SoftBank Corp. (9434) Q3 FY2026 Earnings Call Transcript & Summary

Thank you for waiting. We will now begin the investor meeting for the third quarter of the fiscal year 2026 (sic) [ 2025 ] hosted by SoftBank Corp. Let me start by introducing today's speakers. Mr. Fujihara, Director, Executive Vice President and CFO, SoftBank Corp. Mr. Akiyama, Vice President, Head of Finance Unit. Mr. Onoguchi, Head of the Finance and Accounting Division, Finance Unit. Mr. Sasaki, Senior Director, Financial AI Promotion Office, Finance Unit. Today's meeting is also being streamed live online. Thank you for tuning in. Now Mr. Fujihara will provide an overview of SoftBank's consolidated financial results.

We announced the financial results earlier today, and I'd like to share with you more in detail about our financial performance. Once again, thank you very much for coming despite busy schedule. This is executive summary. Revenue increased in all segments and hit record high. Revenue and profit increased. Accordingly, we revised full year forecast for fiscal year 2025. We want to give an update, especially because of the impact from ASKUL. Operating income in Financial segment doubled, and we received high external ESG ratings. Okay. Let me go deep into this. Result for the third quarter, revenue and profit increased. Steady progress toward full year forecast for all segments, especially operating income, 88.4% and net income, 89.9%. We see high progress rate toward the full year forecast. Let me give you a breakdown. Revenue increased by 8% or JPY 383 billion. Progress toward full year forecast of JPY 6.7 trillion was 77.5%. Financial and distribution achieved more than 20% increase. For Media, excluding ASKUL's third quarter revenue decline of JPY 63 billion, Media and EC represented an increase of 6.7%. So modest contribution was there. Now EBITDA. Again, we see steady growth, and we hit the record high. Compared to last year, we saw increase of JPY 52 billion or plus 3.8%. Progress toward full year forecast is over 80%. Excluding Media and EC, four segments contributed a lot. Due to ASKUL's impact, Media EC presents those numbers in terms of ASKUL. Next, operating income. We increased JPY 62.3 billion or 7.6%. Progress toward the full year forecast was 88.4%, again, steady growth. Especially in finance sector, we saw double growth. Each segment gave us a contribution, but Media and EC declined by 2.5% or JPY 5 billion because of the negative impact of ASKUL, which was JPY 19.9 billion. But excluding that, however, we would have been seeing an increase of 7%. Now by the segment, Consumer. Mobile revenue continued to grow and the revenue increased by JPY 72.2 billion or 3.3%. Sales of goods and others increased significantly by JPY 73.2 billion or 14.2%. Unit price of mobile device increased significantly and number of mobile devices also increased, resulting in substantial revenue growth. Electricity because of diminished trading transactions saw revenue decrease. Broadband saw continuous increase in subscribers. Mobile recorded JPY 26 billion, thanks to subscriber growth and improvement of ARPU. And mobile revenue, since third quarter FY 2023, we posted a continuous revenue growth. We had a lot of questions about acquisition and others earlier today, but we want to grow both in revenue and profit. So we continuously want to focus on increasing the top line. The Consumer segment waterfall chart. Excluding cost of goods and service, gross profit was JPY 37 billion and expenses or promotion expenses increased by JPY 36 billion and acquisition cost increased by JPY 13.6 billion because of increase of amortization. And promotion expenses increased mainly due to the more cost to support device purchase program. As for electricity, revenue down, but cost of electricity services improved by JPY 35 billion. Broadband saw JPY 7.4 billion increase and depreciation and others, net-net, JPY 3.2 billion. The mobile increased by JPY 26 billion. So that's how it constitutes of 6% of profit. And next, Enterprise segment. Revenue and profit increased steady growth. Revenue grew by 8.8% or JPY 59 billion. Especially Solution was good, which posted a 13.1% growth. And we continue focusing on double-digit growth in this area. As for segment income, we saw increase of JPY 17.7 billion or 12.6%. Again, double-digit growth is our commitment. And progress to the full year forecast is 84.1%. So Enterprise continues to be driving force for future growth. Business Solutions and other revenue, especially recurring revenue, posted 11% increase. Media and EC segment. System outage by ransomware attack at ASKUL posted a negative impact. In Commerce, we saw a loss of JPY 9.6 billion, which mainly due to ASKUL's third quarter impact. But excluding that, we saw a modest growth. Media posted a slight growth in revenue and strategy, thanks to M&A, we saw a steady growth. And segment income is shown on the right-hand side. Overall, we saw a decline by JPY 5 billion or 2.5% year-on-year. There were some valuation gain from restructuring, which was a onetime impact and ASKUL negative impact was JPY 19 billion. And details were already disclosed by LINE and Yahoo!, so I'm not going to go into detail here. Next, Finance segment. Revenue expanded steadily, increased JPY 56.9 billion or 23.9%. And PayPay posted double-digit growth and income contributed JPY 32 billion, and that resulted in JPY 66 billion of segment income. Distribution segment and others. Again, we see a steady growth and increased JPY 157 billion or 25.6% year-on-year. Income increased by JPY 7 billion or 29.2% and progress toward full year forecast was 96.3%. Others operating income up to third quarter, we increased R&D investment by JPY 19 billion. Subsidiaries costed promotion expenses in the third quarter, but it's been