2Q FY27/3: The Half Ran Ahead, the Plan Held

Thesis status: Affirmed on compounding. Unresolved on conversion. The platform shift paused at the half.

Key Takeaways

1. Capcom delivered 73.2% of its full-year operating profit plan in the first half of FY27/3, on operating profit of ¥60.8bn, up 54.5%, and on unit sales the company described as its highest for any first half. Second-quarter operating profit grew a slower 33.8%, against a prior-year quarter that recognised about ¥5.1bn of revenue deferred from earlier releases. Excluding deferral timing from both years, second-quarter sales grew 65.9% against 41.6% as reported.
2. Management left every full-year line unchanged on 27 October and stated that Capcom is on track to achieve the plan. Holding it implies second-half operating profit of ¥22.2bn, 38% below the same half of FY26/3, on catalogue units 22% lower. The plan carries no revenue from the Street Fighter film and no repeat pachislo sales, Digital Contents physical sales have already reached their full-year figure, and the yen stood at ¥157 to the dollar on 30 September against a planned ¥140, each yen worth ¥0.4-0.5bn of annual operating profit on Capcom's own estimate. Capcom gave no reason for leaving the plan unchanged beyond noting that it forecasts only the full year because it manages performance on an annual basis.
3. PC share of units gave back the first quarter's gain. It ran at 57.1% across the half against 57.3% a year earlier, after 60.4% in the first quarter, and fell to 51.0% in the second quarter against 55.8%. Digital share slipped to 92.4%, below the 93% line in C3. Capcom has stated no cause, and the disclosure cannot separate launch mix from a shift in the catalogue's own platform split. C3 moves from Affirmed to Developing ↓. Memo No. 1 read the quarterly series as showing no plateau. The half does not support that reading.
4. Monster Hunter Wilds now has a partial read, and it shows no acceleration. Capcom's Platinum Titles list put it at 11.80m on 30 June, about 0.4m above March and close to the average quarter of FY26/3, when it sold 1.32m. The half's top ten shows only that second-quarter units were below 0.79m. Its Switch 2 version on 4 December will count as a new title in Capcom's split, which blurs the catalogue measure C1 rests on. The live-action Street Fighter film released on 16 October, inside the third quarter, so the media condition has no game-side read yet.
5. At the 29 October close of ¥3,800, 13.2% below the 27 October close, the price requires an operating margin gliding from the plan's 39.5% to 36.9% by FY36/3, just below the 37.5% of FY24/3, the weakest year in Capcom's record. Held at the plan margin instead, it needs revenue growth of 3.6% a year, below the 4.5% on the model's own path. On the same model the requirement fell 5.2 points since Memo No. 1. The lower share price took 4.4 points off it, the lower JGB yield and the later valuation date another 1.0, and the half itself added 0.2. The reading rests on the model's beta of 0.475. At 0.60 the requirement would sit above Capcom's best year, and so would capex at FY26/3's 9.1% of sales, close to the 9.8% in Capcom's FY27/3 plan.

This is the second update to the May primer, after Memo No. 1 on the first quarter. The primer argued that Capcom's catalogue engine works, with 83.7% of FY26/3's 59.07m units coming from titles released in earlier years, and that the question across FY27/3 to FY29/3 is whether the mechanism scales, with management's 100m annual unit goal as a ceiling rather than a forecast. This memo covers the first half of FY27/3, to 30 September 2026, from the results, First Half Report and press release of 27 October, Capcom's Platinum Titles list at 30 June and its May and July Q&A summaries, with the reverse DCF struck at the 29 October close of ¥3,800.

First-Half Results

Operating profit grew faster than sales across the half, and the operating margin widened 1.8 points even as gross margin narrowed, because SG&A grew at less than half the rate of gross profit (Exhibit 2). Both margins fell in the second quarter. Ordinary profit grew faster than operating profit, as the half had none of the ¥2.4bn of Osaka Expo expense booked a year earlier and interest income nearly doubled. Profit attributable to owners grew more slowly, because Capcom applies its forecast full-year tax rate to interim profit, and that rate rose to 29.6% from 24.3%.

