Rakuten Group, Inc. · TSE:4755
Rakuten — Q2 2024 Earnings Presentation
73 slides from Rakuten's earnings presentation, Aug 9, 2024
Slide 1: FY2024 Second Quarter Consolidated Financial Results
FY2024 Second Quarter Consolidated Financial Results August 9, 2024 Rakuten Group, Inc.
Slide 2: Total Rakuten Mobile subscribers: 7.70 million; PMCF turned positive
Total Rakuten Mobile subscribers: 7.70 million (As of August 7) *1 Largest ever quarterly increase in B2C subscribers *2 Although still in the investment phase to acquire new subscribers, Rakuten Mobile’s PMCF (Pre-Marketing Cash Flow) *3 turned positive in Q2/24 *1: Preliminary figures as of August
Slide 3: Rakuten Mobile: PMCF Turned Positive
Rakuten Mobile: PMCF* (Pre-Marketing Cash Flow) Turned Positive Achieved profitability on PMCF basis, factoring in profit boost from Rakuten group services from mobile subscribers, and marketing expenses such as mobile subscriber acquisition costs. Profitability is possible if new acquisitions are e
Slide 4: Agenda
Agenda EN Q2/24 Highlights EJ Segment Results + Internet Services Segment + FinTech Segment + Mobile Segment Ei Finance 4 wy
Slide 5: 1. Q2/24 Highlights
1. Q2/24 Highlights 5
Slide 6: Q2/24 Consolidated Revenue
Q2/24 Consolidated Revenue + 8.1% YoY +18.6% YoY +12.0% YoY +3.1% YoY 6
Slide 7: Q2/24 Consolidated Non-GAAP Operating Income
Q2/24 Consolidated Non-GAAP Operating Income +28.1% YoY +30.3% YoY +JPY 21.8bn YoY +JPY 27.6bn YoY 7
Slide 8: Q2/24 Consolidated EBITDA
Q2/24 Consolidated EBITDA* +98.6% YoY +22.7% YoY +19.9% YoY +25.3bn YoY * EBITDA = Non-GAAP Operating Income + depreciation and amortization, etc. 8
Slide 9: Financial Situation
Financial Situation Issuance of foreign bonds in the first half of 2024 has addressed the liquidity gap up to end of 2025 (refinancing of maturing bonds) Self-funding for Rakuten Mobile will be established through its lease finance fundraising Vv Rakuten Mobile to secure necessary funds for immediat
Slide 10: 2. Segment Results
2. Segment Results 10
Slide 11: Internet Services Segment
Internet Services Segment 11
Slide 12: Internet Services Segment: Q2/24 Financial Highlights
Internet Services Segment: Q2/24 Financial Highlights Strong OI growth despite slower Domestic E-Commerce revenue growth due to high YoY hurdles owing to FY23 national travel support and revisions in SPU 0/5 programs Other Internet Services (excluding minority investment business) Non-GAAP OI showed
Slide 13: Internet Services Segment: Key KPIs
Internet Services Segment: Key KPIs Domestic EC Domestic EC GMS Rakuten Travel Domestic Advertising Revenue Q2/24 GMS under same YoY conditions Hotel Checkout GTV *1 Q2/24 - 4.8% YoY + Calculation excluding impact from: 3.1% YoY + 34% vs FY2019 + 8.4% YoY SPU 0/5 rule revision, JPY 1.4 tn JPY 54.0 b
Slide 14: Domestic EC: Continued to Grow OI Excluding Temporary Factors
Domestic EC: Continued to Grow OI as Expected Excluding Temporary Factors +25%* Temporary factors YoY 0/5 cost transfer Estimated (Dec 2023) amount* Nationwide travel Domestic EC Non-GAAP OI support JPY 21.3bn (up to Jul 2023) under same YoY conditions JPY 20.5bn Payment 25% online transfer (Sep 202
Slide 15: Rakuten Ichiba: Steady GMS Recovery, Aiming for Positive Growth in FY24
Rakuten Ichiba: Steady GMS Recovery, Aiming for Positive Growth in FY24 Despite impact from SPU 0/5 rule revisions, total Ichiba GMS remained steady High Q3 YoY hurdle due to last-minute demand following hometown tax revisions (from Oct. 2023) but expecting positive growth from Q4 onwards and aiming
Slide 16: Overseas Business: Combined OI for 4 Businesses Turned Positive
