Kids Star (248A) FY2026 Q2 Earnings Deep Dive: Revenue and Profit Decline Within Plan, Focus Shifts to Media Value Recovery and Global Expansion

Kids Star Inc. (Securities Code: 248A) reported a year-on-year decline in both revenue and profit for the second quarter of the fiscal year ending December 2026 . This result was primarily driven by the reactionary decline from one-off contract projects in the same period last year, alongside increased investment costs aimed at restoring growth and profitability. However, the progress against the full-year earnings forecast remains on track , reflecting a business structure where real-event operations and other activities are concentrated in the second half of the year.

This report provides a deep dive into the company's performance based on the published earnings presentation materials. We analyze the factors behind the first-half results, key performance indicators (KPIs) for the flagship social experience app for children, "Gokko Land," the development of real-world events, the rapid growth of the overseas "Gokko World" business, and the strengthening of the management structure, focusing on 10 key topics .

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1. Cumulative Q2 Performance and Progress Against Full-Year Forecast

For the first half of the fiscal year ending December 2026, the company reported net sales of 505 million yen (down 13.0% YoY) , operating profit of 55 million yen (down 63.4% YoY) , and quarterly net profit of 34 million yen (down 64.5% YoY) .

As shown above, while first-half performance shows a year-on-year decline, the progress against the company's full-year forecast ( net sales of 1,176 million yen , operating profit of 119 million yen , and net profit of 71 million yen ) has reached 43.0% for net sales , 46.1% for operating profit , and 48.4% for quarterly net profit .

The reason this progress is viewed as significant lies in the seasonality of the company's business model. Since real-event operations are planned to be concentrated in the second half, the first-half progress is within the expected range, and the company is evaluated as being "on track to meet its full-year plan."

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2. Analysis of Factors Behind Revenue and Profit Pressure

The decline in first-half revenue and profit is attributed to clear structural and strategic factors.

• Revenue Factors : While stock revenue (monthly store fees, etc.) from the flagship "Gokko Land" remained stable, the reactionary decline from large-scale one-off contract projects recorded in the previous year had a significant impact. Excluding these contract projects, the base revenue remains largely at the same level as the same period last year .
• Profit Factors : Profit was pressured by proactive investments in personnel expenses, depreciation, and advertising costs aimed at restoring future growth and improving profitability. Specifically, these include costs associated with home screen renovations, collaborations with popular IP, and the establishment of overseas operational structures.

Looking at the second quarter alone (April–June), net sales were 251 million yen and operating profit was 25 million yen, maintaining a profit level similar to the first quarter (net sales of 253 million yen, operating profit of 29 million yen), suggesting the company is in a preparatory phase for recovery after hitting a bottom.

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3. Domestic "Gokko Land" KPI Trends: Cumulative Downloads and Play Counts

Usage metrics for "Gokko Land" in Japan are key barometers for the health of the growth foundation.

• Cumulative Downloads : Surpassed 9 million devices as of June 2026, maintaining a steady upward trend.
• Play Counts : Although growth had temporarily stalled, a major home screen renovation on May 28 and the collaboration with the globally popular IP "PAW Patrol" starting July 9 are expected to drive a clear recovery and boost in play counts from the third quarter onward.

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4. Trends in Pavilion Numbers and Client Companies

"Pavilions" (number of participating companies), provided as a venue for corporate digital marketing and CSR activities, form the foundation of the company's stock revenue.

As of the end of June 2026, the number of pavilions stood at 93 . While the company acquired 5 new pavilions in the first half, 8 stores exited , resulting in a net decrease of 3 .

The increase in exits is attributed to client companies strictly screening and reviewing advertising budgets and store policies in response to the recent weak yen and soaring raw material costs . In response, the company is promoting "comprehensive value propositions" that go beyond simple in-app presence, as well as "strengthening post-opening effectiveness measurement and follow-up systems" to reduce churn (improve retention) and re-accelerate new acquisitions .

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5. Short- and Medium-Term Measures to Enhance Media Value

To increase client satisfaction and engagement, the following measures are being strongly promoted:

1. Short-term measures (Popular IP collaboration) : Launched a "Zukan Kuji" (illustrated book lottery) collaboration with the globally popular children's IP "PAW Patrol" (July 9–) to coincide with the movie release. Past IP collaborations (e.g., Kamen Rider Zets) recorded an approx. 20% increase in play counts around the release, and a similar traffic-boosting effect is expected this term.
2. Medium- to long-term measures (Home screen renovation) : Refreshed the UI/UX (implemented May 28) to make it easier for children to discover diverse pavilions. By increasing user navigation, the company aims to expand total play counts —the core of media value—and maximize the appeal for participating companies .

