Rakuten Earnings: Continued Tight Financial Management Required While Mobile Losses Shrink

Rakuten 4755 reported an operating loss of JPY 49 billion in the June quarter, an improvement of JPY 27 billion from the previous quarter, mainly due to narrower mobile segment loss, and partly on solid margin expansion in the financial technology segment. We are encouraged that Rakuten Mobile achieved a certain level of cost reduction, as the company has shifted gear to improve the business’ profitability as the repayment of bonds issued for massive investments is becoming a risk factor. While we are pleased to see the improving indicators of the mobile business, we still believe that it won’t achieve positive EBITDA until the second half of 2025—suggesting that Rakuten will need tight financial management for the time being, as it is expected to repay more than JPY 800 billion in bonds between 2023 and 2025. The company is exploring measures to raise funds such as listing Rakuten Securities, monetizing Rakuten Capital’s investments, and has also mentioned refinancing of bonds, but has yet to provide details. We, therefore, retain our fair value estimate of JPY 620 and our Very High Morningstar Uncertainty Rating on the company. We believe Rakuten’s shares are currently fairly valued.

The quarter’s mobile segment operating loss was JPY 82 billion, from a JPY 102 billion loss in the previous quarter. While the number of subscribers increased to 4.81 million from 4.57 million, and average revenue per user improved to JPY 2,010 from JPY 1,949, we believe that lower network expenses and selling, general, and administrative expenses contributed more to the improvement. In order to reduce immediate cash outflows, Rakuten has for now abandoned the building of its own nationwide communications network and shifted to using a roaming agreement with KDDI to make up for the shortfall in uncovered area, successfully reducing costs related to base station installation. We also believe that curbing advertising and marketing expenses has also contributed to the reduced loss.