recovering. And for the full year, we should be able to show you a positive number. And net income, thanks to increase in operating income, overall, we saw increase of JPY 48.9 billion or 11.2% year-on-year. Progress toward full year forecast was 89.9%. Other than operating income, financial income and loss, thanks to LY was JPY 15.7 billion. Absence of valuation loss of put options for equity method associated in the previous year, profit from sales of shares in Remember & Company and company that was last year's onetime event. And tax effect relating to PayPay was also there. And SoftBank, absence of deferred tax impact from business restructuring in the previous year, we saw improvement in income taxes. CapEx, almost on plan. Consumer and Enterprise, this year's guidance was JPY 34 billion and -- excuse me, JPY 340 billion and progress towards that full year forecast is 67.3%. And AI saw a decrease by JPY 10 billion and IFRS 16 impact increased due to the signing of lease contract for data centers. AI computing will be described later in the slides. Since purchasing Sakai, including Tomakomai partly, also AI computing infrastructure. And you can see as of now at the right bottom, total is JPY 257 billion, and we are going to do the acceptance of the JPY 200 billion and the payment is JPY 190 billion. So this is funded by bond type class shares. For the next mid- and long-term business management plan and how we are going to manage is we are now in the discussion. We would like to announce in the next presentation. Regarding primary free cash flow -- so as for the cash flow generation is our big target. So it has a steady progress. And operating cash flow increased in EBITDA and investment cash flow also increased. As for the long-term growth investments are funded by the different things. So we have continued with the same reconciliation. So free cash flow and net leverage ratio are our focus. So let me explain about the net leverage ratio. First, left side, interest-bearing debt is 3.07 compared to previous year. It's 0.12 increase year-on-year. And this is increased by JPY 120 billion year-on-year. And as you can see for the net leverage ratio, it's almost flattish. And here's the balance sheet. So our balance sheet, please pay attention to this JPY 18.2 trillion compared to the last fiscal year-end, it is increased by JPY 1.9 trillion. So this is due to the financial business expansion, including M&A. And as you can see, the equity attributable to owners of the company and equity -- this one is showed JPY 211.6 billion year-on-year. And -- so over 7 years, it has grown greatly. So when you look at equity and since we do have dividend payout compared -- so it is good to see year-on-year compared to previous year. So it has increased by almost JPY 200 billion. From here, I would like to explain about KPI. First, telecom. Mobile subscribers grew by 0.69 million by 2.2%. Just before listing, it was it was 2.46 million. So it has increased by 15 million or so. So looking at the right side churn rate due to the electricity churn rate, so it has increased to 1.45%, 0.15% year-on-year. So we hope that we can announce improvement of the result in the next quarter. So next one is the net additions and Mr. Miyakawa mentioned in the previous presentation, so net losses were recorded. And this corporate change would also lead as we focus on the increased revenue and income. So next, ARPU. Year-on-year, it's minus JPY 10. So on the right side shows it was minus JPY 30. Now it's minus JPY 10. When we look at Consumer, so it's turning to positive. So including Enterprise, it still shows minus. However, our forecast was minus JPY 30 full year. And at the end of the -- so full year forecast of minus JPY 30, we would like to maintain this. And next to electricity broadband. Compared to last year, so it's increased by 0.1 million and electricity shifting the acquisition effort. So it is improving gradually. And media and EC, so both EC transaction value and group total advertising revenue expanded. Next, PayPay users increased steadily. And so the number of users exceeded 70,000 and the MTU also exceeded 40 million. And the number of payments increased by 18.5%. So number of payments significantly outpaced the user growth. So it means that the rise in payments per person. So next, GMV, this also growing steadily and increased at 23.7%. So since the number of payments was 18.5% increase. So all the businesses is increasing in every manner. And next is -- the PayPay Bank's deposit and loan balances also showed steady growth. So as for PayPay revenue increased by 26.3%. Right side shows EBITDA shows great increase. So we are looking forward to its further growth. SB Payment Service. So this business is growing steadily and the non-telecom area is growing as we make strategy. And the next is about ESG topics. So we were recognized as a prime Seat company this year as well. Also in other areas, we have received a very high rating. Please take a look at this slide for the details. Next, I would like to explain about our upward revision of full year forecast. This is the summary from revenue to net income, all of them we revised upwardly. Revenue, all segments contributed, excluding impact from system outage at ASKUL. So we were at the pace of exceeding the JPY 7 trillion due to the system outage at ASKUL. So we revised the variance by JPY 250 billion for revenue. As for EBITDA, mainly due to distribution and improvement in R&D and other costs. Operating income, I will explain detail later. And net income mainly due to upward revision of operating income and so on. And this is the details of the operating income. Upfront investment and R&D expenses were the major reason. This concludes my presentation. Now we would like to move on to the Q&A session. Thank you.