Overseas Business: Combined OI for 4 Businesses Turned Positive No. of users of each service steadily increased. In particular, Viber saw double-digit growth in Contents revenue, contributing to overall revenue increase Kobo saw strong sales of its newly launched color eReaders, as well as improved
Slide 17: Call to revoke notice banning points for Hometown Tax donations
Approx. 2mm signatures collected agreeing with Rakuten Rakuten will continue to call on the government and the MIC to revoke the notice banning the awarding of points for Hometown Tax donations 17
Slide 18: FinTech Segment
FinTech Segment 18
Slide 19: FinTech Segment: Q2/24 Financial Highlights
FinTech Segment: Q2/24 Financial Highlights* ◼ Quarterly revenue surpassed JPY 200 bn for the first time due to solid growth in each business, driven by expansion of customer base and GTV, as well as increased interest income at Rakuten Bank, which is sensitive to interest rates ◼ Achieved double-di
Slide 20: FinTech Segment Q2/24 Key KPIs
FinTech Segment Q2/24 Key KPIs Rakuten Card Rakuten Securities Rakuten Securities Shopping GTV General Accounts Deposited Assets* +13.9% YoY + 22.7% YoY + 45.4% YoY JPY 5.9 tn 11.33 mm JPY 32.3 tn Surpassed Surpassed 16mm JPY 11 tn Rakuten Bank Accounts (Jul 29) Rakuten Bank in July Accounts Deposit
Slide 21: Rakuten Card: GTV Expansion and Profitability Improvements
Rakuten Card: GTV Expansion, Profitability Improvements led to Increased Revenue and OI Revenue increased driven by higher fee income from shopping, installment GTV expansion from membership base and average customer spend growth Large increase in OI from top-line growth, expanded operating leverage
Slide 22: Rakuten Securities: Customer Base Expansion, Diversification of Revenue Mix
Rakuten Securities: Customer Base Expansion, Diversification of Revenue Mix Record-high revenues due to continuous expansion of customer base leading to increase in various transactions Profit increased in 1H/24 overall as Q2 profits exceeded Q1, which already saw increased profits versus pre-zero c
Slide 23: Rakuten Bank: Performance Highlights
Rakuten Bank: Performance Highlights (J-GAAP, Consolidated, Three months ended Jun. 2024) Steady increase in assets under management driven by an increase in number of accounts and deposit balance, as well as the lifting of NIRP led to a large increase in interest income. As a result, the growth of
Slide 24: Rakuten Payment: Revenue and OI Growth Through GTV Expansion
Rakuten Payment: Revenue and OI Growth Through Steady GTV Expansion Revenue increase on GTV expansion, especially through Rakuten Pay and Rakuten Cash Operating income expanded through continuous revenue growth while maintaining lean operational structure. Expecting sustained positive OI Non-GAAP Re
Slide 25: FinTech Reorganization - Announced on April 1st, 2024
FinTech Reorganization - Announced on April 1st, 2024 Rakuten Group, Inc. and Rakuten Bank, Ltd. entered into an MoU*1 to initiate discussions on integration of the entire FinTech business*2 into one group, to further expand our FinTech Ecosystem with innovative services and deeper data collaboratio
Slide 26: Mobile Segment
Mobile Segment 26
Slide 27: Mobile Segment: Q2 Highlights
Mobile Segment: Q2 Highlights Rakuten Mobile MNO service revenue grew on more subscribers and moved towards profitability Rakuten Symphony focusing on existing projects to increase revenue and achieve early profitability Rakuten Energy revenue temporarily declined due to price cuts, but profits boos
Slide 28: Rakuten Mobile: Revenue and Non-GAAP Operating Income