The deferral comparison accounts for the second quarter's lower gross margin, on the assumption, used throughout, that recognised deferred revenue carries no cost in the period. The same quarter of FY26/3 recognised about ¥5.1bn of revenue deferred from earlier releases. This year's second quarter deferred slightly more than it recognised, a net ¥0.2bn. Memo No. 1 noted that Onimusha: Way of the Sword could create a fresh deferral inside the quarter. The balance rose ¥525m to ¥1,123m in the quarter the game launched, which is consistent with that, though Capcom does not name the titles behind the balance. Removing the deferred revenue portion from both years turns the second quarter's 5.0-point fall in gross margin into a 1.7-point rise, and lifts growth on every line (Exhibit 3). The operating profit adjustment remains a ceiling, as in Memo No. 1, because Capcom discloses no cost split.

Digital Contents supplied ¥20.9bn of the ¥21.7bn rise in segment operating profit (Exhibit 4). Capcom attributes the segment's earnings to continued growth in the Resident Evil series, in a half that also included two launches, PRAGMATA in April and Onimusha in September, at 2.73m and 1.78m units. The segment's margin slipped 1.5 points while deferral recognition nearly halved and group promotional expense rose to ¥4.8bn from ¥2.5bn. Capcom does not split the two. Amusement Equipments booked most of its annual profit plan with three of the plan's four machines, one of them Monster Hunter Rise: Sunbreak, whose 14,100 units shipped in September ahead of its 5 October operating date. Arcade Operations opened two stores in the half, and the plan holds seven more.

Six items flatter, depress or move the half (Exhibit 5). Currency reaches every overseas sale and is the only item that cannot be sized. The yen stood at ¥157 to the dollar on 30 September, against ¥148 a year earlier and the plan's ¥140, and close to nine in ten units sold outside Japan. Capcom's one sensitivity is ¥0.4-0.5bn of annual operating profit per yen against the plan rate. It gives neither the direction nor the effect on the half.

Operating cash flow reached 60.5% of operating profit, against 11.5% a year earlier (Exhibit 6). Taxes, the deferral unwind and the content build drained both halves. Against a year earlier, tax paid rose ¥1.2bn, while the deferral unwind fell from ¥14.1bn and the content build from ¥18.2bn. Media assets, the balance that carries the film, took ¥4.9bn of that build a year earlier and ¥0.5bn in this half. Receivable collections did less to help than the ¥18.4bn collected a year earlier. Conversion moves with launch timing and collections, and FY26/3 closed at 41.7%, so one half sets no run rate for the year.

Outlook: The Plan Held

Capcom left the plan it set on 13 May unchanged at both quarterly results, and holding it implies the second half in Exhibit 7. The implied decline sits almost entirely in Digital Contents, which accounts for ¥12.0bn of the ¥13.7bn fall in operating profit against last year's second half, on a segment margin close to last year's. Corporate costs take most of the remainder, rising ¥1.3bn. Arcade Operations, which Capcom describes as on track toward its plan, would earn ¥0.6bn against ¥1.2bn, with seven store openings still to come.

The plan has not been re-cut since May, and some of its lines no longer fit the year (Exhibit 8). Digital Contents physical sales reached the full-year figure in the half, which leaves nothing for a second half that booked ¥11.0bn a year earlier and brings five Switch 2 releases. New-title units are well ahead of last year's pace because PRAGMATA and Onimusha both launched in the first half. Amusement Equipments sits close to the share of the year it booked in last year's first half, so the segment is not ahead of its seasonal pattern.

A high first-half share does not by itself show that the plan is low. Across FY23/3 to FY26/3 the first half delivered between 31.5% and 59.3% of the year's operating profit, moving with launch timing. The plan's 73.2% sits above that range, and two readings fit. In the first, the second half is as weak as the plan implies. Last year's second half included Resident Evil Requiem, which launched in February 2026 and sold 6.91m units by 31 March, while the announced second-half slate is Dragon's Dogma 2: Dark Arisen and Switch 2 versions of existing games, with Mega Man: Dual Override dated only to spring 2027. In the second, the plan is a May figure that has not been re-cut. Capcom states that it is on track and that it manages performance on an annual basis, its plan excludes film revenue and repeat pachislo sales, and the plan sits within ¥0.2bn of the 10% annual operating profit growth Capcom names as its goal. The filing settles neither. Currency could move the answer, but Capcom gives the size of its sensitivity without a direction, so the ¥17 gap to the plan rate cannot be turned into a figure.

