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

Rakuten 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.