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6. Expansion of Real-Event Business and Synergy Creation

The event business, which fuses the digital app "Gokko Land" with real-world experiences, continues to grow as a new revenue pillar.

• Gokko Land EXPO : A real-world experience event for app-participating companies. In the first half, it was held at 10 locations as planned, recording a total of 22,308 visitors . The scale will be further expanded in the second half, with 15 locations planned .
• Gokko COLLECTION (New Brand) : Launched a new event brand targeting companies not yet on the app, with the first event scheduled for September 2026 . It has already secured orders exceeding the initial plan (5 events) and is functioning as a hook for acquiring new clients.
• Participation in Large-Scale Family Events : In September, the company plans to participate in the operation of a large-scale family event with 10,000 attendees in Hyogo Prefecture, creating real-world touchpoints through collaboration with regional partners.

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7. Rapid Growth of "Gokko World" in Overseas Markets

With an eye on Japan's declining birthrate and market maturity, the company is focusing on overseas expansion, primarily in Southeast Asia, under the "Gokko World" brand.

Various metrics in overseas markets show a significant growth trend .

• Vietnam : Following the establishment of a subsidiary in April 2025, the company signed a partnership with local IT firm GIANTY in May 2026. Furthermore, the collaboration with "Doraemon" starting May 20, caused monthly play counts to jump sharply in May and June. A new local client, following "Kewpie Vietnam," is expected to be finalized soon.
• Thailand : Surpassed 420,000 cumulative downloads and 1.84 million monthly play counts . It reached #1 in the Android education game category immediately after release, and sales activities are underway targeting both Japanese and major local companies.
• Indonesia : Benefiting from the demographic dividend, the market is expanding faster than expected with 830,000 cumulative downloads and 2.36 million monthly play counts . The company is optimizing the value proposition for the local market.

Overseas areas are rapidly increasing their share of total monthly average play counts, steadily building a foundation for medium- to long-term monetization (advertising and pavilion revenue from local companies) .

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8. Strengthening Governance and Management Structure (Dual Representative Director System)

To enable rapid decision-making and organizational scaling, the company transitioned to a dual Representative Director system effective August 1, 2026 .

• Zenhiro Hirata (Representative Director) : In charge of the development and sales departments, focusing on enhancing existing product value and domestic sales.
• Kentaro Matsumoto (New Representative Director) : In charge of management strategy, new domestic business, overseas business, and corporate departments. Also serves as President of KIDS STAR Vietnam.

By clearly dividing roles, the company aims to increase the speed of decision-making for rapidly expanding overseas and new businesses, thereby stabilizing the management foundation.

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9. Medium- to Long-Term Initiatives for Profitability and Retention Improvement

To respond to the tightening of promotional budgets by client companies, the company has organized priority measures for 2026–2027 .

• Strengthening user touchpoints : Maintaining play counts and engagement through home screen renovations and popular IP collaborations.
• Diversifying client support : Utilizing "Gokko Land" content on in-store terminals and large tablets, and providing real-event-linked promotional offerings.
• Improving retention (LTV) : Promoting individual proposals based on industry and objectives, driving up-selling and cross-selling, and ensuring thorough post-opening follow-ups and review proposals.

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10. Comprehensive Summary and Future Outlook

At first glance, Kids Star's Q2 FY2026 earnings appear challenging due to the decline in revenue and profit. However, there are clear reasons behind this: "reactionary decline from previous one-off projects," "increased costs due to upfront investment," and "a business plan weighted toward the second half."

The core of the business, "Gokko Land," has surpassed 9 million cumulative downloads and maintains growth. With media value recovery through IP collaborations and UI renovations, the steady expansion of the real-event business, and the rapid growth of "Gokko World" in Vietnam, Thailand, and Indonesia , the seeds for growth drivers have been steadily sown.

Going forward, the contribution of real-world events to earnings in the second half, the degree of recovery in domestic play counts through IP collaboration measures, and the establishment of monetization cases in overseas markets will be key points in assessing the company's performance trajectory.