Where the Half Came From

Catalogue units carried the half and slowed through it (Exhibit 9). Their growth fell to 15.1% in the second quarter from 59.1% in the first, against an easier comparison, as the same quarter a year earlier sold 9.49m catalogue units against 13.36m in the first. Capcom attributes catalogue growth to initiatives, including those tied to each series' latest instalment, and gives no reason for the slowdown. The catalogue also includes Resident Evil Requiem, launched in February 2026 and counted as catalogue from April, which sold 1.59m units in the half. Japan and physical units grew faster than the total in a half when three titles shipped on Switch 2, though Capcom gives no Switch 2 unit figure.

The first-half PC share stalled at 57% after three years of gains, and the full-year share was flat across FY25/3 and FY26/3 (Exhibit 10). The second quarter cannot show whether the catalogue's own platform split moved, because its 2.13m new-title units carry no platform split. If none of them sold on PC, the catalogue's PC share was 61.0%. If all of them did, it was 41.5%. The same quarter a year earlier, with 0.20m new-title units, puts the catalogue's share between 54.9% and 57.0%, inside that range.

Resident Evil took six of the ten places in the first-half ranking (Exhibit 11). Devil May Cry 5's 1.83m includes the Switch 2 version released in June, which Capcom counts as a new title, so for that game the ranking mixes catalogue and new-title units. Monster Hunter: World, released in January 2018, took tenth place at 1.17m. Monster Hunter Wilds, the title management aims to take past World's lifetime sales, sold less than World in the half.

What the Price Implies

This section characterises the financial conditions the current enterprise value implies. It is not a price target, a fair-value estimate, or a view on whether the shares are mispriced. At the 29 October close of ¥3,800, 13.2% below the 27 October close, the market values Capcom's operations at ¥1,414bn after ¥176.1bn of net cash and securities, 18.8 times FY26/3 operating profit and 17.0 times the plan's. With the model's revenue path held, that value requires an operating margin gliding from the plan's 39.52% to 36.85% by FY36/3, or 37.22% held flat from FY28/3 (Exhibit 12). Both sit just below the 37.45% of FY24/3, the weakest year in Capcom's record, and the five reported years sit within three points of each other.

The walk first restates Memo No. 1's published 46.13% on the current model (Exhibit 13). The current model values the rest of the year as a stub, adds nine explicit years where the earlier model had six, and discounts from the valuation date at mid-period, where the earlier model discounted whole years to each year end. From the restated 42.06%, the share price moved the requirement more than every other step combined. The half moved the requirement through cash: moving the model to 30 September took ¥11.1bn out of the stub, the model's cash flow for the rest of the year, and added ¥5.0bn to net cash and securities. Had the quarter's cash matched the model's conversion of its profit, the two would roughly offset. Part of the gap is the model's construction, because the stub spreads the year's content and working capital build evenly across the quarters and the 30 September securities balance is an estimate. The plan did not change, so the path step reads zero.

The two solves are different ways of underwriting the same price, and each grants the other's variable in full. On the model's own revenue path, any flat margin from 37.22% meets the price, and every year in the record clears that, the weakest by 0.23 points. Held at the plan margin instead, the price needs less growth than the path assumes (Exhibit 14). At flat revenue per unit, no reported margin now needs annual units to reach management's 100m goal before FY36/3.

The reading rests on two inputs the half did not touch (Exhibit 15). The model's beta of 0.475 sits in a five-year monthly range of 0.46 to 0.49, which spans 1.5 points and straddles FY24/3's margin. A beta of 0.60, still below the roughly 0.65 a standard Blume adjustment would give, puts the requirement at 43.3%, above Capcom's best year. The model also holds capex at a 5.0% maintenance rate of sales, against 9.1% in FY26/3 and a FY27/3 plan of ¥20.5bn, 9.8% of planned sales. At FY26/3's rate the requirement would be 43.7%. Terminal value carries 70.5% of the forward enterprise value, so most of what the price pays for lies beyond FY36/3.

