Rakuten Group Financial Analysis – Net Profit Decline

Business Description

Rakuten Group, Inc. operates as a global innovation company engaged in three main business segments: Internet Services, FinTech, and Mobile. The company is headquartered in Tokyo, Japan, and has a significant presence in both domestic and international markets.

Core Business Operations and Segments

• Internet Services: Includes e-commerce sites such as Rakuten Ichiba, travel booking sites, digital content sites, and professional sports team management.
• FinTech: Comprises services related to credit cards, banking, securities, crypto assets, life insurance, general insurance, and electronic money.
• Mobile: Focuses on communication services, technologies, and electricity supply services.

Geographic Footprint

Rakuten operates extensively in Japan and has a growing international presence, particularly in the United States through services like Rakuten Rewards and Kobo.

Industry Position

Rakuten Group is a significant player in the Japanese e-commerce and FinTech markets, competing with companies like Amazon Japan, SoftBank, and various traditional financial institutions. Its market share is bolstered by its diversified business portfolio and integrated ecosystem.

Revenue Streams and Customer Base

Rakuten generates revenue through various channels: e-commerce transactions, financial services, and mobile subscriptions. The customer base is wide-ranging, including individual consumers and businesses.

Supply Chain and Competitive Advantage

Rakuten leverages a vast network of suppliers and partners across its business segments. Its competitive advantage lies in its integrated ecosystem, which promotes cross-use of services and enhances customer loyalty.

Financial Analysis

Income Statement

For the nine months ended September 30, 2024, Rakuten reported a revenue of ¥1,617,621 million, an 8.5% increase year-on-year. However, the company recorded a net loss attributable to owners of ¥150,358 million, an improvement from the previous year’s net loss of ¥208,447 million [[1]] [[4]] [[6]].

Balance Sheet

As of September 30, 2024, Rakuten’s total assets amounted to ¥24,879,684 million, with total equity of ¥970,604 million. The company’s equity ratio has decreased from 4.8% to 3.9% [[2]] [[11]].

Cash Flow Statement

• Operating Activities: Cash inflow of ¥819,503 million, up significantly from ¥161,663 million in the previous period.
• Investing Activities: Cash outflow of ¥766,953 million, primarily due to investments in securities and intangible assets.
• Financing Activities: Cash inflow of ¥701,528 million, driven by proceeds from bond issuance and long-term borrowings [[11]] [[19]] [[20]].

Dividend

No dividend was proposed for the fiscal year ending December 31, 2024 [[2]].

Key Findings

Strengths

• Revenue growth of 8.5% year-on-year indicates strong operational performance.
• Significant cash inflow from operating activities highlights robust business operations.
• Diversified revenue streams across multiple segments mitigate risk.

Risks

• Net loss attributable to owners remains high at ¥150,358 million, though it has improved from the previous year’s loss.
• Decline in equity ratio from 4.8% to 3.9% indicates increased financial leverage.
• Substantial cash outflow from investing activities could impact future liquidity.

Special Activities

Rakuten has engaged in strategic actions to improve profitability, including a strategic capital and business alliance with Mizuho Financial Group, Inc. to expand Rakuten Card’s business areas [[29]].

Investment Recommendations

For Current Investors

Hold the stock. Despite the net loss, the company’s revenue growth and strategic partnerships indicate potential for future profitability.

For Potential Investors

Consider investing. The company’s diversified business model and growth in revenue streams present a compelling case for long-term investment, though risks remain due to current financial losses.

Disclaimer: This analysis is based on the financial report provided and current market conditions. Investment decisions should consider personal financial situations and consult with a financial advisor.