Morningstar | Rakuten's Earnings Results May Relieve the Market in the Short Run, but Concerns on MNO Remain
Rakuten, the earliest and largest business-to-business-to-customer e-commerce platform, has benefited from the structural shift from offline to online shopping in Japan. Rakuten’s business model of combining e-commerce and fintech has helped the company build up a network effect, with about 18 million quarterly active buyers at Rakuten Ichiba and 16 million Rakuten Card holders. The company has been building up a one-stop platform--not only for shopping, but also for financial services, entertainment, mobile phones--and is focused on adding more businesses to enhance the ecosystem. Rakuten Points, one of the largest points programs in Japan, has promoted cross-use of Rakuten services. The cross-use ratio is at a high level of about 66%.Although competition in the Japanese e-commerce market has intensified, we believe Rakuten Ichiba will maintain its user base, leveraging the ecosystem. In early 2016, Rakuten launched the Super Points Up Program to promote cross-use of Rakuten’s services and attract new users, which pushed up the proportion of people using the Rakuten card on its e-commerce platform from 40.5% in April 2015 to 54.3% in September 2017. We thus believe the marketing campaign could help the firm's ecosystem lock in active users, although margins have decreased significantly, owing to increased marketing expenses in 2016 and 2017. In addition, Rakuten has been promoting usage of its mobile app, and the engagement ratio in terms of daily active users/monthly active users is higher than other major mobile apps: 27.4% in March 2016, versus 21.5% for Yahoo Japan and 20.5% for Amazon Japan. We are encouraged to see Rakuten scaling back its unprofitable overseas business, and we expect the loss from other Internet services to narrow in the coming quarters.Rakuten is mainly engaged in the Internet-related business. Along with its affiliates, Co. operates in two business segments. The Internet Services segment is engaged in the operation of electronic commerce sites, including an Internet shopping mall "Rakuten Ichiba," an online cash back site, a travel booking site, portal sites and digital contents sites; the sale of advertising on Co.'s sites; the provision of messaging and communication services; and the management of a professional baseball team "Tohoku Rakuten Golden Eagles." FinTech segment is engaged in the provision of Internet banking services and online securities trading services, and the credit card and life insurance businesses.
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