Rakuten Group Inc

TSE:4755

Earnings Call Analysis

Record-Breaking Revenue

Rakuten Group posted an 8% year-on-year revenue increase, reaching a record JPY 513.6 billion for the first quarter. This growth was driven by steady performance in the domestic market, including Rakuten Ichiba and Travel, as well as significant progress in the overseas market. Rakuten Mobile also saw subscriber growth, contributing JPY 9.6 billion in MNO service revenue.

Improved Profitability

The company reported a substantial JPY 43.5 billion year-on-year increase in operating income, highlighting improved profitability in both Domestic EC and Overseas business segments. Non-GAAP operating income similarly showed strong performance, increasing by JPY 13.6 billion.

Segment Performance

In the Internet Services segment, revenue grew by 5.4%, amounting to JPY 285.5 billion. Non-GAAP operating income improved by 14.8%. Rakuten Travel Inbound saw a remarkable 243% growth. Despite some negative factors like the end of government subsidies, profitability continued to increase.

FinTech Strength

Rakuten's FinTech segment performed strongly, with revenues growing by 15.1% year-on-year to JPY 193.5 billion. Non-GAAP operating income rose by 47.4% to JPY 39.3 billion. Rakuten Card shopping GTV increased by 12.5% to JPY 5.6 trillion, and Rakuten Securities saw a significant rise in user accounts and deposited assets.

AI Innovations

Rakuten is heavily investing in AI, launching applications to improve merchant and customer experiences. Their new Rakuten AI 7 Billion model is noted for its cost-effectiveness and performance, comparable to larger models like Google Gemma. The introduction of AI-driven tools is aimed at enhancing operational productivity by 20% across various functions.

Mobile Segment Transformation

Rakuten Mobile is on the verge of profitability, thanks to a 70% reduction in support fees through AI deployment. The segment also aims to integrate Open Ran software and expand its cloud strategy, leveraging the acquisition of Robin.io. The company has ambitious plans to become the 'Red Hat' of the mobile world by opening and developing hundreds of thousands of software solutions.

Debt and Financial Management

Rakuten successfully addressed its liquidity gap for 2025 by issuing USD 2 billion and JPY 50 billion in senior notes. The company is also focusing on reducing capital expenditure and increasing free cash flow, particularly in the Internet Service and FinTech segments. Measures to improve the cash conversion cycle are being aggressively pursued.

Future Outlook

The company expects to achieve annual consolidated non-GAAP operating income profitability by fiscal 2024. Marketing and operational improvements are underway, with a strong emphasis on leveraging AI for enhanced efficiency. The long-term vision includes achieving higher ARPU through data usage and diversified service offerings, aligning closely with the integration of FinTech services.

Earnings Call Transcript 2024-Q1

[Unknown Executive]

Thank you very much for joining us today. I would like to offer from Rakuten Group, Inc. FY 2024 First Quarter Consolidated Financial Results. So already on the 1500 hours, we have disclosed the earnings call summary on Rakuten Group, Inc. corporate website. Please refer to them from the Investors information page. And you may have not received either video or audio. In the button that is at the bottom of your screen, you'll be able to redirect it to a different server. And also, we have generated -- a subtitle generated by AI. It has not been edited by [indiscernible] and verified by human. So there may be some incorrect information in the subtitle. So I'd like to seek for your kind understanding. So without further ado, I would like to invite Mr. Mikitani for his presentation.

[Hiroshi Mikitani, executive]

Hello, everyone, and most of you, I presume attending through a video of 2024 for the first quarter consolidated financial results. I'd like to start this presentation. So first of all, the large theme that I would like to deliver to you today in terms of our future, of course, a strategic project, Rakuten Mobile, which you have engaged on. And this in terms of EBITDA on a single month turning us back, we are now making a very smooth progress with the profitability. And in fact, Rakuten Mobile, the single, of course, unit in terms of EBITDA, for instance, the acquisition of new customers, the cost, it could be the ecosystem.

There is a major contribution made to our ecosystem. And based upon all these and embracing this EBITDA already on an EBITDA basis, we are around the corner or in making the business profitable. On top of that, today, I would like to bring to you the overall highlight and segment by segment results. And at the same time, financial status quo and future outlook and strategy and, of course, in terms of AI and artificial intelligence, how we harness these new technologies would like to bring to you.

