COVER Corporation Q4 FY2025 earnings call

• Overall Financial and Operational Performance

  • Full year revenue grew 43.9% and gross profit grew 55.9% year-over-year, with gross margin improving significantly due to the expanded sales mix contribution from merchandising, particularly TCG.
  • The VTuber market continues rapid growth, backed by national policy support for Japanese content exports that targets a 20 trillion yen overseas Japanese content market by 2033; Cover benefits from this tailwind with its high-engagement fan base built on massive content output and interactivity.
  • A new organizational structure launched in April 2025 to adapt to diversified business lines and rapid growth, with clear executive accountability for key segments to improve operational efficiency and cross-line synergy.

• Strategic Growth Drivers for Mid-Term Targets

  • Strengthened content supply through co-creation: Aim to consistently produce top talents across diverse creative fields, improve content production efficiency and sophistication, and expand brand recognition through collaborations with major external media and content partners.
  • Establish a global revenue base: Build local production and distribution infrastructure for merchandise in large consumer markets (North America, Asia), expand global licensing transactions, and invest in overseas office operations, supply chain data infrastructure, and overseas marketing, with strategic partnerships and M&A as options to accelerate expansion.
  • Expand revenue in new business segments: Focus on global expansion of TCG and build profitability in digital content areas including games and Holoearth. Expand co-development partnerships with external developers for IP-based digital projects, and develop Holoearth as an expanding user experience infrastructure.
  • Advanced utilization of human capital: Maximize organizational performance through optimal talent placement and development, and improve overall operational sophistication through strengthened management department infrastructure to support sustained growth.

• New Business Development Progress

  • Game projects: Risk is diversified across project types. holo Indie (a 2nd party creator game label) has launched 22 titles with growing revenue from third-party developed projects, and a major mobile game title has been announced. Holoearth version 1.0.0 launched in April 2025 with a user marketplace for custom items, with additional features including virtual lives and motion tracking in development. 1 billion yen in development-related expenses are expected for the 2026 March fiscal year, up from 500 million yen in 2025.
  • Overseas operations: New overseas talents have steadily increased content output and video views, with growing numbers of overseas live events and expanding merchandise shipments that reflect higher fan engagement. B2B licensing and tie-up deals are also growing, strengthening Cover IP's global presence.

• Capital Allocation Policy

  • Cover expects to allocate up to 500 billion yen cumulative for growth investment and M&A over the 5 years to the 2030 March fiscal year, focused on strategic areas including overseas development, production capacity strengthening, production/logistics optimization, revenue diversification, and management infrastructure improvement. M&A will be evaluated cautiously on a case-by-case basis. Management will maintain sufficient cash buffer for business risk, and will consider shareholder returns as financial health and cash generation improve.

For the full 2025 March fiscal year, total company revenue was 43.401 billion yen, with gross profit of 21.805 billion yen, operating profit of 8.001 billion yen, and net profit of 5.559 billion yen. 1. Distribution/Content: Full year revenue was 9.323 billion yen, up 21.9% year-over-year, contributing 21.5% of total revenue. Growth was driven by continuing hits from large-scale distribution projects and fan base expansion from popular new domestic and international talents that debuted after 2023. 2. Live/Events: Full year revenue was 7.793 billion yen, up 39.1% year-over-year, contributing 18% of total revenue. Growth came from successful overseas live events including Hololive English's 2nd North American concert and the first Hololive Production world tour, plus multiple sold-out large venue solo lives from popular talents. 3. Merchandising: Full year revenue was 20.539 billion yen, up 64.6% year-over-year, contributing 47.3% of total revenue. The newly launched hololive OFFICIAL CARD GAME greatly outperformed sales expectations, while expanded retail distribution and diversified merchandise offerings expanded reach to broader user segments. 4. License/Tie-up: Full year revenue was 5.744 billion yen, up 29.4% year-over-year, contributing 13.2% of total revenue. Growth was driven by strengthened sales operations that steadily expanded the number of domestic and international agency partners and projects, with the North American office launching in mid-2024 to build local client pipelines. In Q4 2025, total revenue grew 32.9% year-over-year, driven by strong performance from large solo lives and record attendance at hololive SUPER EXPO 2025, plus continuing TCG growth.

