Fintech is a bright spot for Rakuten

Written by Kapronasia || February 21 2024

Japanese e-commerce giant Rakuten has struggled in recent years amid intensifying competition in its domestic market and high costs linked to its decision to move into mobile communications. However, digital financial services is a bright spot for Japan’s largest platform company and Rakuten Bank’s April 2023 IPO – which raised US$624 million – was Japan’s largest market debut since 2018 when SoftBank’s telecoms unit raised US$23 billion. The stock has gained more than 36% since then and is currently trading at 2,627 yen (US$17.49).

Rakuten posted an operating loss of 33.3 billion yen in the fourth quarter of 2023, a significant improvement over its performance during the same period a year earlier. Yet, it was still Rakuten’s 14th consecutive quarter in the red and a larger loss than the 28.8 billion yen that analysts in a London Stock Exchange Group (LSEG) had forecast. Rakuten’s mobile unit continues to drag the overall company down as it posted a loss of 71 billion yen in the October-December period.Given the mounting debt it is facing, Rakuten made a decision to pare down its stake in its banking unit and in December sold 24.5 million shares of Rakuten Bank to overseas investors at a price of 2,470 yen per share. Rakuten said it would use the proceeds to repay bonds early as it was committed to reducing interest-bearing debt. The sale of those shares reduced Rakuten’s stake in the online lender to less than 50%.

It is ironic that what seem to be the most promising Rakuten businesses are being sold off gradually, but the Japanese company appears determined to become a big player in mobile communications – a costly endeavor. In addition to the IPO of Rakuten Bank and this recent share sale, since 2021, Rakuten has issued new shares to strategic investors and the public and twice sold down its holding in its securities arm Rakuten Securities. One can imagine that if Rakuten is feeling pressure to more expeditiously pay down its debt that it may choose to list its credit card business Rakuten Card, which includes the group's lucrative points and payments system.

Meanwhile, Rakuten’s banking unit looks set for a strong year ahead. It has increased the forecast for the year ending March by about 6%, citing rising interest income from loans and the expanded scale of its business. The bank’s fiscal third-quarter net income totaled about 9 billion yen ($60 million), in line with analysts’ estimates. It now expects full-year profit of 33.5 billion yen.

Rakuten Bank has been enjoying growth in its customer base thanks to the group’s reward point system designed to lock in users. The lender is also expected to benefit from potential interest-rate increases by the Bank of Japan because most of its investment assets are tied to floating rates.