So starting with the highlights of our performance as for the revenue on a year-on-year basis, about 8% increase was observed at JPY 513.6 billion. This is a record high for first quarter. Rakuten Ichiba and Travel, the domestic market was quite steady in its growth. And in addition, the overseas business also made progress in a steady fashion. And also, we have expanded our customer base and also transaction volume -- or value rather has increased. And as for mobile growth in Rakuten Mobile, subscribers boosted. And so MNO service revenue by JPY 9.6 billion year-on-year was achieved. And non-GAAP operating income has seen a tremendous improvement.

Operating income, plus JPY 43.5 billion year-on-year. So we have seen improvement. So Domestic EC as well as Overseas business, profitability has improved dramatically. And also the Internet services, significant profit improvement in growth. Rakuten Card profitability improved and Rakuten Payment turned profitable. So at one time, there were some [ use express ], but for commission, for example, the financial status is quite stable. And so even before compared against the pre-zero commission level, the Rakuten Securities has the profit level back to those levels. And also cost optimization was conducted in Rakuten Mobile.

Therefore, the situation has been improving. And as a result, before depreciation, that depreciation that is EBITDA is JPY 52.8 billion. That's consolidated EBITDA. And therefore, cash flow also has improved accordingly. And therefore -- well, we have corporate bond issued. We successfully issued a USD 2 billion denominated senior notes and JPY 50 billion senior notes denominated in Japanese yen. And so liquidity gap for 2025 maturities are largely addressed. So please rest assured. So I would like to move on to the segment-based presentations, Internet first.

So in terms of the revenue, it's plus by 5.4% by JPY 285.5 billion. Non-GAAP operating income is 14.8% positive. So thereby JPY 13.6 billion. positive. So of course, to a certain extent, the minority investment, there are some, of course, elements that needs to be embraced. And if that is going to be excluded 63.3%, a large, of course, growth has been exemplified by this business. And of course, this is the SPU optimization, is one of the bigger, of course, factor. At the same time, in terms of some of the subsidy of the government by the support to have people travel, that has been already concluded. So there are negative factors, but still we are seeing a large amount of growth in terms of the profitability. So the Domestic EC service, it looks as it's minus by 4.7%, and of course, JPY 1.3 billion in terms of GMS.

But we are now pursuing for quality rather than volume. So therefore, there are some sort of the users that are turning deficit. We are going to have a very sound and healthy, of course, customers that generate profit for our overall business. Rakuten Ichiba, the competitiveness consistently is very strong. And at the same time, the domestic EC GMS growth rate is in the quarter or year-on-year is 1.5 percentage point improved. So Rakuten Travel Inbound, of course, total GTV is now within a lot of inbound, so plus by 243%. And for Advertisement, plus by 7.2%. And Rakuten TV Overseas is 43.8% on growth, the amount of users are increasing.

So therefore, have exceeded over 100 million people altogether. And global -- the second, of course, Rakuten Kobo is a digital book. We have now a total of 65.7 million people that have registered. So year-on-year plus by 6.3%. So Kobo-based digital reader is also very, very smoothly growing and profitable. And also Rakuten Viber, we have increase of 5.4%, so accounting for 1.5 billion people. And what's doing very smoothly, Rakuten Viki, again, we are seeing the number of users increasing by 23%. So totaling to the amount of 86.8 million people together. So I would like to break this down in more detail. So SPU, the revision of the SPU. So first of all, a unique user -- number of unique users is growing steadily.

And on the right-hand side of the chart, in the graph, the gray-shaded area is the negative profit contributors in terms of the users. So there are certain, of course, percentage of them that has not contributed to the business. But with SPU improvement, we, of course, are utilizing other service and being a subscriber Rakuten Mobile and inclusive of that, we are seeing a reduction on non-contributors. And also, at the same time, Domestic EC non-GAAP, as I have mentioned, operating income, the onetime temporary factor, if you exclude that, then it's an increase by 20%. So the baseline is a 20% growth. I think we'll be able to see that. And also large competitors' strategy is needed. So we're putting a lot of emphasis in Logistics as well.

So Logistics services while introducing them, some of the merchants compared to non-merchant utilizing, its a growth by 12.5% compared to nonuser of Logistics service versus our users. And in actual terms, as you can see here. The 6 large warehouses, out of that, 4 of them already is now full capacity, and it's now turning into a profitable growth. And other Logistics business, there are various, of course, efficiency and optimization that has been implemented. So therefore, in the future, we are going to foresee improvement of the profitability and also in terms of GMS growth could be quite large contribution that we'll be able to expect out of. The overseas business, as you can see, it is quite obvious, the large improvement being made and the so-called in terms of -- JPY 2.5 billion improvement in terms of operating profit.