The Conditions

C3 is the only condition to change status, and it moves down (Exhibit 16). The other four that improved at Memo No. 1 keep their status with the trend now flat, because the half confirmed what the first quarter showed without answering any question it left open. Nothing is Weakening, and C1, A and B sit at Developing on what Capcom discloses rather than on anything that went wrong.

Memo No. 1 concluded that the annual plateau in PC share did not survive the quarterly series. It rested that on one first quarter against another, and the half gave the gain back, so the plateau question is open again. C3 stops short of Weakening. Its plateau trigger needs flat annual shares across FY27/3 and FY28/3. Its digital trigger, a decline without a stated cause, sits beside a noise clause for within-year variation driven by title mix. The second quarter fits that clause, with console digital, physical and Japan units each growing at least twice as fast as PC, but Capcom has stated no cause. A full year below 93% digital without one would fire the trigger.

C1 and B hold at Developing →. The Platinum Titles list gives Wilds its first measured figure since March, and it shows a pace close to FY26/3's rather than a change in it. B's language leg has no read, because neither the results nor the First Half Report mentions remediation or maintenance and the second-quarter Q&A summary had not been published. From the third quarter the Switch 2 version will count as a new title, so catalogue units will understate Wilds and its Platinum Titles lifetime becomes the cleaner measure.

C5's segment leg now turns on the basis. Digital Contents earned 79.0% of segment operating profit across all four segments and 81.4% excluding Other Businesses, either side of the 80% floor. The half is a weak read on a floor set against a full-year share, because Amusement Equipments books most of its profit in the first half: a year earlier the half read 70.4% on four segments and the full year 80.7%. A's named test opens with the third quarter, and the Devil May Cry evidence behind it is now confounded, because Capcom credits the game's sales partly to its June Switch 2 version as well as to pricing tied to the animated series.

Two variables bearing on the half sit outside the set (Exhibit 17). Deferral timing set the second quarter's growth rate, and the yen's ¥17 gap to the plan rate cannot be sized. The deferral and cash overlays already report each period without a status, and currency joins them. The FY27/3 restatement is to decide all three and adopt the refinements below.

What Decides It

The nine-month results are the first event that can show whether the second half is as weak as the held plan implies (Exhibit 18). The plan leaves ¥22.2bn of operating profit for the second half, and the third quarter brings Dragon's Dogma 2: Dark Arisen, Switch 2 versions of three Resident Evil games and of Monster Hunter Wilds, and the film. The same results give A its first read, though the Street Fighter series total rounds to the million, so a lift shows only if Capcom gives a title figure. For Wilds, which runs across C1 and B, the Platinum Titles list at 30 September completes the first-half read.

On the model's inputs, the price at ¥3,800 needs about the weakest margin in Capcom's record, so the requirement turns on longer evidence: whether the margin holds as the investment footprint broadens, which is the longitudinal leg of C5. The full-year results in May 2027 bring the first full-year margin against FY26/3's 38.54%, the annual PC and digital shares that decide C3, and the year's cash flow statement. The restatement that follows adopts or rejects the changes in Exhibit 17.

Sources: Capcom Consolidated Financial Results for the six months ended 30 September 2026, First Half Report and press release, 27 October 2026. Capcom first-quarter FY27/3 results and presentation, 28 July 2026, and the conference call Q&A summary. FY26/3 results, presentation and results briefing Q&A summary, 13 May 2026. Capcom Platinum Titles list as of 30 June 2026. Memo No. 1 (first quarter FY27/3). Share prices of ¥4,180 at Memo No. 1, ¥4,380 at the 27 October 2026 close and ¥3,800 at the 29 October close. Capcom reverse DCF model, first-quarter and first-half files, recalculated by Marvin Labs. Deferral-adjusted figures remove revenue recognised from earlier releases on the assumption that it carries no cost, so the operating profit adjustments are ceilings. Second-quarter figures are the first half less the first quarter. Fiscal years end in March, so FY27/3 is the year to 31 March 2027.