Rakuten’s Fintech Performance Surges as Mobile Segment Struggles – What’s Next?

Tokyo, Japan – Rakuten Group, Inc., a prominent Japanese e-commerce and online retail company, faces mixed prospects as it navigates through its various business segments. The latest financial results for Q1 2024 revealed a tale of contrasting fortunes for Rakuten, with its Fintech division experiencing robust revenue growth while its Mobile segment continues to struggle in terms of profitability.

In a bid to bolster its Fintech business, Rakuten has proposed integrating and reorganizing its various fintech ventures into one group, including Rakuten Bank, Rakuten Card, Rakuten Securities, and Rakuten Insurance. This restructuring initiative is expected to be completed by October 2024 and may enhance the overall revenue growth prospects for Rakuten’s Fintech segment.

On the other hand, the company’s Mobile segment remains a work-in-progress, with Rakuten setting a goal to achieve “monthly EBITDA profitability” by the end of 2024. Despite efforts to drive growth through initiatives like the “Saikyo Family Program,” which offers discounts to family members, the Mobile segment still faces challenges in reaching positive earnings levels.

Analysts point out that Rakuten’s Mobile segment may only capture a single-digit market share by 2025, indicating a gradual progression towards scalability and profitability. With the Japanese mobile market boasting over 200 million subscribers, Rakuten’s target of 10 million subscribers by end-2024 represents a modest market share that may require more time to achieve economies of scale conducive to profitability.

The company’s stock performance reveals a trading multiple of 6.4 times consensus next twelve months’ EV/EBITDA, positioning it closely with peer company KDDI Corporation. Considering the business outlook and valuation metrics, analysts recommend a Hold rating for Rakuten’s stock, reflecting the uncertainties and opportunities present across its Fintech and Mobile segments. Investors are advised to exercise caution when investing in stocks not traded on major U.S. exchanges due to associated risks.