Capcom Co., Ltd. :CCOEY-US: Earnings Analysis: Q2, 2017 By the Numbers : November 16, 2016

Capcom Co., Ltd. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Capcom Co., Ltd. – KONAMI HOLDINGS CORP Sponsored ADR, Electronic Arts Inc., Take-Two Interactive Software, Inc., Sega Sammy Holdings Inc. Sponsored ADR, Nintendo Co., Ltd. Unsponsored ADR, Sony Corporation Sponsored ADR and Microsoft Corporation (KNMCY-US, EA-US, TTWO-US, SGAMY-US, NTDOY-US, SNE-US and MSFT-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 173.40 million, Net Earnings of USD 17.74 million.
  • Gross margins widened from 28.68% to 33.81% compared to the same period last year, operating (EBITDA) margins now 21.98% from 11.08%.
  • Year-on-year change in operating cash flow of 25.58% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 173.4 101.26 173.06 209.48 140.54
Revenue Growth (%YOY) 23.39 -15.08 25.12 11.68 -9.38
Earnings (mil) 17.74 -13.08 6.41 41.65 3.14
Earnings Growth (%YOY) 465.02 -201.63 902.43 36.42 -85.01
Net Margin (%) 10.23 -12.91 3.7 19.88 2.23
EPS 0.16 -0.12 0.06 0.37 0.03
Return on Equity (%) 10.44 -7.73 3.94 27.04 2.11
Return on Assets (%) 6.68 -5.01 2.65 18.17 1.41

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Market Share Versus Profits

Revenues History
Earnings History

CCOEY-US‘s change in revenue this period compared to the same period last year of 23.39% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CCOEY-US is holding onto its market share. Also, for comparison purposes, revenues changed by 71.25% and earnings by 235.69% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 28.68% to 33.81% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 11.08% to 21.98% compared to the same period last year. For comparison, gross margins were 24.61% and EBITDA margins were 6.36% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CCOEY-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 249.86 days from 263.70 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

CCOEY-US‘s change in operating cash flow of 25.58% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 4.78% to 13.75% and (2) one-time items. The company’s pretax margins are now 14.58% compared to 4.23% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

CAPCOM Co., Ltd. engages in the planning, development, and sale of home video game software, online games, mobile contents, and amusement equipment; and operation of recreational facilities. It operates through the following segments: Digital Contents, Arcade Operations, Amusement Equipment, and Other. The Digital Contents segment develops and distributes home video and mobile phone games and contents. The Arcade Operations segment operates amusement centers under the brand, Plaza Capcom. The Amusement Equipment segment develops, manufactures, and sells arcade game and pachinko gambling machines. The Other segment includes character contents business. The company was founded by Kenzo Tsujimoto on May 30, 1979 and is headquartered in Osaka, Japan.

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