winhorse/unreleased (from Getty Images)
elevator pitch
I will evaluate Rakuten Group, Inc. (OTCPK:RKUNY) (OTCPK:RKUNF) (4755:JP) stock as a hold. Previously, I wrote about his RKUNY cash flow generation and debt refinancing. Updated September 19, 2023.
This latest This article evaluates Rakuten’s performance and outlook. The company’s revenue for the first quarter of 2024 was in line with expectations, but its operating loss was higher than consensus estimates. Going forward, Rakuten is likely to report solid revenue growth in its fintech division, while its mobile division is likely to remain in the red. Therefore, I remain neutral on Rakuten.
The company’s shares can be bought and sold on the Tokyo Stock Exchange and over-the-counter markets. Over the past 10 business days, Rakuten’s average daily trading value for Japanese stocks and OTC stocks was $110 million and $200,000, respectively. S&P Capital IQ data. Investors can trade the company’s relatively liquid Japanese-listed shares with U.S. brokerages like Interactive Brokers.
Accelerated revenue growth was overshadowed by a higher-than-expected operating loss
Rakuten is the company’s settlement of accounts RKUNY’s Q1 2024 sales met market expectations, but its most recent quarterly operating loss was greater than analysts expected.
The company’s revenue expanded by +8.0% YoY to 513.6 billion yen in the first quarter of 2024. This represents a faster growth pace compared to Q4 2023 sales of +3.0% YoY. Rakuten’s actual Q1 sales were slightly higher (+0.7%) than the market consensus revenue estimate of 510 billion yen (Source: S&P Capital IQ).
RKUNY’s fintech division was the company’s star in Q1 2024. This business’ outperformance was a key reason for Rakuten’s accelerated revenue growth in recent quarters. Segment revenue for the FinTech business in the first quarter of this fiscal year was 193.5 billion yen, an increase of +15.1% year-on-year.
among them Results presentation slides, Rakuten said its fintech division benefited from “growth across all services with an expanded customer base and transaction value.” Deposit assets in RKUNY’s securities intermediary sub-segment (Rakuten Securities) will increase by 49.8% year-on-year to 29.4 trillion yen in the first quarter of 2024, and deposit balances in the Internet banking sub-segment (Rakuten Bank) will increase to 29.4 trillion yen in the first quarter of 2024. It increased to 10 yen, an increase of 15.4% compared to the previous year. .5 trillion in recent quarters. The total transaction volume of the company’s credit card business (Rakuten Card) in the first quarter of this year also increased by 12.5% year-on-year to 5.6 trillion yen.
On the contrary, RKUNY’s operating loss for the first quarter of 2024 was -33.3 billion yen, worse than the sell-side consensus estimate of -29.4 billion yen. S&P Capital IQ data. The company recorded an operating loss of -33.3 billion yen in the fourth quarter of 2023, and operating profit did not improve compared to the previous quarter.
The company’s mobile division continued to be a drag on overall operating profit in the most recent quarter.
In February 2024, Rakuten’s mobile division introduced a new initiative known as the Saikyo (Strongest) Family Program, which offers “100 yen off the monthly fee of Rakuten Mobile SAIKYO plan for members of the same family.” did. This could have been the main factor behind his ARPU (average revenue per user) shrinking by -2% QoQ in Q1 2024. RKUNY’s mobile division operating loss for the first quarter was -66 billion yen, which was not significantly improved compared to the mobile segment. The division’s operating loss for the fourth quarter of 2023 is -68 billion yen.
Expect more similar things to happen in the future
Rakuten’s Q1 2024 results reflect what will happen to the company in the near future. Rakuten’s fintech division is likely to continue to deliver strong revenue growth, but its mobile division is struggling with profitability.
Prior to April 1, 2024 In search of alpha news article RKUNY pointed out that it is proposing to “integrate and reorganize the entire fintech business, including Rakuten Bank, Rakuten Card, Rakuten Securities, Rakuten Insurance, and other fintech ventures, into one group.” The realignment exercise is scheduled to be completed in October this year.
As of Q1 2024 Financial results briefingThe company stated that as part of its reorganization in the fintech field, it believes that by integrating the “functions of Rakuten Card and Rakuten Pay,” “the total number of users of Rakuten Pay and Rakuten Card will increase.” In a recent quarterly earnings call, RKUNY also said that the integration of various parts of the fintech division presents an opportunity to increase the frequency of other “high-value services from Rakuten Bank, insurance, and life insurance and securities.” It’s reasonable to think that the overall revenue growth outlook for Rakuten’s fintech division will be even better following the restructuring move.
On the other hand, Rakuten’s mobile division is still in the process of becoming profitable.
As shown in the earnings presentation slides, RKUNY has set a goal to record “monthly EBITDA margin” for its mobile division “by the end of 2024.” This also suggests that Rakuten’s mobile business is likely to remain in the red at EBIT and net profit levels this year.
Separately, telecom tva media outlet in the telecommunications sector covered in a previous article February 14, 2024 Comment Based on the “upper limit of predicted subscriber growth,” Rakuten’s mobile division will only boast “single-digit market share in 2025.” Specifically, the Japanese mobile market is 200 million subscribersOn the other hand, Rakuten Mobile’s target upper limit for subscribers by the end of 2024 is 10 million (5% share). This suggests that Rakuten’s mobile division will take more time to reach a certain scale that provides economies of scale that support positive revenues.
final thoughts
Rakuten’s overall business outlook is mixed, considering the outlook for its fintech and mobile sectors. Additionally, Rakuten is currently trading at 6.4x (Source: S&P Capital IQ) The consensus EV/EBITDA for the next 12 months is that of peer company KDDI Corporation (OTCPK:KDDIY) (OTCPK:KDDIF) (9433:JP)’s consensus EV/EBITDA metric for the next 12 months is 6.1x. Considering the business outlook and valuation, I’ve given the stock a Hold rating.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
