Executive Summary / Key Takeaways

• Linkage Global Inc. (NASDAQ:LGCB) is undergoing a significant strategic transformation, shifting its core focus from traditional cross-border product sales to higher-margin integrated e-commerce services, particularly "fully managed e-commerce operation services."
• This strategic pivot is evident in the first half of fiscal year 2025 results, where fully managed e-commerce operation services generated $2.59 million in revenue with an impressive 95.12% gross margin, offsetting a substantial 82.35% decline in cross-border sales.
• The company is leveraging its proprietary Linkage ERP System and data analytics capabilities, alongside new short-form video editing tools, to enhance its service offerings and support its ambitious expansion into the high-growth Southeast Asian social commerce market.
• While LGCB faces challenges including declining legacy revenue streams, PRC regulatory uncertainties, and high interest expenses from recent convertible note issuances, its focus on specialized, technology-driven services and international expansion presents a compelling long-term growth narrative.
• Recent financing, including an initial $3.5 million convertible note with a framework for up to $30 million, provides crucial capital to fuel these growth initiatives, particularly in Southeast Asia.

A New Chapter for Cross-Border E-commerce: Linkage Global's Strategic Evolution

Linkage Global Inc. (LGCB), headquartered in Japan, is an integrated services provider aiming to simplify cross-border transactions for e-commerce sellers across Japan, Hong Kong, and mainland China. Founded in 2011 through its subsidiary EXTEND, the company initially focused on cross-border product sales. Over the years, LGCB diversified its offerings, establishing HQT NETWORK in Hong Kong in 2016 for digital marketing services and launching e-commerce operation training and software support in 2021. This evolution culminated in its initial public offering on The Nasdaq Capital Market in December 2023, marking a significant milestone in its journey.

The broader cross-border e-commerce market, particularly in Southeast Asia, is experiencing rapid development and increasing penetration. Social commerce, leveraging platforms like TikTok, is a significant driver, contributing nearly $48 billion, or 44%, of the total e-commerce market in Southeast Asia in 2021. This dynamic backdrop underscores LGCB's strategic imperative to adapt and innovate, leading to a pivotal shift in its business model.

Technological Edge and Innovation Roadmap

At the heart of Linkage Global's strategic transformation lies its proprietary technology, designed to streamline and optimize cross-border e-commerce operations. The company's core technological differentiators include the Linkage ERP System and the Honeybee product shelving software. The Linkage ERP System is engineered to provide "solutions for delicacy operations and business and financial data integration," aiming to make cross-border e-commerce easier for its clients. This system creates "automated work environments" encompassing multi-store management, visual operation analysis, order management, financial management, delivery management, and after-sales support, thereby enabling customers to "focus on growth activities." The Honeybee product shelving software further enhances efficiency by helping cross-border e-commerce sellers "manage and optimize their product listings," which can make product shelving more effective, reduce order anomalies, minimize capital tied up in inventory, and lower labor costs.

Linkage Global is actively investing in research and development to further strengthen its technological moat. The Linkage ERP System is currently in its pilot testing phase and is slated for continuous upgrades until 2025. These enhancements include introducing a wider variety of products and integrating more supporting functions, with a particular emphasis on localization for Southeast Asian markets, such as language support and access to local warehouse systems. Furthermore, the company is developing "short-form video editing tools" to empower customers to create compelling product videos with e-commerce related labels (e.g., price, origin, functions) for social media platforms like TikTok. For investors, these technological advancements are critical. The prior expensing of ERP system development costs has directly contributed to the high gross margins observed in the new fully managed e-commerce operation services. The ongoing R&D, particularly the localization efforts and video editing tools, directly supports the company's expansion into new geographies and its strategy to capitalize on the booming social commerce trend, enhancing its competitive positioning and long-term revenue potential.