• For the 2026 March fiscal year, management guidance is 52.5 billion yen in total revenue (+20% year-over-year), 8.2 billion yen in operating profit (+~2.5% year-over-year), and 5.7 billion yen in net profit. This guidance expects a temporary year-over-year profit decline in the first half due to fixed cost increases from forward investment and seasonal concentration of revenue in the second half, with only a slight full year profit increase.
• A total of 3.092 billion yen in forward-looking investment is planned for 2026, covering production capacity expansion, R&D for content technology, supply chain optimization infrastructure, overseas business development, Holoearth amortization and operations, and management infrastructure strengthening. Excluding these forward investments, the adjusted operating profit reference is 11.2 billion yen, for an adjusted margin of 21%.
• Management has set a mid-term target to reach 100 billion yen in revenue and 25 billion yen or more in operating profit by the 2030 March fiscal year. The target prioritizes absolute operating profit over margin during the investment phase, with margin improvement expected after the business expansion phase is complete, driven by economies of scale and cost optimization. The mid-term 20% annual average revenue growth is achievable through organic growth, with strategic partnerships and external resourcing as optional growth levers.
• Significant full year revenue upside is possible from faster-than-expected growth of TCG (including the upcoming English global launch), supply chain optimization from the mid-year logistics warehouse relocation, expanded deals with large overseas partners, and growth from music and gaming business segments.

• Rising production and content costs are becoming more apparent as content volume and production sophistication increase, requiring ongoing work to balance revenue growth and operational improvement.
• Supply chain and inventory management need further optimization for merchandising as shipment volumes grow. For the licensing business, growing overseas deals require improved local production infrastructure and licensing supervision systems to support further expansion.
• In Q4 2025, Cover recorded ~200 million yen in inventory valuation write-downs for older products, and the first large-scale North American solo live identified operational and cost control improvement opportunities.
• US tariffs on Chinese-manufactured goods have impacted short-term North American consumer sentiment, and approximately 10-15% of Cover's total EC revenue is exposed to this risk. While the impact is not expected to be fatal due to geographic revenue diversification, it remains a monitored uncertainty, and is one factor behind the conservative first half 2026 budget.
• Rapid unplanned growth beyond organizational capacity can lead to operational errors that create substantial unexpected costs, so management intentionally prioritizes steady, controlled expansion to avoid this risk.
• Building a global supply chain is a high-complexity, long-lead project, and full revenue contribution from global expansion is not expected until the second to third year of the mid-term period.

Q: When will accelerated profit growth materialize for the 25 billion yen 2030 operating profit target, and could it come as early as 2027? / A: The major growth drivers of global expansion and new business revenue are expected to deliver full profit contribution starting in the second to third year of the mid-term period. Large licensed mobile game development, already publicly announced, will begin contributing profit from next year's first half. Building out global supply chain infrastructure takes more time, so full impact will come later. Management is currently restructuring operations to avoid organizational bloat, and hiring will slow after 2026, with personnel cost growth decelerating in the second half of the 5-year period, allowing profit growth to accelerate as sales grow.

Q: What is Cover's approach to talent retention and new talent hiring after recent talent graduations? / A: Some level of talent turnover due to personal life plans is unavoidable, but management had become too focused on business expansion and lost regular communication with talents. The new April 2025 organizational structure restructures leadership to free up management to focus more on supporting existing talents. Instead of replacing departing talents one-for-one, the current focus is on growing the influence of existing popular talents, which creates a win-win outcome for both talents and the company. New talent development continues as a long-term priority, but the focus is on supporting growing existing talents rather than unnecessary expansion of the talent roster.

Q: What tariff impact does Cover expect, and how is it managing the risk? / A: The impact is still new so long-term trends are unclear, but it has already affected short-term North American consumer sentiment, which Cover has observed via social media. Around 10-15% of total EC revenue is exposed to this risk, as a large share of exported merchandise is manufactured in China. Cover is developing multiple short and long-term measures, including pushing for local production, shifting small-batch production to Japan, and optimizing cost sharing between the company and consumers to minimize consumer impact. The impact is not expected to be fatal due to geographic diversification, but it is one reason for the conservative first half 2026 budget.

Q: What TCG sales size does Cover expect for 2026, including overseas sales, and can production scale to 10 billion yen if demand hits that level? / A: The base budget forecast is 4 billion to 5 billion yen in total TCG sales for 2026, with significant upside potential, as 2025 (a partial year) already delivered over 3 billion yen in sales. Overseas sales are forecast conservatively at less than 1 billion yen for 2026, but global wholesalers have already reported strong positive demand, so upside is possible. Full rapid 5x production scaling is not feasible immediately, but production can be adjusted incrementally based on demand over monthly and quarterly timelines. Theoretically, 10 billion yen in annual production is possible, and rollout will be staged based on actual demand growth.

Q: Why is 2026 revenue growth guided to 20% after 44% growth in 2025, when the market is still growing 30-40% annually? / A: Management is confident the VTuber and related content market continues to grow, but intentionally sets conservative guidance to avoid the risk of supply-demand imbalance that could cause a short-term market correction, especially since content business growth has lagged demand and it is hard to forecast demand precisely at the start of the year. Rapid growth that outpaces organizational development can also lead to costly operational errors. New businesses like TCG have high volatility, so management maintains a conservative forecasting approach; guidance will be updated through the year as performance becomes clearer, following past practice.