MEDIA DO Co.,Ltd. Q4 FY2025 earnings call

Core Mission and Vision Update

• Updated the corporate vision to "MORE CONTENT FOR MORE PEOPLE!", shifting focus from collecting Japanese content for domestic consumers to distributing Japanese content (including local/regional content) to 8 billion global consumers, building on the first phase of establishing the top domestic electronic book agency position with over 2.6 million titles and 2,200 partnered publishers.
• Mission is to enable a healthy creation cycle for copyrighted content, contributing to the development of Japanese culture and the expansion of Japanese content globally.

Electronic Book Distribution Business Strategy

• Leverage growing resource pressure on large distribution platforms to capture new large distribution streams (already secured Piccoma and upcoming Mechacomic), and help platforms reduce operational load while accelerating distribution speed.
• Accelerate digitization of under-digitized text and magazine content: currently only 6.9% of text content revenue comes from digital formats, and only 40% of new text titles are digitized; digitization will unlock potential for audiobook conversion and translation for global markets.
• Maintain strict cost control, keeping cost of goods sold (excluding royalties) and SG&A at historically low levels.

Global Expansion Strategy

• Build an end-to-end support system for Japanese publishers' overseas expansion, leveraging the company's existing content library and group assets:
  • Combine AI (LLM) translation via the MediaDo Translation System with human translator oversight, building an automated system that dynamically selects the best translation engine for each language, and outputs format-ready files for different distribution channels.
  • Use the group-owned NetGalley platform to provide digital galley access to over 1 million global bookstore staff and librarians to support promotion of Japanese content to overseas retailers, addressing differences between Japanese and Western book distribution models.
  • Leverage Firebrand Group's global publishing technology tools and existing global customer base to support everything from distribution to marketing and e-commerce site building.
  • Special sponsorship of the Tokyo Copyright Fair to expand connections between domestic and overseas publishers, and already manages the NTT Docomo MANGA MIRAI North American e-bookstore.

Strategic Investment Business Restructuring and Strategy

• From 2026 February onward, restructure the segment to three sub-segments: International Business, Consolidated IP & Solutions Business, and SC (Sustainability Creation) Business.
  • IP & Solutions: Nihon Bungeisha has completed base restructuring, launched its new web serialization site Goraku Web, and will enter a full profit recovery phase focusing on new content and media mix expansion; leverage existing publisher relationships to capture rapid growth in the Japanese audiobook market, where MediaDo already partners with Amazon Audible; Flier will expand its corporate summary service and new organizational growth products after its successful IPO.
  • SC Business: Move the already profitable Tokushima Gambarous B-League basketball team into this segment. The team achieved profitability in its second year of league entry, growing revenue from 180 million yen to 440 million yen (18 million to 44 million USD), and targets promotion to the B1 Premier League with key focus on new arena development in partnership with local government.
  • Expand the regional innovation hub TIB, which has grown from a local Tokushima initiative to xIB JAPAN operating in 15 prefectures, with plans to expand to 20 prefectures by 2026.

Capital Allocation and M&A

• Plan to generate 220 billion yen (22 billion USD) in operating cash flow over the 5-year 2026-2030 February mid-term plan: allocate at least 35 billion yen (3.5 billion USD) to shareholder returns (target 30% total payout ratio, plus opportunistic share buybacks), and 110 billion yen (11 billion USD) to growth investment.
• Actively pursue M&A for business expansion, leveraging lessons from past successful acquisitions (Publication Digital Organization and Flier), targeting deals that strengthen distribution position, improve profit via MediaDo's distribution network, expand global channels, or add new technology. Target 15%+ ROIC within 3 years of completed investment.