Next, the FinTech segment. Now overall, in all business segments, we have realized an increase in revenue and the profit has been improved, has been growing in a major fashion and Rakuten Securities also registered increase. And therefore, the revenue increased by 15.1% year-on-year, namely JPY 193.5 billion. Non-GAAP operating income increased by 47.4% year-on-year, reaching JPY 39.3 billion. Highlights include a 12.5% increase year-on-year of Rakuten Card shopping GTV to reach JPY 5.6 trillion. Rakuten Securities general accounts is over 10 million now. So last month, it actually went beyond 11 million. And also Rakuten Securities deposited asset is increasing by about 50%. I think it's in excess of JPY 30 trillion now. And the Rakuten Bank Accounts, the total number is 15.24 million, as of last week, I think. JR East collaborating virtual bank, I think, is making steady progress.

And so -- and Rakuten Bank deposit balance on a stand-alone basis has increased 15.4% year-on-year, Japanese 10.5 trillion. And Rakuten Card shopping GTV, that is JPY 5.6 trillion and 19.2% is the operating income margin, which is showing a very strong growth. And non-GAAP operating income is JPY 15.3 billion. And therefore, this is an increase of 22.7% against last year. And Rakuten Securities, the number of accounts is increasing and NISA accounts, 5.2 million accounts already. We are amongst the top or the top in Japan now in this area. And operating income, JPY 6.9 billion, which is plus 18% year-on-year. And Rakuten Bank, this is the highlight of the performance as you can see here. So things that I haven't mentioned, ROE 14.1% and capital adequacy ratio of 10.9%.

Therefore, the balance sheet is quite healthy. And Rakuten Payment, competitors like PayPay, d Payment, au PAY, there are many payment platforms, but RPay has ranked the first according to MMD Institute in terms of overall satisfaction, we ranked #1. Downloading of the apps is quite -- growing steadily. And finally, in first quarter, we have this operating profit for the first time and Rakuten Payment and Rakuten Point business, including -- these are the numbers that are inclusive of those businesses. And now the forecast or what we expect for the future. Now 2010, that's 14 years ago, the cashless ratio in Japan was 13.2% or so. But now it has come close to 40% penetration. And at the end of the day -- in the future, maybe we will be on par with the Western countries, 70% or 80% cashless payment ratio is expected.

And if you look at other markets, Rakuten credit card, cards, and Rakuten Bank, debit card included, QR-based or barcode-based Rakuten Pay is there as well, Rakuten Point, Rakuten Edy and Rakuten Cash, these are the different payment methods that we offer. There's no other fintech company that offers so many options. And in addition, about JPY 30 trillion worth of transactions is realized through these services quite strong, and that is due to the strong teamwork. And in addition to that, of course, we're going to make further improvement of our payment services but also provide higher value items such as insurance as well as banking services. So we will continue our efforts so that more people will leverage those services as well.

In the near future, what is likely to happen is regarding Rakuten Card, which has been issued for more than 30 million. And the Rakuten Card that these people have, they have the Rakuten Card and Rakuten Pay functions being integrated so that there will be more synergistic effects, and that will boost the total number of people using the functions and Rakuten Pay, Rakuten Card, Rakuten Edy, these are to be integrated. And so -- and Suica will also be available on the same terminal.

And Rakuten Card, Rakuten Pay are used quite frequently. But in -- on the other hand, there are high-value services by Rakuten Bank, Insurance and Life Insurance and Securities as well, maybe not so frequently used but higher lifetime value. And as we announced the other day, we're going to have this integration of the FinTech business, we will have a reorganization of the FinTech businesses of ours. In doing so, the financial services agency as well as others will be involved, and there will be the wallet and others that will be brought outside of this framework.

So let me take you through the Mobile. I'm sorry, let me sip a water, take a break. So the Mobile segment of our business. In other words, the Mobile segment or Rakuten Symphony is included. So overall, the Symphony last year, because of the German company business transaction, it is a profit by JPY 100 billion. But in terms of non-GAAP, last year comparison, it is going to be plus by JPY 30.7 billion in non-GAAP. So EBITDA, JPY 33.7 billion improvement. So we have been able to shrink the losses. So this is the revenue and non-GAAP operating income. So as a group overall -- so as you can see here, this is going to be the [ card ]. So Rakuten Mobile, the -- in terms of fixed assets and including that EBITDA last year, the first quarter, it was minus JPY 54 billion.

