KDDI Confronts Fraud Scandal Amid Solid Core Growth

Kddi Corp. ((KDDIY)) has held its Q3 earnings call. Read on for the main highlights of the call.

KDDI’s latest earnings call balanced solid operational growth with a stark governance shock. Core mobile, financial and business services continued to expand, but management detailed large fictitious transactions at subsidiaries that may wipe out tens of billions of yen in profit and forced a delay in official Q3 results, leaving investors cautious despite healthy fundamentals.

Stable Top-Line Growth Despite Adjustments

Reference consolidated figures for the first nine months showed operating revenue up 3.8% year on year and operating income up 2.0%. Profit for the period climbed 5.3%, all adjusted for the impact of the subsidiary issue and flagged as subject to revision once investigations and audits are complete.

Mobile Transformation Drives Revenue and ARPU

Mobile revenue rose ¥29.9 billion over nine months, with mobile-related businesses adding ¥27.2 billion to consolidated performance. Average revenue per user increased by ¥190 year on year, while smartphone churn edged down by 0.01 percentage point, signaling improved customer stickiness.

Higher-Value Users and Better Retention

UQ Mobile’s device-bundled contracts, which generate higher ARPU, saw contract retention improve by 4 percentage points. Brand migration from UQ to flagship au turned positive on a quarterly basis, supporting management’s strategy of prioritizing lifetime value over pure subscriber volume.

Financial Services Power Profit Growth

The credit card business was a standout, with operating income up 30.5% year on year on a cumulative basis. Personal deposit balances expanded around 1.3 times versus a year earlier, and the number of gold card members increased 24.5%, underscoring growing traction in KDDI’s financial ecosystem.

Business Services and IoT Maintain Strong Momentum

Business Services delivered robust performance, with third-quarter revenue up 7.7% year on year. IoT connections surpassed 66 million, including SORACOM, helping parts of the segment post double-digit growth and reinforcing KDDI’s role in connected devices and enterprise solutions.

au Starlink Direct Extends Reach

au Starlink Direct, launched in April 2025, has expanded to more than 80 device types and roughly 3.5 million connections. Coverage has doubled to include remote areas such as the Ogasawara Islands and ferry routes, with international expansion to the U.S. slated for March.

AI Infrastructure and Data Centers Scale Up

KDDI opened the Osaka Sakai Data Center in January and the Miyazaki Network Center in February to form an “AI digital belt” offering low-latency compute nationwide. A new AI integration unit, KDDI iret, is being built out with a target of about 3,000 personnel by fiscal 2028 to capture demand for AI platforms.

Dividend Policy Held Firm

Despite the unfolding subsidiary scandal and pending revisions to past financials, KDDI said it will not change its dividend forecast for the year ending March 2026. Management signaled confidence in the cash-generating power of the core business, aiming to reassure shareholders amid heightened uncertainty.

Scale of Fictitious Transactions Emerges

Management revealed that BIGLOBE and its subsidiary G-PLAN were involved in suspected fictitious advertising transactions of material size. The company currently estimates that ¥246 billion in revenue recognized across periods before fiscal 2024 through fiscal 2026 will have to be reversed, though these figures may still change.

Profit Reversals and Provisions Mount

The estimated reversal of operating income tied to the scheme is around ¥50 billion, split roughly ¥8 billion, ¥17 billion and ¥25 billion across affected periods. KDDI has also set a total provisioning target of about ¥33 billion for external commission outflows and had booked ¥17 billion of that by the third quarter.

Investigations Delay Earnings and Cloud Visibility

A Special Investigation Committee composed of external lawyers and accountants was established on January 14, prompting a postponement of Q3 fiscal 2026 results. Final financial impacts remain undetermined, and the company warned that current reference numbers could be revised after the committee reports and auditors complete their review.

Governance Lapses Undermine Confidence

Executives conceded that internal controls failed to detect bogus transactions that had grown to “hundreds of billions of yen per month” at their peak. The scale and duration of the activity highlighted serious weaknesses in group governance and oversight, calling into question previous assurance frameworks.

Legal, Recovery and Impairment Risks

KDDI said money appears to have flowed externally to upstream advertising agencies, including one major recurring counterparty. The company is still probing possible collusion, recovery prospects and legal options, and also flagged that additional impairment losses might be recognized on top of the profit reversals and provisions already outlined.

Reputational Impact Across Stakeholders

The chief executive issued a formal apology, acknowledging that the scandal could erode trust in the entire KDDI Group. Management said the fallout affects customers, partners, investors and employees, and that reinforcing governance and control systems has become a top priority over other corporate messaging.

Guidance and Outlook Under Investigation Cloud

KDDI expects the Special Investigation Committee to report by end-March and plans to release Q3 and full-year March 2026 results promptly afterward. While reiterating adjusted growth metrics across mobile, financial, IoT and AI initiatives and keeping its dividend outlook, the company cautioned that revenue and profit reversals, provisioning efforts and potential impairments will remain key swing factors.

KDDI’s earnings call underscored a company with resilient underlying businesses but facing a self-inflicted governance crisis that could reshape recent financial history. Investors are left weighing solid growth in mobile, finance, IoT and AI against still-unquantified downside from fictitious transactions, with visibility likely to improve only once the investigation concludes and audited numbers are in hand.