Rakuten Mobile: Revenue and Non-GAAP Operating Income MNO service revenue continued to grow with an increase in subscribers, especially B2C subscribers Non-GAAP operating income also improved steadily on increasing revenue Revenue (JPY bn) Non-GAAP Operating Income (JPY bn) +29.9% Q1/22 Q1/23 Q1/24
Slide 29: Rakuten Mobile, Inc.: Q2/24 Main KPIs
Rakuten Mobile, Inc.: Q2/24 Main KPIs Total subscribers*2 MNO Service Revenue *1 As of Aug 7, 2024 7.70m (JPY mm) +42.2% YoY 40,140 1.04% 36,161 33,175 30,470 28,229 26,526 24,454 20,274 18,470 11,817 Q1/22 Q2/22 Q3/22 Q4/22 Q1/23 Q2/23 Q3/23 Q4/23 Q1/24 Q2/24 2,031 yen *1: Includes Rakuten Turbo se
Slide 30: Accelerating subscriber acquisition
1 | Accelerating subscriber acquisition +> Initiatives to improve network quality +> Various marketing measures contributing 2 | Increasing ARPU +- For both B2C and B2B, mainly due to increase in data ARPU EI Contributing to Rakuten Ecosystem expansion --- Expanded use of group services and profit c
Slide 31: Accelerating subscriber acquisition
1 | Accelerating subscriber acquisition +> Initiatives to improve network quality +> Various marketing measures contributing 2 | Increasing in ARPU +-- For both B2C and B2B, mainly due to increase in data ARPU EI Contributing to Rakuten Ecosystem expansion --- Expanded use of group services and prof
Slide 32: Net Increase in MNO Subscribers (B2C+B2B)
Net Increase in MNO Subscribers (B2C+B2B)* Strengthening marketing activities and subscriber acquisition from the Rakuten Ecosystem as network quality improves Number of subscribers, especially in B2C, increased due to the ability to meet diverse needs through various programs (K lines) Accelerated
Slide 33: Net Increase in Subscribers Through MNP from Other MNOs (B2C)
Net Increase in Subscribers Through MNP from Other MNOs (B2C) (Aggregate of Four MNOs) Marketing was boosted after network quality improvements, resulting in acceleration of MNP inflow from other carriers. This has become a major driver of net increase in B2C subscribers MNP transfers are primarily
Slide 34: Churn Rate Continues to Decline
Churn Rate Continues to Decline Churn, excluding churn within the same month as activation, down to 1.04% Seasonality Spring Sales 4.00% 3.50% MNO Churn rate Seasonality 3.00% Spring Sales 2.50% Adj. MNO Churn rate* 2.00% Adjusted MNO Churn* 1.50% 1.00% 1.04% 0.50% 0.00% Jan-23 Feb-23 Mar-23 Apr-23
Slide 35: Continuing Various Initiatives to Improve Network Quality
Continuing Various Initiatives to Improve Network Quality Gradual rollout of Platinum band (commercial service launch from June 27) Improving connectivity in underground and indoor areas using own network Expand 5G (Sub 6) coverage areas by mitigating interference with satellite communications Furth
Slide 36: Commercial Services using Platinum Band (700 MHz Band) Started June 27, 2024
Commercial Services using Platinum Band (700 MHz Band) Started June 27, 2024 * Simulation in Shibuya Center-Gai 36
Slide 37: Platinum Band Scheduled to be Built Out Well Ahead of Plan
Platinum Band Scheduled to be Built Out Well Ahead of Plan Submitted to MIC Commercial service launched more than one and a half years ahead of schedule Going forward, we plan to expedite the entire project, assuming appropriate operational coordination with existing licensees Number of specific bas
Slide 38: Software Upgrade for 5G Base Stations Nationwide
Software Upgrade for 5G Base Stations Nationwide Massive MIMO adopted in more than 80% of nationwide 5G (Sub 6) networks Beamforming technology strengthens radio waves in specific directions for transmission • • 38
Slide 39: Improvement in 5G Network Speed and Stability as Coverage Expanded