And this is, again, Rakuten Ichiba, doing their shopping and transaction and Rakuten Bank being utilized and Rakuten Card, the utilization volume goes up. And those are a large portion of the business in a quarter-by-quarter business. This effect is going to be JPY 12 billion. So therefore, if you include that altogether, the adjusted EBITDA is on the quarter [ basis ] is JPY 4 billion already that I've achieved. So while making this business profitable, Rakuten Group, the ecosystem is starting to contribute to our profitability and our revenue. And [indiscernible], in terms of service, it is going to be JPY 36.6 billion. So it is a total of the number of 6.8 million. So BCP, the Visa, the second SIM at time of emergency. So the profitability highs, but inclusive of that, we are seeing that after adjusted MNO churn rate is 1.27%.

So the other, of course -- on par with other carriers, it is coming to a quite good area. So ARPU is JPY 2,024. So let me proceed and show you the actual scenario of what is happening.

Okay. What I would like to draw your attention to is the overall ARPU contribution for the entire group. So JPY 3,068 is what we have achieved so far. Not all our gross margin profit, however, uplift all included, then we reached more than JPY 3,000 now. So I will go back.

We concluded the first and the second phase and now in the third phase, and it is going to make huge contribution of our business and to the ecosystem. And 3 carriers, we're going to be included within this sort of the game of playing with the 3 carriers. So in terms of 680 million continuing to 810 million. And ARPU, of course, [ NBA, NBAO and NBCV ], what we need to do. And on the monthly cost, it's going to be JPY 23 billion to JPY 25 billion. So with introduction of AI, we would like to further reduce these numbers. So why it is doing [indiscernible], the roaming has expanded. So that inclusive in terms of quality, the communication has improved. So 99.9% we've been able to cover the population.

And in terms of the acquisition of the contract from ecosystem, we are now seeing a great acquisition from our ecosystem overall. And in terms of on top the roaming, what we are pursuing as the strategy is Open Ran and also Virtualization. So around the world, it is highly evaluated and not that alone, the actual, of course, quality survey that has been conducted. Many of costly items and indices in many carriers, we are a single #1 winner of these ranking, especially 5G upload speed, download speed for these areas, we have been very highly evaluated on these segments.

And in terms of coverage, the open signal have a no signal availability survey at 100, how many of them with no signal availability. As you can see on the graph, 1.2 somewhat percentage in the 12 months plus, so we have been able to make improvement by 0.57 percentage point. So in terms of 77 percentage plus have said that the quality has improved. So setting the price and fairness democratization, the mobile phone. And at the same time, we are going to establish the most strong connectivity.

So we're working towards the best connectivity. Now the new roaming contract is the basis for the network expansion, which is underway. And platinum band to be realized at an earliest possible timing in May, already the test run has started so that we can start commercial operation in June. And then for subways and indoor areas using platinum band, in some cases, we're going to make improvements in connectivity and 5G expansion will be promoted further, and network density will be enhanced further. And 5G is plotted here. In Kanto region, for example, it will go to 1.6x the coverage as of now -- compared to now. And Tokai area, 1.7x coverage in Kinki or Kansai area, again, it's expanding.

And platinum band, as we have been explaining, you have this diagram in the second box there. We are currently using the mid-band 1.7 gigahertz band radio head, but 700 megahertz compliance radio head will be attached so that we can use it for platinum band as well. And investors might wonder why can this be done at a lower cost because we are manufacturing this at a new type of factory, that's the answer. And then in 2026, Space Mobile is going to be used, broadband will be used so that we have 100% population coverage. That is our target. So whether you're in Tokyo or in Tsugaru Strait or in Hokkaido, [indiscernible] or if you're in the ocean and basically, you will be able to get connected in the case of emergencies as well. And number of users has been increasing steadily as well. At the end of the year, our fiscal year, merchant-oriented mobile allocations for the merchants were conducted.