[Operator Instructions] Tokunaga from Daiwa Securities.

Today is the last investor briefing for Fujihara-san. I just want to say thank you, Fujihara-san. With that, I have two questions. I want to hear from Fujihara-san and the new CFO, Akiyama-san. Fujihara-san, what's your expectation for next-generation SoftBank? And second, Akiyama-san, do you have any resolution that you want to share with us?

So I'm going to ask Akiyama-san to give you a few words lastly. From myself, Fujihara, I said goodbye at the end of earnings result announcement earlier. And SoftBank increased both in revenue and profit, and we hit the milestone of JPY 10 trillion. We are ready for our next leap. Talking about AI in the last 10, 20 years, we have been transforming ourselves and AI will bring us more even greater changes. And I think AI will determine the next 10 years of SoftBank. So again, I have high expectation from the new leadership team and whatever I can help, I will do my best.

Second question, more in short term, looking at the plan for operating income, fourth quarter, Consumer expected a little bit of loss and other segment also a loss. So I think others is expected to lose money in the fourth quarter. So Consumer would lose profit a little bit. And also you expect others to suffer from revenue loss.

Well, Consumer, we are working on restructuring and whatever we can do by the end of this fiscal year, we will try to implement. And JPY 150 billion by this year is definitely possible. And other segment, there are a lot of uncertainties, including ASKUL's potential lingering impact. So others and investment may seem big numbers, but we have some buffer included to get ready for next year.

The Consumer's preparation in terms of preparation, Consumer, in which area you prepare for network, marketing expenses or what?

There's not things specific. But in general, we want to get ready. When it comes to acquisition cost, for example, if we can spend the cost efficiently, we wouldn't mind spending acquisition cost. But we just want to make sure that our plan is doable.

Next, Masuno-san from Nomura Securities.

First of all, Mr. Fujihara, thank you so much for all your contribution. And even after your retirement, you will be staying in a certain position. So I'm looking forward to communicating with you. So my question at the earnings results of the midterm, last September, already, you -- so after September to December, over that 3 months, how did you change the direction since the churn rate increased, you drastically changed the direction. So you made a quite drastic change. So what made you do so?

Since September, we have started looking ahead. And in the third quarter, we started shifting our direction. Acquisition cost and lifetime value, the balance between these two, actually, it does not really make sense. So we objectively reviewed the situation and to shift our direction. So as for the Consumer segment, it's been stable, the business. Therefore, our approach -- so we changed our approach, including the acquisition as well. So we need to continue brushing up towards the next fiscal year as well.

So the churn rate, 1.38 -- the churn rate in the third quarter, it could have exceeded even 1.4%. And so just by looking at the churn rate, the figure itself, it could have even exceeded further. So what happened within SoftBank is SIM users canceled in a very short term. Is there anything unique? And what was the -- what is the countermeasure that you have?

Going back to the last -- second half of the last year, our acquisition was doing well with the good net additions. And those users cancellation actually appeared more clearly in this quarter. So far, our acquisition was doing really well. Therefore, it showed quite a big negative figure. So our intention is to take actions when we see the challenges. So that's why we decided to shift our direction to this.

So those who purchased a number of lines and those who has a very short-term contract, so was the bottleneck. So what did actually change?

So we made it more strict for those potential users. And so we reviewed our policies.

Next, Kikuchi-san SMBC Nikko Securities.

You confidently explained the reasons behind net loss. From my perspective, it was amazing. Like Masuno-san earlier asked you ARPU is not really going steadily, and you see increase in churn. And in the fourth quarter, well, even though you revised your forecast a little bit, still very small upgrade. So again, in the fourth quarter, are there any reasons why you have to cost or you just operate the business in a very healthy manner or there are any things that you may have to cost a lot in the fourth quarter? So again, to me, your upward revision was still very small.