1. Electronic Book Distribution Business: Full-year revenue growth of 8.9% year-over-year, with 4.1% contribution from existing distribution channels and 4.9% from new distribution channels. Full-year operating profit for the full-year 2025 February period was 13.29 billion yen (1.329 billion USD), which was the highest operating profit since the transfer of LINE Manga. This segment accounts for approximately 92% of total consolidated revenue.
2. Strategic Investment Business: Full-year 2025 February operating loss narrowed to 994 million yen (99.4 million USD), a 300 million yen (30 million USD) improvement year-over-year. Within the segment:

• IP & Solutions business led the improvement: subsidiary Flier achieved full-year profitability after its TSE Growth Market listing, contributing a 118 million yen (11.8 million USD) year-over-year profit increase; other parts of the business saw a ~200 million yen (20 million USD) improvement driven by the MANGA MIRAI project with NTT Docomo and strong growth of the audiobook business.
• Imprint business saw year-over-year profit deterioration, with a 38 million yen (3.8 million USD) profit decline at Nihon Bungeisha and further losses at Altra Entertainment. For Q4 2025 February, the segment reported an operating loss of 234 million yen (23.4 million USD).

• 2026 February Full-Year Consolidated Guidance: Target revenue of 106.0 billion yen (10.6 billion USD), operating profit of 27.2 billion yen (2.72 billion USD), net income of 20.0 billion yen (2.0 billion USD), and EBITDA of 39.3 billion yen (3.93 billion USD), with revenue, EBITDA and net income expected to hit all-time highs; ROE is expected to exceed 10% at 10.9%, boosted by a ~5 billion yen (500 million USD) special gain from the sale of the MyAnimeList equity investment.
• Segment Guidance for 2026 February: Electronic Book Distribution Business expects a 1.3 billion yen (130 million USD) temporary profit decline due to the wind-down of a high-margin service; Strategic Investment Business expects a 5.5 billion yen (550 million USD) profit improvement, with 4.7 billion yen (470 million USD) coming from the consolidated IP & Solutions business; corporate adjustments show a 1.7 billion yen (170 million USD) increased loss driven by higher security and growth expansion costs.
• 5-Year Mid-Term Plan (2026-2030 February): Target organic revenue of 125.0 billion yen (12.5 billion USD) and operating profit of 40.0 billion yen (4.0 billion USD) in 2030 February, hitting all-time highs for both; target return of strategic investment business to positive operating profit by 2028 February (mid-term plan year 3).
• Shareholder Return Guidance: Maintain a target total payout ratio of 30% or higher, guide a full-year 2026 February dividend of 40 yen per share (an all-time high), and will consider opportunistic share buybacks and gradual payout ratio increases going forward.

• Goodwill impairment charges of 551 million yen (55.1 million USD) were recorded in 2025 February for Nihon Bungeisha and Altra Entertainment, reflecting slower than planned business progress for these two subsidiaries, which are now prioritized for improvement.
• The domestic electronic book market is expected to see growth rate slow from 16% annual average historical growth to 4.5% going forward, increasing competitive pressure on all industry players.
• Imprint business performance continues to deteriorate, creating ongoing downward pressure on strategic investment segment profits.
• Global expansion and M&A activities require upfront investment, which may pressure near-term margins, and carry integration risk if targets do not perform as planned.

Q: What makes MediaDo uniquely strong as a book wholesaler compared to traditional wholesalers?

A: MediaDo built its position as Japan's largest electronic book agent with direct contracts with 2,200 publishers holding over 2.6 million titles, a unique scale no other domestic competitor can match. Unlike traditional paper book wholesalers, MediaDo focuses on supporting publishers and platforms with end-to-end solutions from digitization to global distribution, taking on operational load that platforms can no longer handle as market scale grows, aligning its interests with industry growth rather than competing with publishers or platforms.

Q: How will expanded overseas expansion and M&A impact operating profit going forward?

A: The 5-year mid-term plan only includes organic growth targets, and additional growth from M&A and overseas expansion is additive to these base targets. MediaDo follows a disciplined capital allocation framework, targeting 15%+ ROIC within 3 years of any new investment, and will only pursue deals that deliver clear profit improvements, using lessons from past successful acquisitions to manage integration risk. Near-term investment spending will be funded from operating cash flow, with no plans to overleverage the balance sheet.

Q: What service is expected to be terminated, and what is the impact of this wind-down?

A: A legacy high-margin distribution service will be discontinued as part of ongoing business portfolio rationalization. This is the main driver of the expected 1.3 billion yen temporary profit decline in the electronic book distribution segment for 2026 February, after which the segment will return to steady profit growth. The termination simplifies the business portfolio and frees up resources to focus on higher priority growth areas including global expansion and text content digitization.