So there were many activities at the end of the fiscal year. But 426,000 cases in Q1 also has experienced. And since February, we have this family program, the youth program as well as the most recent one, which is the kids program that was announced, which were all well received. And Rakuten Card being at the center, there are synergistic effects being felt as well. It's not just about Rakuten Card by Travel, Ichiba and Rakuten Pay as well and also baseball and soccer. There are synergistic effects everywhere that we're going -- we're trying to expand to the maximum possible. So if you look at the ecosystem, overall, ARPU contribution is worth about JPY 1,055 and JPY 9.8 billion push up or lift up in the group profit.

So it will be JPY 2.55 billion plus. And of course, there will be various services used as Rakuten Mobile as an entry point, for example, plus 53% Rakuten Ichiba annual GMS increase and also Rakuten Travel annual GMS actually had 88% increase. And therefore, we have the SAIKYO Family program, youth program as well as kids program that have been announced so that JPY 3,068 ARPU is what we have now. And so 2 years ago, it used to be JPY 1,045. However, it has gone up to over JPY 3,068. And of course, we're trying to improve or increase the ARPU further. And data usage is increasing. That's one factor. We offer only a single plan.

And so the more data usage, the higher revenue. And by people using our services, the convenience on their part will increase. For example, Link, Rakuten Link, a threefold increase of the impressions in the past year for Rakuten Link is what we have seen. And also for corporate mobile, it's not just them using the service, but for Rakuten Group as well as our partners who provide various services, we can actually promote and contribute to those other services as well.

Rakuten Symphony, the largest sort of a mobile phone trade, fair mobile -- global mobile conference. We have a Ran software, which we have announced that is going to be open. And having discussions with many people, Rakuten Mobile success is going to change the status quo and the norm of the mobile phone.

And I've been told you already changed the norm, and you had already disrupted the conventional world. And the Open Ran software also is going to make further advancement. So Rakuten Open Ran software, what are we trying to do is, as you can see, the Open Ran software, there are hundreds of thousands of softwares that are being utilized like Linux, [ source code ] to our affiliated companies or we're going to make open. And so via transparency in terms of strategy that we are going to engage ourselves on. So therefore, in other words, Linux -- in the world of Linux, Red Hat has succeeded in the world of Linux. In terms of mobile phone network, we are going to pursue to become Red Hat of the mobile world.

And the other is a cloud strategy. In fact, the Robin.io, which we have acquired, this company in the cloud for the mobile phone network on top of that, the general enterprise cloud is doing very well in United States and Europe as well. And having said that, on top of that, all proprietary Rakuten One Cloud, which we have developed, we're going to multiply or integrate these 2 in order to convert them as Rakuten cloud, domestic cloud, we are going to launch them. So to do so, not only cloud, but the Rakuten Lauten [ zone ] developed General AI -- Rakuten AI, and of course, a comprehensive strategy alliance being concluded with open AI as well. So on cloud, we're going to empower AI capability as well.

And last but not least, this is how AI is going to be utilized, but our Chief Digital Officer, Ting Cai, is going to describe the strategy later on. But from me, I'd like to just give you a high level image. We have initiated Triple 20, and we made the announcement of the strategy. So what it means is that in utilizing AI and leveraging them, specifically marketing productivity is going to improve by 20% and operational productivity improve by 20%. And at the same time, client productivity is going to be made 20% efficient. So Rakuten Ichiba entered editing and customer service, copilot will be utilized and AI is already empowered, and we're going to see that further rolled out. So one example of that is that Rakuten Mobile, where we are today is, in other words, at the time of entry, it was a human sort of intensive support.

So JPY 2.2 billion support fee was necessary. And utilizing AI by launching services first quarter, we have been able to achieve a 70% reduction by JPY 989 million. So therefore, Rakuten Mobile not alone, but all businesses will be able to implement them. And at the same time, what we're really trying to do is, for us, the Generative AI, the development of Generative AI on top of that operation will also be made further productive. So engineering, code assistance or various documentation, again, it's not manual intensive by utilizing that and customer support. At the same time, the Logistics segment.

And furthermore, in the center, it is quite ambitious, but by utilizing AI, optimizing marketing efficiency and direct business or to our merchant price and optimization inventory will be recommended by AI and optimization and advertisement. And in terms of AI search, you can find by means of recommendation. So that's already -- the area AI already have been extensively utilized. So in the future, UX is going to be centered on voice as well. So therefore, the concierge function also further, it's going to be enhanced going forward.

So this is all I have for you.