Improvement in 5G Network Speed and Stability as 5G Coverage Area Expanded due to Easing Interference from Satellite Communications Rakuten 5G (Sub 6) areas expanded as requirements for interference adjustment with satellite communications within shared bandwidth areas were eased Combined with softw
Slide 40: With 5G Adjustments, Average Data Usage to Increase Further
With 5G Adjustments, Average Data Usage (4G + 5G) to Increase Further Data usage (4G+5G) increased with 5G area expansion, contributing to improved data ARPU Further increase in data usage expected with completion of 5G area expansion in Kanto area (expected by the end of this year) as satellite com
Slide 41: Improvement of Indoor Communication Quality
Improvement of Indoor Communication Quality Based on network conditions and customer feedback, we continue to improve communication quality with a particular focus on facilities where large crowds gather Osaka Hokkaido National Cerebral and Cardiovascular Center 2024/1/31 BiVi Shin Sapporo 2024/3/8
Slide 42: Accelerating subscriber acquisition
1 | Accelerating subscriber acquisition +> Initiatives to improve network quality +> Various marketing measures contributing 2 | Increasing ARPU +-- For both B2C and B2B, mainly due to increase in data ARPU EI Contributing to Rakuten Ecosystem expansion --- Expanded use of group services and profit
Slide 43: Acquisitions through Group Campaigns are Growing
Acquisitions through Group Campaigns are Growing, Boosting Applications Campaigns for Rakuten Card members (including new cardholders), which have been held regularly since December 2023, drove an increase in applications Rakuten Ichiba also held regular campaigns for new users from June 2024 Plans
Slide 44: Increased Subscribers, Mainly Among Younger Demographics
Increased Subscribers, Mainly Among Younger Demographics. Expanding Demographics with Family Programs, etc. Subscriber acquisition of younger generation going well. Continuing to target this demographic, and additionally expand adjacent age groups with SAIKYO FAMILY, SAIKYO YOUTH, and SAIKYO KIDS ~1
Slide 45: Increasing ARPU
1 | Accelerating subscriber acquisition +> Initiatives to improve network quality +> Various marketing measures contributing 2 | Increasing ARPU +«* For both B2C and B2B, mainly due to increase in data ARPU EI Contributing to Rakuten Ecosystem expansion --- Expanded use of group services and profit
Slide 46: ARPU (MNO)
ARPU (MNO*1) B2C and B2B ARPU both increased QoQ. June monthly ARPU was 2,031 yen Growth in proportion of B2C subscribers led to an increase in Data ARPU. Other ARPU increased due to successful efforts in ads sales 3,058 3,085 3,037 3,030 2,919 3,020 2,813 2,630 2,237 2,037 13 20 32 35 53 7 209 209
Slide 47: ARPU Steadily Increasing for Both B2C and B2B
ARPU Steadily Increasing for Both B2C and B2B Both B2C and B2B ARPU are steadily increasing, driven by growth in data ARPU Accelerated acquisition of B2C subscribers also mitigated the downward impact of subscriber mix 47
Slide 48: Contributing to Rakuten Ecosystem expansion
1 | Accelerating subscriber acquisition +> Initiatives to improve network quality +> Various marketing measures contributing 2 | Increasing ARPU +-- For both B2C and B2B, mainly due to increase in data ARPU EI Contributing to Rakuten Ecosystem expansion +> Expanded use of group services and profit c
Slide 49: Increased Brain Share Leads to Increased Service Usage
Increased Brain Share due to Mobile Contracts Leads to Increased Service Usage Rakuten Mobile subscribers use +2.45 more services than non-subscribers Rakuten Mobile (MNO B2C): Changes in service usage by subscribers and non-subscribers over two years since signing a contract* 3.16 3.21 3.06 3.11 2.
