Rakuten Earnings: Mizuho’s Investment Mitigates Immediate Default Risk but Mobile Losses Still Heavy

Rakuten posted an operating loss of JPY 54.5 billion in the September quarter, largely unchanged from a loss of JPY 48.9 billion in the June quarter. Despite an increase in subscribers to 5.22 million from 4.81 million in the June quarter, operating loss in the mobile segment improved only slightly to JPY 81.2 billion from JPY 82.4 billion. Although we expect the pace of user acquisition to accelerate due to the revision of its incentive plans and increased promotions related to the introduction of the so-called platinum band, which is expected to begin in early 2024, we believe Rakuten Mobile’s EBITDA will turn positive in 2026, one year later than the company target, as a result of less room for cost reduction and limited room for average revenue per user growth. We make no changes to our fair value estimate of JPY 620 for Rakuten Group, as we broadly retain our assumptions that mobile losses will gradually shrink and the internet and fintech businesses will maintain healthy growth over the next few years. We think the stock is currently fairly valued.