Yes, a slight increase, that's for sure. So maybe it is too small to call it upward revision. But on the other hand, ASKUL's impact needs to be absorbed to share with you updated forecast. So that's how it happened. And upward revision is rather conservative. In other words, we are having our business under control.

And Fujihara-san, I have trusted you a lot. So I always wonder how you operate as CFO while looking at potential dividend and looking at investment. But in the next mid to long-term plan, you may want to aggressively invest and you may want to aggressively return to shareholders. So it sounds like very stretchy. Stretchy financial operation you may have to do going forward. So Fujihara-san, what's your view while you are retiring? I don't expect you to say anything at this moment. But I wonder if you have any concerns before you retire.

We have had very healthy productive discussions internally with the senior management team, including CEO, shareholder return and growth, we want to achieve both. And this remains the same. As for shareholder return, dividend ratio may look a little bit high. But in the inflationary environment, we have kept the dividend ratio same. So we want to be comfortable and confident before sharing our view with you. Net leverage ratio and free cash flows are very important from CFO perspective. And in fact, my successor, Akiyama-san has been looking at them for a long time in finance team. So he has a good knowledge, cash flow and net leverage ratio. The growth strategy and investment, we have been again discussing internally to make sure that we can present a very responsible performance.

[Operator Instructions] Masuno-san from Nomura Securities.

I would like to take this opportunity to ask you one more question about investment for the next fiscal year. So you mentioned that you did not include the investment for Sakai data center as well as for the GPUs. How -- so the depreciation for data center is quite long. But for GPUs, it's usually 5-year depreciation. So it would impact. So with the sovereign cloud, together with Oracle, you're going to prepare a large cloud. And I believe that you need to have your own GPU as an asset. So for -- especially for sovereign cloud, the cash out plan for AI, particularly for next fiscal year, what is your view?

Overall, primary cash flow and the upfront investment for midterm plan. For free cash flow -- primary free cash flow, including dividend, and for the rate, we will make sure to handle properly. And for the investment for mid to long term, so what is the return? So we need to also show that clearly. So how we are going to get -- take it back, then we need to also make a proper decision. So for the next mid to long-term business management plan, so what kind of business we would like to plan and establish needs to be well considered. So that will be our core discussion moving forward. As President -- CEO, Miyakawa also mentioned in the presentation, so he mentioned that for you to kindly wait until our next midterm and long-term management plan presentation.

So just for a follow-up, in the 4 to 6 years, there will be more and more return for the investment. But looking at the 4 to 6 years, normally, first year or second year, it will be the upfront investment and 5th or your final year will be the one that you get a return. So -- that's how it normally works for the upfront investment and return.

So the details is still in consideration. We would like to give you a more clear answer to that question in our next presentation or briefing. So we have accumulated our plan and also the funding is quite stable compared to before. So therefore, we should be able to -- once we can establish the good return base, so we have more and more options for our business strategies. So therefore, how we would like to draw a map for the mid- and long-term management plan. And we do also understand your concern. So we would like to also take into concern. Thank you.

That concludes SoftBank Corp's Investor Meeting for the fiscal year 2026 (sic) [ 2025 ] third quarter. Last but not the least, we're going to introduce a successor of Fujihara, Mr. Akiyama.

First of all, thank you very much for your continued support for a long time and really appreciate that. My successor is sitting next to me, Mr. Akiyama. As the Head of Finance Unit, I think he is ready for taking over my role. So I'm going to ask Akiyama-san to give you a few words.

Good evening. My name is Akiyama, SoftBank Corp. I am going to take over Fujihara-san's role as CFO. Let me briefly introduce myself. I joined Nippon -- SoftBank from Japan Telecom. And most of my career was spent in finance. And in 2018, when we listed and since then, I have been engaged in fundraising and making plans of capital and finance to make sure that we can achieve both growth and shareholder return. For the last 12 months under Fujihara-san's leadership, I have been looking over what Fujihara-san do or does. And I'm going to take much more bigger responsibility going forward. But again, I want to still make sure that we can both achieve growth and return. And through that, we -- I would like to help growing corporate value. As Miyakawa-san indicated earlier today, the senior management team will be much younger. And then in May, we're going to announce the latter half of the mid to long-term plan, and I hope that you will expect a lot from that. And Fujihara-san has given me a very warm words, and I myself want to meet his expectations and your expectations. Once again, thank you very much for joining us today and appreciate your continued support.

Thank you. This concludes investor meeting for the third quarter of fiscal year 2026 (sic) [ 2025 ]. A recorded version of today's presentation will be made available on demand on our corporate website. Please feel free to view it at your convenience. Once again, thank you very much for coming to our investor meeting despite your very busy schedule. [Statements in English on this transcript were spoken by an interpreter present on the live call.]