Strategic Evolution and Performance Dynamics

Linkage Global's business model is structured around two complementary lines: cross-border sales and integrated e-commerce services. Historically, cross-border sales were the dominant revenue driver. However, this segment has experienced a significant downturn, with revenue decreasing by approximately $3.74 million, or 82.35%, to $800,751 for the six months ended March 31, 2025, compared to $4.54 million in the same period in 2024. This decline is primarily attributed to the "poor performance of Japan’s own cross-border sales product portfolio strategy," particularly with 3C electronic products, and the depreciation of the Japanese yen. Despite the revenue drop, the gross margin for cross-border sales improved to 21.31% in H1 2025 from 12.70% in H1 2024, indicating a shift towards higher-margin product offerings.

In response to these challenges, Linkage Global has strategically pivoted towards its integrated e-commerce services, particularly the newly launched "fully managed e-commerce operation services." Initiated in April 2024, this business line has rapidly become a key growth engine, contributing $2.59 million in revenue for the six months ended March 31, 2025. Crucially, this service boasts an exceptional gross profit margin of 95.12%, largely due to the prior expensing of the underlying ERP system development costs. This high-margin business model, which involves managing online shops for merchants from setup to financial settlement, is central to the company's future.

Conversely, the digital marketing services segment has seen a substantial decline. Revenue decreased from $0.13 million in H1 2024 to $0.08 million in H1 2025, primarily because HQT NETWORK's agency agreement with Google expired in January 2025, leading to the cessation of related operations and the initiation of HQT NETWORK's deregistration. The company is actively seeking to diversify its media partnerships to platforms like TikTok and Facebook (META). E-commerce operation training and software support services also saw a decrease, generating $0.03 million in H1 2025 compared to $0.13 million in H1 2024.

Overall, total revenues for the six months ended March 31, 2025, decreased by 27.02% to $3.50 million from $4.80 million in the prior year period. However, the gross profit surged by 280.57% to $2.70 million, with the overall gross margin expanding significantly to 77.04% from 14.77%. This dramatic improvement in profitability metrics underscores the successful shift towards higher-margin service offerings, despite the overall revenue contraction. Operating expenses increased by 91.01% to $4.34 million, driven by higher general and administrative expenses, including a $1.34 million allowance for credit loss and $1.21 million in stock-based compensation. The company reported a net loss of $3.09 million for H1 2025, an increase from $1.41 million in H1 2024, largely impacted by $1.50 million in interest expenses from recently issued convertible notes with an actual interest rate of 42.52%.

Competitive Landscape and Strategic Positioning

The cross-border e-commerce service provider industry in Japan and China is intensely competitive and rapidly evolving. Linkage Global operates amidst a diverse set of rivals, including established offline and online supply chain providers, retailers, wholesalers, and increasingly, specialized advertising and software support service providers. Larger competitors such as Alibaba Group (BABA), JD.com (JD), and Amazon (AMZN) possess significant advantages, including longer operating histories, greater brand recognition, more extensive supplier relationships, larger customer bases, and superior financial, technical, and marketing resources. These giants can invest heavily in R&D, pursue aggressive pricing strategies, and leverage their scale for more cost-effective fulfillment.

Linkage Global's strategic positioning emphasizes its specialized expertise in e-commerce training and software support, coupled with its established regional networks in Japan and China. This focus allows LGCB to cultivate stronger customer loyalty through tailored solutions, potentially offering greater efficiency for small and medium-sized businesses compared to the more complex ecosystems of larger players. For instance, LGCB's software support may provide more accessible and easier-to-implement solutions, differentiating it from the expansive, often more intricate, platforms of global competitors. While LGCB may lag in overall scale and growth trajectory compared to these industry behemoths, its agility in niche services and localized approach represents a key competitive advantage.

However, LGCB's smaller scale and market concentration in Asia present vulnerabilities. Its limited resources could lead to higher customer acquisition costs and potentially constrain profitability when competing against rivals with vast marketing budgets and efficient logistics networks. The company's reliance on specific regional markets also introduces revenue stability risks, particularly when compared to the diversified portfolios of global players. To counter these pressures, Linkage Global is actively expanding its customer and merchant bases into Southeast Asia, including Thailand, Malaysia, Indonesia, and the Philippines, and seeking additional authorized agency qualifications from other media platforms to diversify its digital marketing capabilities beyond its former reliance on Google.

