Second-quarter earnings call, November 5, 2026

The guidance raise is real, but it is not coming from media

LY Corporation raised full-year adjusted EBITDA guidance to JPY 640 billion from JPY 585 billion, implying 28.9% year-on-year growth. Revenue guidance rose to JPY 2.33 trillion from JPY 2.24 trillion, and adjusted EPS guidance to JPY 35 from JPY 30. Second-quarter revenue grew 11.5% and adjusted EBITDA 20.9%, with a consolidated margin of 26.9%. Management said first-half progress against the EBITDA and EPS targets exceeded 50%.

CFO Ryosuke Sakaue's bridge from the original plan showed that the upgrade rests on commerce and fintech, not on the legacy advertising franchise. Commerce revenue guidance rose by JPY 130 billion and EBITDA by JPY 16 billion, mostly because the initial plan had been deliberately conservative on ASKUL's recovery and the newly consolidated LINE MAN. Strategic business EBITDA guidance rose by JPY 31.5 billion to JPY 160 billion, driven by PayPay as online payments lift the take-rate mix and PayPay Bank lending benefits from higher interest rates. Media revenue guidance was cut by JPY 20 billion, offset by a JPY 5 billion EBITDA increase from LYP Premium, SoftBank Group synergies on large language model costs, and a better gross profit mix.

Sakaue noted that revenue in the newer strategic businesses outside PayPay and the LINE financial services is below plan, saying their start-up "is not really brisk."

Display advertising is the weak spot, and platform integration is part of the cause

Management lowered its full-year display ad outlook to a 5% decline from an initial expectation of 3% to 4% growth, a swing of roughly 8 points. Q2 display ad revenue fell 8% year-on-year. Search ads are now expected to fall 6% for the year, versus 5% previously.

The explanation for display was candid. About one-third of the shortfall stems from the sunset of the VOOM tab in the LINE app, whose video inventory has not been fully replaced by the Home tab. The remaining two-thirds comes from integrating the LINE and Yahoo! ad back-ends. Sakaue said that advertisers who previously held separate budgets are now buying more efficiently: "It was not 1 plus 1 equals 2, but 1 plus 1 equals 1.6 or 1.8." Management expects some difficulty to persist through the second half.

On search, Sakaue described Q2 unit pricing as "very good" but treated it as likely temporary, so the second-half guidance assumes a Q1-like trend. AI-mode search ads are still in testing and have not yet delivered good results, and the company plans to scale them in the next fiscal year.

Agent i: real usage, early monetization, and no sizing

Agent i now has over 40 domain agents, a stand-alone app launched in November, and a scheduling agent accessible from LINE chats. On Yahoo! JAPAN Shopping, users of AI features convert at about 1.7x the rate of non-users, and 22% of transaction value is now generated through AI.

Monetization has begun but is narrow. Display ads for selected users started in July, and charging for shopping search ads began at the end of August. A premium plan for heavy token users is planned this fiscal year. Commissions for shopping assistance and billing for LINE Official Account AI mode are still to come. In response to UBS on size and timing, CEO Takeshi Idezawa offered no figures and conceded that management is still verifying which area will be the core: "Right now, about the monetization, which part will be the core, we are still verifying that."

Management said it welcomes global competitors such as Meta's Muse, arguing that LINE chat, Yahoo!'s data and vertical networks in restaurants and inns, and the ability to complete a purchase or booking within the group give it an edge. That is a plausible argument, but it was not quantified. Management also said AI's contribution to commerce transaction value "is yet to come" and should show up from next year.

Structural cost cuts underpin a higher medium-term profit outlook

Sakaue said the company's earlier medium-term view of high-single-digit profit growth was "conservative," and that growth of at least 10% is sustainable from next fiscal year. The main support is cost: AI-assisted engineering, lower outsourcing and personnel spending, and reduced fixed costs. A JPY 12 billion positive in the second-half "other adjustments" line reflects the full-year effect of company-wide cost reductions that were not allocated to segments.

BofA's Yoshitaka Nagao pressed on the quality of this growth, noting that Media sales grew 1.9%, shopping transaction value 0.7%, and that roughly half of EBITDA growth looks like cost reduction. Management's reply emphasized portfolio shift toward stock-type revenue (LINE Official Account, LYP Premium), user growth in Commerce and PayPay's expansion, but it did not offer a core-business growth rate excluding PayPay, ZOZO and ASKUL. Visibility on organic top-line growth in the core remains the central debate.

Subscription and account revenue provide the steadier growth

LYP Premium reached 10.9 million direct subscribers, or 7.27 million excluding LINE MUSIC and sticker subscribers, with revenue on that basis up 27.2%. Management said LINE-based benefits such as message unsending and Netflix content are driving sign-ups and keeping cancellations low, a contrast with earlier cohorts that joined for YAHUOKU! access and then left.

Domestic LINE Official Account revenue grew 14.1%, led by small and medium-sized businesses, and a pricing change in October aims to raise revenue per message. Overseas is weaker, with Thailand struggling under tighter internet advertising regulation and a soft economy. Taiwan should reach 14% to 15% growth after a planned price revision. Store DX is the least developed area. Management called itself a laggard against existing products, said there are functionality gaps to close, and is holding off on expanding the sales force until the product is ready. It disclosed no revenue or store counts.

Commerce: shopping flat, reuse and services strong, fee model shifts

Commerce EBITDA rose 23% and the margin improved to 17.2% from 15.5%. Shopping transaction value grew 0.7% against a high base from last year's hometown tax donation rush, while reuse rose 11.1% and services 10.3%. ASKUL's decline narrowed. Management cited inflation of about 2%, rising LYP and PayPay participation, and market share gains, and said it expects double-digit reuse growth to continue, helped by cross-border demand from the weak yen.

In September, Yahoo! JAPAN Shopping moved sellers toward a monthly fee scheme, away from the results-based advertising model introduced in 2023, in anticipation of agent-driven commerce. Rakuten is raising its fees by 40% from February. COO Makoto Hide said LY prioritizes scale over margin: "Rather than just increasing the profitability, we want to expand the volume."

Kakaku.com bid, one-off distortions and capital returns

Reported Q2 net profit fell about 60% because last year included JPY 44.3 billion from the LINE MAN remeasurement and a JPY 19 billion PayPay tax benefit, together JPY 63.3 billion. Excluding them, Sakaue said profit rose 32%.

On the contested Kakaku.com situation involving EQT, Sakaue described a "tug of war." He said LY's proposal sits at a price range whose lower limit is still higher than EQT's price, and that the valuation of more than 30x is already at the top of the historical range. He still sees AI-era synergies, citing Tabelog and Kyujin Box, but signaled price discipline.

The annual dividend rises to JPY 12 from JPY 11. A new shareholder benefit of Yahoo! JAPAN Shopping gift certificates brings the combined yield to 3.4%. Management said security spending is rising with more cyberattacks and AI-based diagnostics, but that it is included in guidance.