors.

Growth Assessment

Revenue grew 3.7% YoY to ¥213.8bn, a moderate pace that likely reflects mixed trends across internet infrastructure, media/advertising, and financial/crypto services. Operating income expanded 24.2% YoY to ¥44.5bn, demonstrating strong margin expansion and execution on cost efficiency and/or mix. Net income growth of 33.4% YoY to ¥13.6bn outpaced revenue, despite a heavy tax burden, suggesting improved core profitability. Given the low asset turnover and high leverage, incremental revenue may yield outsized operating profit if fixed costs remain contained, but sensitivity to volume and market conditions (advertising demand, trading volumes, and payment/transaction activity) is elevated. Profit quality appears stronger at the operating level than at the net level due to taxes and financing costs; normalization of the effective tax rate would be supportive of EPS growth. With cash flow data not disclosed, sustainability of growth via internal funding cannot be verified this quarter. Near-term outlook hinges on maintaining high gross margins, disciplined opex, and stable non-operating items; macro factors (domestic consumption, digital ad cycles, market volatility affecting financial businesses) will influence revenue trajectory. Absent segment disclosures here, we assume a balanced contribution with potential tailwinds from recurring infrastructure revenues and potential cyclicality in advertising and trading-related businesses.

Financial Health

Total assets: ¥2,282.9bn; total liabilities: ¥1,961.1bn; total equity: ¥209.3bn. Equity ratio (calculated) ≈ 9.2% (equity/total assets), indicating a leveraged balance sheet consistent with financial services within the group (reported 0.0% is an undisclosed item). Debt-to-equity (proxied by total liabilities/equity) is 9.37x, underscoring high leverage; nonetheless, interest coverage is strong at 20.6x, mitigating near-term refinancing risk from an earnings perspective. Liquidity: current assets ¥1,945.9bn vs current liabilities ¥1,620.7bn implies a current ratio of 120.1% and quick ratio of 118.5%; inventories are modest at ¥26.0bn, suggesting most current assets are financial/receivable in nature. Working capital is positive at ¥325.2bn, providing a cushion, although the qualitative liquidity depends on the composition and encumbrance of financial balances (e.g., customer funds). Solvency risk is moderate due to high leverage and low equity ratio, but operational cash generation (implied by profits) and coverage metrics offer comfort if sustained. Absent cash and maturity disclosures, assessment of near-term funding structure and liquidity buffers remains constrained.

Cash Flow Quality

Operating, investing, and financing cash flows were not disclosed this quarter (zeros indicate undisclosed). Consequently, OCF-to-net income, free cash flow, and working capital cash dynamics cannot be validated from cash flow statements. Based on accruals, earnings quality at the operating level appears strong given the high gross and operating margins; however, without OCF, we cannot confirm cash conversion. Working capital on the balance sheet is positive (¥325.2bn), but the cash realization of receivables and the stability of payables/customer balances are unknown this period. Capex intensity and investment outflows are also not available, preventing a view on maintenance vs growth investment. Free cash flow coverage of dividends cannot be assessed due to undisclosed DPS and OCF/Capex.

Dividend Sustainability

Dividend per share and payout ratio were not disclosed (zeros). Therefore, we cannot calculate payout based on net income or assess FCF coverage this quarter. Historically, sustainability would hinge on recurring operating cash flows from core services, stability of non-operating items, and capital needs for financial subsidiaries; however, absent cash flow data we avoid drawing conclusions. With net income of ¥13.6bn YTD and strong operating margins, capacity for distributions may exist, but visibility is limited by the high leverage structure and lack of disclosed cash metrics. Policy outlook cannot be inferred from this dataset; future disclosure of DPS, payout guidance, and cash flows will be key.

Risk Assessment

Business Risks:

• Cyclicality in online advertising and media demand affecting top line
• Market volatility impacting trading/crypto/FX-related transaction volumes and spreads
• Competitive intensity across internet infrastructure, payments, and media services
• Regulatory changes in financial services, cryptoassets, and data/privacy
• Technology and cybersecurity risks including outages and breaches
• Customer concentration or key partner dependency in certain verticals

Financial Risks:

• High leverage (liabilities/equity 9.37x) and low equity ratio (~9.2%)
• Potentially elevated effective tax rate (~51%) compressing net margins
• Liquidity reliance on composition of current assets and customer balances
• Interest rate risk affecting funding costs and financial subsidiaries’ income
• Volatility in non-operating items (investment gains/losses, fair value changes)
• Limited cash flow disclosure this quarter restricting visibility on cash generation

Key Concerns:

• Sustainability of margin expansion given modest revenue growth (+3.7% YoY)
• Translation of strong operating income into net income amid taxes and financing costs
• Balance sheet leverage and the adequacy of capital buffers within financial units

Investment Implications

Key Takeaways:

• Strong operating performance: OI +24.2% YoY on revenue +3.7% indicates solid margin expansion
• High gross margin (57.8%) and operating margin (~20.8%) underscore robust core economics
• ROE of 6.5% is leverage-driven (financial leverage 10.90x) amid low asset turnover
• Interest coverage is comfortable at 20.6x despite elevated liabilities
• Implied effective tax rate ~51% is a headwind to net margin and EPS conversion
• Liquidity ratios (current 120%, quick 118%) are adequate, but cash composition is undisclosed
• Absence of cash flow and dividend disclosures limits assessment of earnings-to-cash and capital returns

Metrics to Watch:

• Operating margin and its drivers (mix, cost discipline)
• Ordinary income vs operating income gap (non-operating gains/losses, interest)
• Effective tax rate normalization and minority interest impacts
• Asset turnover trends and balance sheet intensity of financial businesses
• Working capital movements and cash conversion once cash flows are disclosed
• Leverage (liabilities/equity) and equity ratio trajectory
• Interest expense trend and coverage amid rate environment

Relative Positioning: Within Japan’s diversified internet/platform peers, GMO exhibits higher operating margins but lower asset turnover due to financial services exposure, resulting in leverage-driven ROE and a structurally low equity ratio; execution on margin sustainability and risk management around leveraged balance-sheet segments will be key differentiators.

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