Hololive's Cover Corporation continues to experience margin compression due to excessive spending, increased annual salaries with employees working with Unity, Unreal and their Metaverse project and delayed response to Japan-U.S. tariff trade issues. Q3 will see a partial return to normal merchandise sales to the U.S. with Cover finally responding to shipping costs beginning mid November 2025. CFO Kaneko admitted during their Q2 financial results briefing the company's merchandise sales from the U.S. are affected by roughly ¥300-400 million Yen per quarter through the first half of FY2026. While a noticeable drop was observed in warehouse expenses (approximately ¥200 million yen), further monitoring of SG&A expenses will need to be followed closely to verify the expense trimming was due to their recent logistics changes and not a result of slow U.S. merchandise sales.
Cover's Q3 report and accountability will rest on the execution of their merchandise sales and licensing/collaboration contracts in Q3. Cover's overreliance on their TCG is glaringly obvious as the market has begun to integrate those earnings into their consensus models. While solid gains are being made in sales thanks to the TCG, VTuber related merchandising is beginning to slow in volume despite the aggressive push in the market. e-commerce will be essential for sustained growth from Holo Indie and HoloEarth.
Concerts and events, while important for public exposure, carry hefty price tags that have recently cancelled out most revenue gains achieved by these spectacles. Cover must begin capitalizing on the "protolive" technology they've been developing for HoloEarth performances to blend the venues in order to make these expenses worth the cost.
If you're currently an investor (like I am), I suggest holding until Q3 before making a decision. Q3 will likely be the quarter that determines whether or not this fiscal year is at its turnaround phase. If Cover misses their Q3 forecast, they might in all likelihood miss their Q4 forecast as well. Despite being their most profitable quarter, it's also the most expensive. And, while cover continues to quietly pocket billions of Yen, their market capitalization continues to drop. Either way, if Cover remains a publicly traded company, we can anticipate (in my opinion) 1400 will likely be their bottom of the barrel resistance line; while near term, in my opinion Cover is a hold at ¥1650.
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