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Dentsu Inc. (JP:4324)
:4324
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Dentsu
(4324)
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Rating:47Neutral
Price Target:
¥3,087.00
▼(-9.87% Downside)
The score is driven primarily by weak financial performance (net losses, negative ROE, and sharply declining free cash flow) and a soft technical setup (price below key moving averages with low RSI). A relatively high dividend yield provides some offset, but the negative P/E reflects ongoing profitability issues.
Positive Factors
Integrated global services and client diversification
Dentsu's broad service set (digital, media, creative) and multinational client roster create durable cross-sell opportunities and revenue diversification. This positions the firm to win integrated mandates and reduces dependence on any single market or service line over the medium term.
High gross profit margin
An 83.6% gross margin reflects a service-driven model with low direct costs, providing structural gross profitability that supports scale, investment in capabilities, and margin recovery potential even if top-line growth is uneven across quarters.
Moderate leverage and tangible equity buffer
A debt-to-equity near 1 and a ~19% equity ratio suggest balanced leverage that can support strategic investments while avoiding extreme financial strain. This provides the company structural flexibility to finance digital transformation and M&A over the coming months.
Negative Factors
Sustained operating losses
A negative TTM net margin of -19% indicates persistent unprofitability that undermines retained earnings and ability to self-fund growth. If losses persist, management must cut costs or restructure client economics to restore sustainable profitability over the medium term.
Severe free cash flow deterioration
A -128% FCF growth rate and an operating cash flow to net income ratio of 0.09 signal weak cash conversion. Poor cash generation constrains investment, dividend capacity and deleveraging options, making the business more reliant on external funding if trends continue.
Very weak returns on equity
A -39% ROE shows the company is destroying shareholder capital, reflecting low operating margins and losses. Persistently negative ROE deters long-term investor support and suggests structural issues in pricing, cost control, or business mix that must be remedied.
Dentsu (4324) vs. iShares MSCI Japan ETF (EWJ)
Market Cap
¥817.10B
Dividend Yield4.19%
Average Volume (3M)1.26M
Price to Earnings (P/E)―
Beta (1Y)0.77
Revenue Growth0.24%
EPS Growth-731.34%
CountryJP
Employees67,667
SectorCommunication Services
Sector Strength97
IndustryAdvertising Agencies
Share Statistics
EPS (TTM)46.68
Shares Outstanding265,800,000
10 Day Avg. Volume915,960
30 Day Avg. Volume1,261,200
Financial Highlights & Ratios
PEG Ratio>-0.01
Price to Book (P/B)1.43
Price to Sales (P/S)0.71
P/FCF Ratio29.08
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price TargetN/A
Price Target UpsideN/A
Rating ConsensusN/A
Number of Analyst Covering0
EPS Forecast (FY)N/A
Revenue Forecast (FY)N/A
Dentsu Business Overview & Revenue Model
Company DescriptionDentsu Group Inc. operates in the advertising business in Japan. The company offers advertising services, including newspapers, magazines, radio, television, internet, sales promotions, movies, out-of-home, public transportation, and other services. It is also involved in the consulting, development, and operation of information systems; sale of various software products; and provision of marketing and comprehensive network services. In addition, the company leases office buildings; and buys and sells real estate properties, as well as offers building and calculation services. Dentsu Group Inc. was founded in 1901 and is headquartered in Tokyo, Japan.
How the Company Makes MoneyDentsu generates revenue primarily through its advertising and marketing services, which are billed either on a project basis or through retainers with clients. Key revenue streams include fees from media buying, performance-based advertising, and digital marketing services. The company has formed significant partnerships with technology and data analytics firms, enhancing its capabilities in programmatic advertising and data-based marketing solutions. Additionally, Dentsu benefits from a growing demand for integrated marketing services, allowing it to capitalize on cross-selling opportunities across its segments. The company's global presence also enables it to attract multinational clients, further contributing to its earnings.
Dentsu Earnings Call Summary
Earnings Call Date:Aug 14, 2025
(Q2-2025)
| % Change Since: |
Next Earnings Date:Feb 16, 2026
Earnings Call Sentiment Neutral
The earnings call reflects a mixed performance with strong results in Japan, including record-high net revenue and operating margins. However, significant challenges and setbacks persist in the international business, including negative organic growth, a substantial goodwill impairment loss, and the suspension of dividends. The company's strategic focus on cost reduction and efficiency improvements is a positive step, but the ongoing difficulties in the international segments overshadow these gains.Q2-2025 Updates
Positive Updates
Strong Performance in Japan
Japan maintained a strong organic growth rate of over 5% in Q2, with both net revenue and underlying operating profit reaching record highs. This marked the ninth consecutive quarter of positive growth for Japan and the third consecutive quarter of growing at more than 5%.
Operating Margin Exceeds Expectations
The operating margin was 12%, exceeding expectations and the previous year, driven by strong performance in Japan and controlled SG&A expenses in the international business.
Cost Reduction and Efficiency Improvement
Identified opportunities to reduce operating costs by around JPY52 billion annually, with a headcount reduction of approximately 3,400 employees targeting headquarters and back offices.
New Client Wins and Industry Recognition
Secured new clients such as Mizkan in Japan, ServiceNow globally, Dollar General in the US, and BMW in EMEA. Won 26 Lions at Cannes Lions and numerous advertising awards from The One Show and D&AD.
Negative Updates
Negative Organic Growth
The organic growth rate for H1 of 2025 was negative 0.2%, slightly below expectations, with all international regions recording negative organic growth.
Goodwill Impairment Loss
A goodwill impairment loss of JPY86 billion was recorded in the Americas and EMEA, significantly impacting the financial results.