Slide 50: Total GMV of Services Also Increased due to Mobile Subscribers
Total GMV of Services Also Increased due to Rakuten Mobile Subscribers Comparison of total GMV per service over the past year between Rakuten Mobile subscribers and non-subscribers who had similar purchasing trends in the past Compared to non-subscribers, Rakuten Mobile subscribers tend to have a hi
Slide 51: Group Profit Boost due to Synergy Impact From Mobile Subscribers
Group Profit Boost* due to Synergy Impact From Mobile Subscribers Rakuten Mobile's contribution to Group profit is calculated based on the increase in GMV for each service due to Rakuten Mobile subscriptions In addition to improving customer’s loyalty through mobile subscriptions, the number of B2C
Slide 52: Abolition of NTT Law
Abolition of NTT Law We oppose the abolition of the NTT Law due to concerns that it may hinder fair competition ＜Concerns regarding the abolition of the NTT Law＞ 1. Monopolistic use and unfair provision of facilities (such as buildings, utility poles, and pipelines) that were constructed using publi
Slide 53: 3. Finance
3. Finance 53
Slide 54: Our Commitment: Disciplined Financial Policy
Our Commitment: Disciplined Financial Policy Aiming for financial soundness in the medium term 1 2 3 Profitability Improvement Efficiency Improvement Financial Soundness Continuous profit growth of core Company-wide cost reduction Reduce gross debt businesses SPU revision Proactive debt maturity ❏ A
Slide 55: Refinancing Risk in 2024 and 2025 Addressed
Refinancing Risk in 2024 and 2025 Addressed Refinancing risk in 2024 addressed. Liquidity gap for corporate bonds maturing in 2025 also addressed Continue efforts to boost intra-group cash flow and cut interest-bearing debt through various capital procurement Maturing corporate bonds Funding • Overs
Slide 56: Rakuten Mobile Enhancing Liquidity with Sale and Leaseback
Rakuten Mobile Enhancing Liquidity with Successful Sale and Leaseback Rakuten Mobile plans to executed debt investment for sale and leaseback, utilizing its own telecom equipment and other assets, securing funding JPY 150 - 300 bn, thereby establishing self-funding for the business By securing the n
Slide 57: Path to Self-Funding
Path to Self-Funding FY2024 Cash Flow Image Items of Uses Items of Sources Aiming to *1 *3 Establish Self-Funding through Mobile Operating CF + Adjusted Capex FCF of Other Non-FinTech Business *2 Interest Expenses CF from FinTech *4 Uses Forecast Cash Conversion Cycle Improvements 1. Significant imp
Slide 58: Rakuten Group's Evaluation in the Bond Market
Rakuten Group's Evaluation in the Bond Market Rakuten Group's financial strategy is recognized by the debt market Rising prices and falling yields in the secondary market suggest that future financing costs may be lower Price trends of 3-year (no. 4)*1 and 5-year 3 year (no. 4)*1 and 5 year (no. 5)*
Slide 59: Cash Conversion Cycle Improvements
Cash Conversion Cycle Improvements ◼ Continuing efforts to optimize working capital to reduce leverage ◼ FY24 target of JPY 50bn in cash generation from non-FinTech businesses already surpassed, reaching approx. JPY 57bn as of August FY 2024 Cash generation target Further FY24 target of upside JPY 5
Slide 60: 4. AI
4. AI 60
Slide 61: Rakuten AI: Overview
Rakuten AI: Overview Rakuten Group is well positioned to become a business leader in AI Our approach is practical & cost-effective, and delivers insights and impact at scale across the entire Rakuten Ecosystem We drive focus and prioritization via the “Triple 20” operational framework 61
Slide 62: Rakuten's AI-nization: Augment Human Creativity with the Power of AI
