Money Forward results below expectations, corporate software strong but corporate card business weighs; maintain Sell rating

Overview

This report provides Goldman Sachs' review of Money Forward's 2Q and 1H FY11/26 results. The company's 2Q sales and operating loss were both below Bloomberg consensus, mainly due to a slowdown in the corporate card business, including the impact related to the unauthorized GitHub access incident in May. Meanwhile, the core corporate software business performed well, driven by new consolidation, large accounting-firm projects, and price increases for SMEs. Management raised full-year guidance, but after excluding the one-time sales and profit contributions from the sale of operating investment securities by HIRAC FUND, the earnings implications of the new guidance remain weaker than market expectations.

Core views

Goldman Sachs' core view is that the long-term demand and market-share expansion potential of Money Forward's cloud accounting and HR software remain attractive, while the risk of AI substitution for its core corporate software is limited. However, near-term earnings sensitivity is affected by the slowdown in the corporate card business, higher security costs, and one-time gains. Given that the stock's valuation is significantly above the industry average, the market has already priced in its high profit-growth potential, supporting the maintenance of a Sell rating. Potential upside could come from software price increases, better-than-expected cost efficiency, and reduced concerns about AI disruption.

Analysis framework

The report analyzes 2Q results and their variance from consensus, changes in segment revenue and losses, the impact of the unauthorized GitHub access incident, the quality of full-year guidance revisions, DCF valuation, and AI substitution risks. Valuation uses a long-term DCF framework, with three-year forward P/E implications for the target price provided as a cross-check.

Methodology notes

• Valuation methodsDCF

  Long-term discounted cash flow valuation

  The 12-month target price of ¥3,500 is based on a DCF calculation, using FY11/35 as the terminal value period and assuming an 8.5% WACC, 0% perpetual growth rate, FY11/35 operating profit of ¥34.5bn, and an operating margin of 21%.

• factor_analysisGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite factors

  The Goldman Sachs factor framework compares individual stocks with the market and industry peers based on growth, financial returns, valuation multiples, and composite indicators. The composite indicator combines growth, financial returns, and valuation appeal.

• scenario_riskAI disruption assessment

  Substitution risk from generative AI/AI agents for software functionality

  The report believes that accounting and HR software for SMEs involves high accuracy requirements, regulatory changes, and support needs, limiting the risk of core products being replaced by internal generative AI. However, tax-related functions for sole proprietors remain subject to some AI substitution risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Money Forward (3994.T)

  Covered company, a Japanese-listed fintech and cloud software company

  Strengths

  High market share in corporate cloud accounting/HR software and household budgeting applications; the corporate software business is supported by price increases for SMEs, large implementation projects, and net customer additions; core software demand is relatively less affected by AI substitution.

  Weaknesses

  2Q sales and operating loss were below consensus; the corporate card business slowed; security costs increased following unauthorized GitHub access; earnings guidance was below consensus after excluding one-time gains.

  Comparison

  The report considers the company's growth potential to be high, but its P/E is significantly above the industry average, limiting valuation appeal.

  Risks

  Upside risks include software price increases, better-than-expected cost efficiency, and reduced concerns about AI disruption; downside risks include continued weakness in the corporate card business, an expanded impact from the GitHub incident, higher-than-expected security costs, and AI substitution of certain tax-related and sole-proprietor businesses.

Key data

• 2Q sales¥14.32bn+24% yoy, below Bloomberg consensus of ¥14.57bn.
• 2Q operating profit/loss-¥380mnImproved by ¥640mn yoy but was below Bloomberg consensus of -¥170mn.
• Change in corporate card business salesApproximately -¥1.5bn qoqConsidered one of the main factors behind the 2Q miss.
• FY11/26 sales guidance¥60.5bn-¥62.3bnRaised from the previous ¥53.4bn-¥57.55bn, including the impact of the corporate card business, new consolidation, and securities sale gains from HIRAC FUND.
• FY11/26 operating profit/loss guidance-¥500mn to +¥1.5bnRaised from the previous -¥2.5bn to +¥500mn; however, it remains below consensus after excluding one-time factors.
• One-time impact from HIRAC FUNDSales +¥2.13bn, operating profit +¥1.73bnPlanned for recognition in 3Q and not included in Bloomberg consensus.
• Security costs related to the GitHub incident+¥50mn to +¥100mn per quarterEquivalent to recurring annual costs of approximately ¥200mn-¥400mn.
• Net additions to corporate software customers13,971 companies qoqExcluding new consolidation, 12,434 companies, above 10,969 companies in the same period last year.
• ARPA growth+12% yoy / +3% qoqRecurring corporate revenue in the core Business segment continued to maintain high growth.
• Target price¥3,50012-month target price, implying approximately 42x three-year forward P/E.

Impact & implications

The report's investment implications are negative. Although the quality of the core SaaS business remains strong and the trends in corporate software demand and market-share expansion have not been challenged, the results and guidance indicate that near-term earnings delivery is below market expectations, while the corporate card business and security costs introduce additional uncertainty. Because valuation already reflects high-growth expectations, the risk-reward profile is unattractive, and Goldman Sachs maintains its Sell rating.

Risks

• The magnitude and duration of the slowdown in the corporate card business may exceed expectations.
• The unauthorized GitHub access incident may continue to affect customer churn, marketing recovery, and brand trust.
• Higher recurring security costs may suppress operating profit improvement.
• AI agents or generative AI may replace some tax-related and sole-proprietor software functions.
• With valuation significantly above the industry average, downside risk to the share price is substantial if earnings delivery falls short of expectations.

What to watch

• The pricing structure and commercialization pace following the launch of Money Forward AI Cowork in late July.
• Whether the corporate card business resumes growth in 3Q and beyond.
• Customer churn after the GitHub incident, usage following the restoration of bank-account linking functions, and the level of security costs.
• Trends in recurring revenue and profit after excluding one-time gains from FY11/26 guidance.
• Net additions of paid customers, ARPA growth, and contributions from large accounting-firm projects in the Business segment.