Game And Anime Business Will Enter Console Games Market For Long-Term Success

Key Takeaways

• Expansion in the Metaverse and DX Businesses predicts enhanced revenue growth and profit starting 2027, driven by new SaaS products and stable revenue streams.
  
• Focused investments in game development, VTuber talent, and GP investments aim to secure long-term growth, improve margins, and ensure profit stability.
  
• Expectation of reduced profitability in multiple segments due to rising costs, delayed projects, and market volatility impacting revenue and earnings.

Catalysts

Operates internet and entertainment, investment, and incubation business.

• GREE Holdings expects strong growth in the Metaverse Business and the DX Business starting in fiscal year 2027, which should enhance revenue and operating profit in those segments going forward.
  
• The Game and Anime Business is targeting long-term growth through a focus on new title development and full-scale entry into the console games business. These initiatives are expected to boost future revenue and possibly improve margins as the business scales.
  
• In the VTuber Business, aggressive investment is planned due to record-high sales, suggesting further revenue growth through expansion of talent and merchandise sales channels.
  
• The DX Business is transitioning to a recurring earnings model by developing new SaaS products set for release, which could lead to more stable revenue streams and improved net margins in the medium term.
  
• The Investment Business is focusing on increasing outside-source fund procurement and shifting towards GP investments, which could enhance earnings and contribute to longer-term profit stability.

GREE Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GREE Holdings's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 9.0% in 3 years time.
• Analysts expect earnings to reach ¥5.8 billion (and earnings per share of ¥33.93) by about February 2028, up from ¥4.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.0x on those 2028 earnings, up from 19.7x today. This future PE is greater than the current PE for the JP Entertainment industry at 21.9x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

GREE Holdings Future Earnings Per Share Growth

Risks

• The Investment business is subject to near-term volatility and market conditions, which could significantly impact consolidated revenue and profitability if market conditions change unfavorably.
  
• There is an expectation of a decline in profit despite an increase in sales in the Game and Anime Business for FY 2025, due to rising promotional and prototype development costs, which could affect net margins.
  
• Delayed release of new titles in the Game and Anime Business is expected to decrease sales compared to the full year forecast, potentially impacting overall earnings and revenue.
  
• Sales growth in the Metaverse Business for FY 2025 is trending below initial forecasts for parts of the platform business, which could impact revenue and expected profit targets.
  
• The Investment business showed volatility in previous quarters with losses due to low dividends and asset impairments, indicating a risk of fluctuations in earnings and revenue in the future.

Valuation

• The analysts have a consensus price target of ¥633.333 for GREE Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥64.3 billion, earnings will come to ¥5.8 billion, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of ¥561.0, the analyst price target of ¥633.33 is 11.4% 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.