Rakuten’s AI-nization: Augment Human Creativity with the Power of AI UNIQUE DATA & GLOBAL TALENT ENABLED BY UNITED UBIQUITOUS CHANNELS ‘ENGLISHNIZATION’ CULTURE Combining world knowledge with Rakuten’s 30,000 industry-leading professionals Every Rakutenian is driven by our unique customer understand
Slide 63: Our Approach to AI is Practical and Cost-effective
Our Approach to AI is Practical and Cost-effective Performance Cost FOCUS ON SCALING HUMAN INTELLIGENCE + RIDE THE WAVE OF THE FUNDAMENTALS ARTIFICIAL INTELLIGENCE TECHNOLOGY INNOVATION Invest in core technologies that Combine the domain expertise Capitalize on recent increases in enable us to scale
Slide 64: Rakuten AI: Execution Momentum
Rakuten AI: Execution Momentum Ongoing strong momentum with multiple key additions to AI-driven offerings aimed at both consumers and businesses WAVE 1 WAVE 2 WAVE 3 - Scaling - - Launching - - Incubating - Deep Learning Rakuten AI Rakuten AI at Scale for Business for Consumers Semantic Search Rakut
Slide 65: Deep Learning Applications Help Customers Discover What They Need
Deep Learning Applications Help Customers Discover What They Need Items which are frequently Relevant ads based on bought with a microwave user profiles Understand the meaning of user query: “Clothes to wear to a summer fireworks festival in Tokyo” SEMANTIC SEARCH RECOMMENDATIONS ADS Delivering grea
Slide 66: Semantic Search Is Driving Impact at Scale
Semantic Search Is Driving Impact at Scale Across The Rakuten Ecosystem Launched in 2023 Launched in 2024 Q1 2024 and beyond Rakuten Fashion*1 Rakuten Ichiba*2 (Rakuten Books) (Rewards) And more... Zero Hit Rate Reduction -93.5% Zero Hit Rate Reduction -98.5% +3% searches per session +6.8% search re
Slide 67: AI-Powered Recommendations Make Shopping More Exciting
AI-Powered Recommendations Make Shopping More Exciting Increase customers satisfaction by tailoring the feeds to users’ fine-grained interests with ultra- personalization using the latest AI methods State-of-the-art recommendations system Combining the latest AI models and algorithms to improve reco
Slide 68: Visual Search Extends The Power Of Deep Learning Beyond Words
Visual Search Extends The Power Of Deep Learning Beyond Words Previous solution Using Rakuten AI Less relevant results Highly relevant results Expensive to operate Significantly less expensive OLD NEW Better quality for lower cost - 43% Operating expenses 68
Slide 69: Rakuten AI for Rakutenians
Rakuten AI for Rakutenians Empowering our teams to work smarter, faster, and more efficiently 25,000 RAKUTENIANS HAVE USED AI Coding Content Creation Data Analysis Document Creation 7,000 Inquiry Knowledge Document Content Handling Search Reviews Reviews Email Translation Summaries Meeting Drafts Re
Slide 70: Universal Concierge: An Experimental Feature
Universal Concierge: An Experimental Feature to Improve Customer Experience Universal Concierge, currently in development, leverages AI for chat, personalized search, and recommendations to enhance user experiences and boost diverse engagement across the Rakuten ecosystem Personal Tailored results a
Slide 71: Rakuten Mobile AI Assistant 2.0
Rakuten Mobile AI Assistant 2.0 Answer user questions 24 by 7 I want to replace my current smartphone, any recommendations? Mr./Ms. XX, you use GB of data per month on Proposals based on user average, so I recommend a device with relatively high specs. history Do you have a desired budget for the de
Slide 72: Rakuten
Rakuten
Slide 73: Forward-looking statements disclaimer
This presentation includes forward-looking statements that reflect management’s current assumptions and expectations of future events, and accordingly, they are inherently susceptible to uncertainties and changes in circumstances and are not guarantees of future performance. Actual results may diffe