Rakuten ((JP:4755)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call from Rakuten painted a picture of robust performance, marked by substantial revenue and EBITDA growth across various segments, particularly in Mobile and FinTech. Despite these achievements, the company faced hurdles with valuation losses, tax complications, and a quarterly net loss, which tempered the overall positive sentiment.
Rakuten Mobile EBITDA Improvement
Rakuten Mobile showcased a remarkable improvement in its stand-alone EBITDA, which increased by JPY19.1 billion year-over-year, reaching JPY5.6 billion. This growth was supported by a subscriber base that exceeded nine million by the end of July, reflecting the segment’s expanding market presence.
Consolidated Revenue Growth
The company reported an 11% year-over-year increase in consolidated revenue, reaching JPY596.4 billion. This growth was driven by significant advancements in Internet Services, FinTech, and Mobile segments, highlighting Rakuten’s diversified business model.
Record EBITDA
Rakuten achieved a record consolidated EBITDA of JPY103.2 billion, marking a 54.5% year-over-year increase. This figure represents the highest amount ever recorded for a second quarter, underscoring the company’s operational efficiency and strategic execution.
Launch of Rakuten AI
The official launch of Rakuten AI on July 30 introduced Agentic AI services with concierge functions, enhancing the Rakuten ecosystem. This development is expected to bolster customer engagement and optimize search and advertisement personalization.
Internet Services Segment Growth
Revenue in the Internet Services segment rose by 6.8% year-over-year to JPY324.5 billion. Excluding valuation losses, the operating income increased by 8% year-over-year, indicating strong underlying performance despite market challenges.
FinTech Segment Expansion
The FinTech segment experienced a 14.8% year-over-year increase in revenue, reaching JPY232.7 billion. This growth was primarily driven by the success of Rakuten Card and Rakuten Bank, which continue to expand their market influence.
Rakuten Bank’s Strong Profitability
Rakuten Bank reported a 40.8% increase in ordinary income to JPY57.5 billion, with ordinary profit rising by 56.8% and a return on equity (ROE) of 21.6%. These figures highlight the bank’s robust financial health and profitability.
Mobile Segment Profitability
The Mobile segment saw an 18.1% year-over-year increase in revenue, reaching JPY112.1 billion. Notably, the segment turned profitable on an EBITDA basis, marking a significant milestone in its growth trajectory.
Rakuten Symphony’s New Contracts
Rakuten Symphony secured new contracts with six companies, including AT&T, showcasing the growing recognition and demand for its innovative products in the telecommunications sector.
Valuation Losses in Internet Services
The Internet Services segment faced a 10.5% year-over-year decline in non-GAAP operating income due to valuation losses on securities, highlighting a challenge that the company needs to address moving forward.
Tax and Unauthorized Access Issues
Rakuten Card incurred JPY4.9 billion in expenses related to additional taxes and JPY1 billion as compensation for unauthorized access at Rakuten Securities, reflecting ongoing regulatory and security challenges.
Increased Corporate Income Tax Expenses
Corporate income tax expenses surged by 88.6% year-over-year to JPY19.7 billion, primarily due to Rakuten Card’s departure from the Group tax consolidation system, impacting the company’s net income.
Quarterly Net Loss
The company reported a quarterly net loss of JPY40.1 billion, influenced by increased tax expenses and fluctuations in financial income, underscoring the financial pressures faced during the period.
Forward-Looking Guidance
Looking ahead, Rakuten Group has set ambitious targets, aiming to surpass ten million mobile subscribers by year-end and reduce net interest-bearing debt to non-GAAP EBITDA in non-fintech businesses to within 5x by 2027. The company plans to maintain a consolidated equity ratio of 10%, with AI-driven initiatives expected to enhance both consumer and B2B services, driving future growth.
In conclusion, Rakuten’s earnings call highlighted a strong performance with notable achievements in revenue and EBITDA growth across key segments. Despite facing challenges with valuation losses and tax issues, the company’s strategic initiatives and forward-looking guidance suggest a promising trajectory for continued success.