Outlook and Growth Initiatives

Linkage Global is committed to an aggressive growth strategy, primarily centered on expanding its high-margin integrated e-commerce services and penetrating new international markets. The company plans to retain all future earnings to finance this expansion, indicating no cash dividends in the foreseeable future.

A significant portion of its strategic focus is on Southeast Asia. LGCB intends to selectively launch its integrated e-commerce services in this region over the next two years, starting with Thailand, Malaysia, and Indonesia. This expansion will involve partnering with local distributors, attending trade shows, offering localized promotions, and providing customer support in local languages. To support this, Linkage Global anticipates incurring annual expenses of $2 million to $3 million for a new 30-member global business team. The company has already made inroads, becoming a TikTok Shop partner in Malaysia and achieving top-tier TikTok guild status in Thailand in December 2022, highlighting its intent to leverage social e-commerce platforms. Furthermore, LGCB plans to launch its 3C products, such as Bluetooth earphones, in Southeast Asian countries like Indonesia and the Philippines in October 2024.

To bolster its supply chain, approximately 30% of the net proceeds from its initial public offering are earmarked for strengthening integration, including product labeling for authenticity and expanding product selection across a wider range of categories and markets. Marketing initiatives over the next three years are estimated to cost $4 million, focusing on expanding marketing teams, deploying social platform advertisements, and adopting new methods like livestreaming e-commerce and influencer marketing. The ongoing upgrades to the Linkage ERP System, including localization for Southeast Asian markets, and the development of short-form video editing tools, are crucial technological investments supporting these growth ambitions.

Risks and Challenges

Despite its strategic pivot, Linkage Global faces several significant risks. The company's operations in mainland China and Hong Kong are subject to "vague and uncertain" PRC laws and regulations, which could lead to "material changes in the operations of the PRC subsidiaries, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance of our ability to offer, or continue to offer, our securities to investors." Specifically, the collection of customer mailing addresses and their transmission to an ERP system in the PRC may subject the company to cybersecurity review, potentially requiring "technical measures and other necessary measures, such as ceasing transmission and deletion of data or information, suspension of new user registration." The "substantial uncertainties" surrounding cross-border data transfer security assessments further complicate compliance.

The company's status as a "controlled company" due to Mr. Zhihua Wu's 91.22% voting power means it could elect to rely on Nasdaq exemptions from certain corporate governance requirements, potentially reducing protections for public shareholders. Furthermore, Linkage Global has identified material weaknesses in its internal controls, including a "lack of formal internal control policies" and insufficient accounting staff with U.S. GAAP and SEC reporting expertise. While remediation efforts are underway, failure to address these could impact financial reporting accuracy and investor confidence.

The termination of HQT NETWORK's Google (GOOGL) agency agreement highlights the risk of dependence on key partnerships, which could materially affect digital marketing services if alternative arrangements are not secured. The company also relies heavily on a few key suppliers for its cross-border sales, with four suppliers accounting for 10.74% to 19.43% of purchases in H1 2025, posing a concentration risk due to the absence of long-term supply agreements. The recent issuance of convertible notes, carrying an actual interest rate of 42.52%, has significantly increased interest expenses, impacting net profitability. Lastly, international expansion into Southeast Asia introduces risks related to unfamiliar legal and regulatory environments, staffing challenges, and currency fluctuations.

Conclusion

Linkage Global Inc. is at a critical juncture, executing a bold strategic pivot towards high-margin integrated e-commerce services, particularly its fully managed operations. While traditional cross-border sales face headwinds, the impressive profitability of the new service line, coupled with robust technological investments in its Linkage ERP System and new video editing tools, underpins a compelling growth narrative. The company's aggressive expansion into the burgeoning Southeast Asian social commerce market, supported by recent convertible note financing, demonstrates a clear vision for future revenue diversification and growth.

However, investors must weigh this potential against significant risks, including the complex and evolving regulatory landscape in China and Hong Kong, the inherent challenges of international expansion, and the financial burden of high-interest debt. The successful remediation of internal control weaknesses and the effective diversification of digital marketing partnerships will be crucial. Linkage Global's ability to capitalize on its technological differentiators and execute its Southeast Asian strategy while effectively managing these operational and regulatory complexities will ultimately determine its long-term success and value creation for shareholders.