AI And Blockchain Trends Will Empower Mobile Gaming Expansion

Key Takeaways

• Exceptional project pipeline, VTuber growth, and strategic anime-gaming convergence position GREE for substantial, recurring profit and margin expansion across core entertainment businesses.
  
• Early blockchain, Web3, and AI adoption could unlock new digital revenue streams and facilitate long-term operational scalability and profitability.
  
• Heavy reliance on legacy gaming and slow adaptation to new trends, amid rising costs and weak diversification, threatens competitiveness, earnings stability, and long-term growth prospects.

Catalysts

Engages in game and Metaverse businesses.

• While analyst consensus anticipates improved competitiveness and faster market response from restructuring in the Game and Anime businesses, the exceptional strength of GREE's current development pipeline-including large-scale projects tied to major IP-could trigger a step-change in hit rates and yield an acceleration in both revenue and operating profit margin growth well above expectations, especially as global mobile gaming access expands.
  
• Analysts broadly expect aggressive VTuber investments to improve profitability as the segment scales, but the transformational 150% year-over-year sales growth and imminent full-year profitability could make the VTuber division a breakout cash cow, with diversified revenue from live events, global superchat monetization, and branded merchandise providing outsized upside to consolidated earnings.
  
• With proprietary anime IP monetization and new Merchandising and Entertainment Solution initiatives, GREE Holdings is poised to leverage the growing convergence of gaming, anime, and virtual entertainment experiences; this creates high-margin, synergistic content cycles that can drive compound topline and bottom line expansion via recurring licensing, cross-media collaborations, and B2B digital solutions.
  
• Early moves into blockchain gaming, Web3, and metaverse platforms-aligned with the worldwide rollout of high-speed internet-position GREE to capture new digital economies, yielding additional recurring revenue sources, transaction fees, and digital asset sales, with significant upside optionality for medium
• and long-term earnings growth.
  
• The company's expanding use of AI and data analytics in consumer engagement across its game and platform businesses is set to boost user retention and average revenue per user, translating directly to structurally higher net margins as digital advertising spending rises and operating leverage improves across scalable online products.

GREE Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on GREE Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming GREE Holdings's revenue will grow by 5.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.1% today to 9.3% in 3 years time.
• The bullish analysts expect earnings to reach ¥6.2 billion (and earnings per share of ¥36.3) by about August 2028, up from ¥1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 28.2x on those 2028 earnings, down from 65.9x today. This future PE is greater than the current PE for the JP Entertainment industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.31%, as per the Simply Wall St company report.

GREE Holdings Future Earnings Per Share Growth

Risks

• GREE Holdings continues to rely heavily on existing mobile game titles and legacy social gaming models, and recent results show sales and operating profit in the Game business are declining or stagnating, while heavy upfront investments into new titles could squeeze net margins further if new releases fail to become breakout hits, risking future revenue growth and bottom-line improvement.
  
• In both the Metaverse and IP businesses, there were downward revisions to medium-term sales and operating profit targets and recurring losses driven by higher upfront costs and weak avatar or anime-related sales, signaling that these newer ventures may not offset stagnation in core segments, which could ultimately undermine earnings stability and growth prospects.
  
• The company's guide suggests operating profit will materially decline next year, with cost pressures from development and investments anticipated to drive margins lower, while reliance on events and anniversaries for revenue spikes in the gaming segment provides less predictable cash flows and could impact both net profit and investor confidence long term.
  
• GREE Holdings' international expansion efforts remain limited and are challenged by high industry competition and cultural barriers, leaving it exposed to demographic decline in Japan and mature markets, which increases the risk of revenue stagnation as user bases shrink over time.
  
• The rapid shift in the entertainment and gaming ecosystem toward large-scale consolidation, newer immersive and decentralized platforms (such as blockchain or streaming), and stricter regulation around in-game monetization could significantly undermine GREE's competitiveness, restrict monetization, drive up compliance costs, and limit growth in revenue and net income if the company cannot adapt swiftly enough.

Valuation

• The assumed bullish price target for GREE Holdings is ¥800.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of GREE Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥800.0, and the most bearish reporting a price target of just ¥580.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ¥66.9 billion, earnings will come to ¥6.2 billion, and it would be trading on a PE ratio of 28.2x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of ¥459.0, the bullish analyst price target of ¥800.0 is 42.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.