Rakuten Earnings: Robust Fintech Growth Amid Mobile and E-Commerce Weakness; Fair Value Unchanged

Rakuten achieved quarterly profit for the first time in five years in the third quarter, mainly due to robust growth in fintech businesses, particularly in Rakuten Card and Rakuten Bank. This came as a surprise for us as we had previously expected the company to turn profitable in the fourth quarter. We are encouraged that the fintech segment continuously outperformed our expectations, and, therefore, slightly bump our near-term top line and operating margin for the segment. However, we are concerned that Rakuten Mobile’s monthly active users and average revenue per user growth have not improved much from the last quarter and Rakutens Ichiba's gross merchandise value actual growth has slowed down more than we had expected over the past few quarters, which brings higher uncertainty for the longer-term growth of Rakuten group. Hence, despite raising fintech projections, we maintain our fair value estimate of JPY 990 and believe shares are currently fairly valued.