LY Corporation Q1 FY2026 earnings call

Advertising Media Industry Trends and Company Initiatives

• Advertisers are increasingly focused on return on advertising investment and have become more selective in spending allocations, driven by broader industry shifts and AI adoption.
• Global macroeconomic and geopolitical factors did not have a major impact on the company's Q1 2026 performance.
• The company is leveraging its proprietary media and click data to improve ad targeting and effectiveness, collaborating directly with advertisers to boost their ROI.
• A key structural challenge remains: the company has insufficient video advertising inventory amid ongoing industry shift toward video media.

Agent AI Development Progress

• The combined average DAU for Agent AI across Yahoo Finance and LINE Talk Room currently stands at 12 million.
• Management considers 12 million DAU a strong early result, with a long-term strategic target of 100 million total Agent AI users.
• Multiple monetization paths are currently being tested: integrating AI functions into corporate official accounts and mini apps, AI-driven advertising, and e-commerce transaction referral fees.

Kakaku.com Acquisition Capital Planning

• The 10% IRR target for the proposed Kakaku.com acquisition includes assumptions for the use of debt leverage.
• The 10% IRR standard accounts for reasonably achievable synergies, with planning focused on more certain cost-side synergies tied to Agent AI integration.

No specific absolute financial values or revenue contribution percentages for individual product segments are disclosed in the provided transcript. Limited operational updates are noted: text-based display advertising has improved due to AI integration; user charging growth (driven primarily by LYP premium memberships, with smaller contributions from premium stamps) offset display advertising revenue declines; the reuse segment (encompassing Yahoo Flea Market and Yahoo Auction) saw overall growth from the entertainment products category, with growing numbers of buyers, sellers, rising conversion rates, and higher average transaction prices driven by high-value trading cards, with growth occurring in both domestic and international markets.

• Full-year guidance for flat year-over-year search and display total media revenue is maintained, with no upward or downward revision announced.
• Management confirms that Q1 2026 performance left the company on track to meet full-year guidance, with Q1 profit gains providing a buffer that makes the full-year target achievable even if search revenue declines in subsequent quarters.
• The company remains confident in achieving its four-year consolidated guidance, and notes that shorter-term results may exceed existing guidance.
• The core strategic priority of growing Agent AI to 100 million users is reaffirmed, with new product launches planned to hit this target.

• The advertising market is facing tighter advertiser spending discipline, with companies increasingly selective around advertising investments based on ROI.
• The company faces a persistent structural challenge of insufficient video advertising inventory, amid a broader industry shift toward video media from text-based formats.
• Display advertising revenue is currently declining, partially offset by growth in user charging, putting pressure on overall media segment performance.

Q: What is the current state of the advertising market and what key challenges does the company face in its media business?

A: Advertisers now prioritize return on investment more than ever and are stricter and more selective about ad spending, particularly in some sectors. While the global environment impacts the market, it did not materially affect the company's Q1 performance. The main structural challenge is insufficient video ad inventory amid a shift to video, though text-based display ads have improved thanks to AI integration.

Q: How should we interpret the 12 million DAU for Agent AI, and what is the progress on monetization?

A: The 12 million DAU is the combined average of Agent AI across Yahoo Finance and LINE Talk Room. Management calls this a strong early result, but the long-term target is 100 million total Agent AI users, so further growth is needed. Multiple monetization strategies are currently being tested, including AI for corporate accounts, AI advertising, and e-commerce referral fees.

Q: Is the 10% IRR target for the Kakaku.com acquisition including leverage and synergies?

A: The 10% IRR target does include assumptions for the use of debt financing. It also accounts for reasonably achievable synergies, with planning focused on more certain cost-side synergies related to Agent AI integration, which meets the company's standard investment hurdle rate.

Q: Why is full-year search and display media revenue guided to be flat, and can the target still be achieved if search declines?

A: Management has not revised the flat full-year guidance. Q1 performance was strong enough to build a profit buffer, so the target remains achievable even if search revenue declines later in the year. Display revenue declines are offset by strong growth in user subscriptions, primarily driven by LYP premium memberships.