Dividend Suspension
Due to the underperformance of the international business and the goodwill impairment loss, the interim dividend was suspended, and the forecast of the year-end dividend is undetermined.
Challenging International Business Environment
International business regions continued to face challenges, with the Americas recording negative organic growth of 3.4% and EMEA recording negative 2.4%, slightly below expectations.
Company Guidance
During Dentsu Group Inc.'s FY2025 H1 earnings call, significant metrics and guidance were discussed. The organic growth rate for H1 2025 was slightly below expectations at negative 0.2%, with Japan performing strongly but the international business facing challenges. The operating margin exceeded expectations at 12%, and efforts to rebuild the business foundation are progressing. However, due to the international business's underperformance, the FY2025 guidance was revised, with organic growth expected to be flat instead of the previous circa 1%, while maintaining the operating margin guidance of circa 12%. A goodwill impairment loss of JPY86 billion was recorded in the Americas and EMEA. Dentsu aims to achieve an operating margin of 16% to 17% by FY2027 by reducing annual operating costs by around JPY50 billion, with headcount reductions of approximately 3,400 employees. Investments are being made in data and technology, talent, and AI capabilities, with a planned expenditure of approximately JPY17 billion for FY2025. The interim dividend is suspended, and the year-end dividend is undetermined, with further strategic partnerships and asset sales being explored to stabilize dividends from 2026 onwards.Dentsu Financial Statement Overview
Summary
Dentsu faces significant financial challenges, with declining revenues and profitability issues. While the balance sheet shows manageable leverage, the negative return on equity is concerning. Cash flow management appears effective, but the company needs to address its operational inefficiencies and improve profitability to enhance its financial position.Income Statement
Dentsu's income statement reveals significant challenges, with a declining revenue growth rate of -65.3% in TTM, indicating a severe contraction. The net profit margin is negative at -13.45%, reflecting substantial losses. Despite a strong gross profit margin of 84.32%, the negative EBIT and EBITDA margins highlight operational inefficiencies. The company needs to address these profitability issues to improve its financial health.45
Neutral
Balance Sheet
The balance sheet shows a moderate debt-to-equity ratio of 0.85, suggesting manageable leverage. However, the return on equity is negative at -24.64%, indicating poor returns for shareholders. The equity ratio stands at 18.39%, reflecting a stable capital structure. Overall, while leverage is under control, the negative ROE is a concern.50
Neutral
Cash Flow
Cash flow analysis shows a positive free cash flow growth rate of 6.4% in TTM, indicating some improvement in cash generation. The operating cash flow to net income ratio is low at 0.086, suggesting weak cash conversion. However, the free cash flow to net income ratio is relatively strong at 0.85, indicating effective cash management despite net losses.40
Negative
| Breakdown | TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 1.40T | 1.41T | 1.30T | 1.24T | 1.09T | 939.24B |
| Gross Profit | 1.19T | 1.20T | 1.14T | 1.12T | 976.58B | 835.04B |
| EBITDA | 145.91B | -29.60B | 139.50B | 203.16B | 302.49B | -32.61B |
| Net Income | -255.21B | -192.17B | -10.71B | 59.85B | 108.39B | -159.59B |
Balance Sheet | ||||||
| Total Assets | 3.12T | 3.51T | 3.63T | 3.74T | 3.72T | 3.38T |
| Cash, Cash Equivalents and Short-Term Investments | 224.96B | 397.19B | 390.68B | 603.74B | 723.54B | 530.69B |
| Total Debt | 502.82B | 547.27B | 713.46B | 532.43B | 579.19B | 584.81B |
| Total Liabilities | 2.45T | 2.74T | 2.72T | 2.79T | 2.81T | 2.56T |
| Stockholders Equity | 594.21B | 696.84B | 841.65B | 880.27B | 845.03B | 756.87B |
Cash Flow | ||||||
| Free Cash Flow | 144.87B | 34.30B | 46.38B | 62.37B | 118.68B | 66.84B |
| Operating Cash Flow | 171.51B | 59.98B | 75.27B | 80.90B | 139.72B | 88.31B |
| Investing Cash Flow | -10.38B | -43.33B | -159.44B | -36.37B | 155.23B | 126.12B |
| Financing Cash Flow | -165.99B | -53.30B | -140.54B | -176.17B | -125.19B | -85.73B |
Dentsu Technical Analysis
Negative
3425.00
Price Trends
3363.24
Negative
3228.47
Negative
3139.82
Positive
Market Momentum
7.80
Positive
36.28
Neutral
56.31
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For JP:4324, the sentiment is Negative. The current price of 3425 is above the 20-day moving average (MA) of 3379.25, above the 50-day MA of 3363.24, and above the 200-day MA of 3139.82, indicating a neutral trend. The MACD of 7.80 indicates Positive momentum. The RSI at 36.28 is Neutral, neither overbought nor oversold. The STOCH value of 56.31 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for JP:4324.
Dentsu Peers Comparison
UnderperformOutperform
Sector (60)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
79 Outperform | ¥21.65B | 4.82 | ― | 7.85% | -3.20% | 34.08% | |
77 Outperform | ¥96.23B | 25.43 | ― | 7.03% | -10.10% | -37.28% | |
69 Neutral | ¥33.86B | 23.63 | ― | 5.08% | 3.22% | 13.97% | |
60 Neutral | $48.67B | 4.58 | -11.27% | 4.14% | 2.83% | -41.78% | |
58 Neutral | ¥720.13B | 22.73 | 18.07% | 1.27% | 9.04% | 94.01% | |
58 Neutral | ¥442.73B | 27.58 | 3.96% | 2.75% | -8.56% | -47.89% | |
47 Neutral | ¥817.10B | -3.20 | -34.34% | 4.19% | 0.24% | -731.34% |
* Communication Services Sector Average
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.