CTW Cayman (NASDAQ:CTW) reported nearly flat revenue for the first half of fiscal 2026 while posting a GAAP net loss, as management said new game launches underperformed expectations and mature titles continued to age through their life cycles.
On the company’s earnings call for the six months ended Jan. 31, 2026, Chief Financial Officer Patrick Liu said revenue was $41 million, down 0.7% from $41.2 million in the prior-year period. Gross in-game purchases declined 1.1% year over year to $43.6 million.
Liu said the first half was “a softer period than we expected from a content performance standpoint,” noting that CTW launched seven new games during the period, but those titles performed below internal expectations. At the same time, several mature titles saw declining overall user activity.
Paying Users Hold Steady Despite Lower Activity
While overall monthly active users fell to approximately 2 million from approximately 3.3 million a year earlier, CTW’s paying monthly active users remained relatively stable at approximately 75,700, compared with approximately 76,700 last year. Liu said this helped lift the conversion rate to 3.82% from 2.35%.
The company also reported improved monetization and advertising efficiency metrics. Average revenue per daily active user rose to $18.90 from $16.31, while average revenue per user increased to $4 from $2.50. Return on advertising spend improved to 109% from 106%.
“In practical terms, traffic declined primarily among non-paying users, while the platform continued to attract and retain a higher quality paying audience and generate more efficient returns on advertising spend,” Liu said.
CTW also continued to expand outside its home market. Revenue from users outside Japan increased to 31.6% of total revenue, up from 28.8% a year earlier. Liu said Japan remains the company’s largest market, but international expansion remains a strategic priority.
Expenses Rise in Some Areas as Marketing Spend Falls
Cost of revenue increased 39.6% year over year to $13.9 million. General and administrative expenses rose 13.6% to $5.1 million, and research and development expenses increased 25.3% to $1.7 million. Liu said those increases reflected investments in platform capabilities, organizational infrastructure and costs associated with operating as a public company.
Sales and marketing expenses declined 15.2% to $22 million, driven primarily by a $5.9 million reduction in advertising spend. Liu said the reduction was intentional after some new titles failed to meet internal performance thresholds.
“When new titles did not meet our internal performance thresholds, we quickly scaled back marketing rather than pursuing top-line growth at unattractive returns,” Liu said, calling that responsiveness a core strength of CTW’s operating model.
The company reported an operating loss of $1.7 million, compared with a $0.5 million operating loss in the first half of fiscal 2025. Net loss was $1.2 million, compared with net income of $0.6 million a year earlier.
Liu highlighted two period-specific items affecting comparisons: approximately $1.9 million of share-based compensation expense related to stock options granted in December 2025, and approximately $2.1 million of capitalized qualifying confirmed new software and cloud implementation costs following early adoption of ASU 2025-06.
Adjusted EBITDA Improves
On a non-GAAP basis, CTW reported adjusted EBITDA of $4.3 million, up from $3.7 million, representing a 10.5% margin. Segment profit increased to $18 million from $11.6 million.
Liu said those metrics showed that “the core economics of the platform remain healthy and responsive to disciplined cost management despite softer revenue and a GAAP net loss.”
Net cash used in operating activities was $0.4 million, compared with $2.6 million of cash generated in the prior-year period. Liu said the change was driven primarily by working capital movements, including additional advances to game developers and higher prepaid royalties tied to future content and platform support.
CTW ended the period with $90.5 million in cash and cash equivalents, up from $12.2 million at July 31, 2025, supported by proceeds from its IPO. Liu said the cash position gives the company flexibility to invest selectively in content, systems and international growth.
Management Details Game Monitoring and Ad Strategy
During the question-and-answer portion of the call, Argus Research analyst Steve Silver asked how CTW uses technology to respond to changing user behavior and determine whether a new title is underperforming.
Liu said CTW uses internally developed AI-backed systems and tools, including an advertising adjustment system and user data monitoring tools, to track real-time performance across new and existing games on its G123 platform. He said new games typically begin with a soft launch, with limited advertising spending during the first three days.
During that period, CTW monitors metrics including paying user retention and paying user conversion rates. Based on performance from day zero to day three, Liu said the marketing team determines whether a title appears to be a hit or is underperforming, then adjusts advertising spending and strategy for days four through seven and again through days seven to 14.
Asked whether weaker active user trends reflected customer reaction to the underperforming launches or macroeconomic factors, Liu said the issue was mainly related to “monetization quality and unit economics rather than traffic acquisition or initial user interest.” He said some new titles generated reasonable early engagement and user acquisition, but payer conversion, monetization depth and longer-term return on ad spending were below expectations.
Pipeline and International Expansion Remain in Focus
Silver also asked about CTW’s stated backlog of 20 titles. Liu said five or six games were in pre-registration, while the company was continuing to work with intellectual property holders and developers on the remaining titles. He said CTW could not disclose names or IP details for titles not yet in pre-registration, but said many were tied to popular anime properties, including some recently popular in North America.
In response to a question from Zero One Research analyst Vincent Fernando, Liu said CTW’s improved margin between in-game purchases and revenue reflected a changing mix of games on the platform. He said Vivid Army historically carried a higher revenue share percentage with its game developer, but newer games tend to have slightly lower revenue-share arrangements.
Liu also said CTW is “aggressively expanding” in North America, particularly the U.S. market, and believes that if the company can localize efficiently, find new partners and adapt its model to new regions, revenue from outside Japan could eventually reach roughly 50% to 60% of total revenue. He cautioned that outcome would depend on external factors and market trends.
About CTW Cayman (NASDAQ:CTW)
We are a leading globally accessible, web-based gaming platform, offering players an immersive digital space through our flagship HTML5 platform, G123.jp. Our platform showcases a diverse selection of free-to-play games inspired by popular Japanese animations, including Queen's Blade, So I'm a Spider, So What?, and Goblin Slayer. The HTML5-based G123.jp platform removes common barriers to gameplay, such as downloads, installations, and mandatory registrations, ensuring that seamless, instant access is available to players worldwide across different types of devices, including mobile devices beyond just PCs.
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