LY Earnings: Margin Outlook Still Strong Amid Security Concerns, Shares Undervalued

LY’s March-quarter revenue of 7.8% growth fell short of our projected 11.2%. Still, its adjusted EBITDA margin of 19.7%, excluding ASKUL’s one-time gain, was higher than our projected 19.0%, mainly due to lower-than-expected promotional spending in the commerce and strategy segments. For the fiscal year ending March 2025, LY guided for revenue growth of 7.0% and adjusted EBITDA growth of 3.6%-6.0%, which seems conservative at first glance. However, excluding last year’s one-time gains and this year’s one-off expenses for security measures, actual adjusted EBITDA growth is 9.7%-12.2%, which we believe better conveys LY’s message for the fiscal year ending March 2025 and beyond—focus on profitability growth and cost discipline. Our fair value estimate is unchanged at JPY 520 per share after slightly trimming top-line growth and raising adjusted EBITDA margins for the next five years.