[Kenji Hirose, executive]

Hirose is my name. I'm in charge of Finance. I'd like to give an overview of the financial strategy. First, this might be a repetition, but mid- to long-term financial soundness is what we are aiming for 3 pillars: profitability improvements, as Mr. Mikitani already explained, the core business will grow its growth. Profit growth will be increased. And so achieve profitability on annual consolidated non-GAAP OI basis in fiscal 2024. And also for Rakuten Mobile, monthly EBITDA-based annual increase as well as annual basis as well. And efficiency improvement, yes, we have been improving our efficiency, and we will make further efforts. And SPU, various revisions will be underway. Marketing-related improvements are being worked on.

And also working capital improvement and also cash conversion cycle being optimized, that was already mentioned. And internal cash will be increased as a result of that. And by using AI, we are going to further improve our efficiency. And financial soundness being maintained for interest-bearing debt, we will increase -- rather decrease, and we have been decreasing that, but we will continue that. And also, proactive debt maturity management is next, which I will explain a little more later, but we will take more proactive actions to finance this. So -- and we have already done that. And to a large extent, I think this issue or concern has been addressed.

And the third one is a credit rating improvement so that we will have a very financial -- sound financial basis. And let me talk about refinancing risk in 2024 and '25. So the redemption was JPY 321 billion, but we have already addressed them. Redemption, of course, we wanted to redeem 100%. However, there are still some remaining. That is JPY 145 billion, that is still remaining. And the funding is on the right-hand side. And so we have had additional sales of Rakuten Bank and Rocket Securities shares. And also, we have issued -- this corporate bond senior notes issued. And then that's for the 2024 maturity and JPY 400 billion is the amount for 2025, USD 2 billion denominated senior notes, and we also have a Japanese yen denominated in a private placement, so that is JPY 350 billion. Now domestic hybrid bonds maturity will come in November, December and JPY 76 billion. We will use the products that receive equivalent equity certification.

And so we are addressing that as well. And of course, depending on the market situation as well as other situations, corporate bond type class shares might be issued or hybrid bonds being issued, but we will have this call on the first call date. And past-due self-funding Mobile segment. Free cash flow improved dramatically. EBITDA will be improved dramatically. But in addition, the capital expenditure will be -- or CapEx will be reduced. And so that is our plan for free cash flow improvement. And Internet service, free cash flow, EBITDA will continue to increase and cash conversion cycle will be shortened so that internal cash will increase. So these are the measures that we plan on doing. And FinTech, we will, of course, have dividends as well as management fees coming in.

Also for 2024, sales funding will be established. And then beyond that point, we will have free cash flow being realized. And with regard to the project to reduce cash conversion cycle, the entire company has been improving -- trying to improve the cash conversion. And so we're trying to have improvements or prolongness of the payment terms, for example. And so there have been various measures undertaken. And also at the same time, in addition to the accounts receivable and accounts payable ratio improvement, we are revising and analyzing points program as well, minimum JPY 50 billion non-fintech cash will be generated, and we still have upsides to that amount. So we're on a path to further soundness in financial basis. Thank you.

[Ting Cai, executive]

Good afternoon, everyone. My name is Ting. I'm speaking from the Silicon Valley today. After meeting with many companies here, I truly believe Rakuten is in a unique position to develop cutting-edge AI technology and bring the benefit of AI across multiple industries. We continue to push our strategy to leverage our unique data, ubiquitous channel to develop growth flywheel, so we can continue to accumulate our sustainable competitive advantage. While strategy is important, execution is even more crucial.

Next slide, please. In Q1, we demonstrated strong momentum on all fronts. We continue to scale our deep learning application and shift our first Generative AI application to merchants and continue to develop and incubate our future technology for consumers. Next slide, please. And last year, we shifted Semantic search for Fashion. And in January, we shifted for Ichiba. And in 2024, we're going to scale Semantic search applications to 10 additional services across Rakuten Group. In addition, we're going to leverage our deep learning foundation to extend from search to recommendation to advertising.

Next slide, please. And the beauty of Rakuten AI solution is that our solution is so easy that we can enable merchants to use it right away in their existing flow and tools. In Q1, we launched RMS Assistant for merchants, so they can quickly analyze merchant reviews and drive responses to their customers, and they can leverage Rakuten AI to understand the data and grow their sales. And for advanced users, we also launched Rakuten AI University, so they can learn about Rakuten AI technology and broader industry knowledge as well to draw the best of their advantage.

Next slide, please. And in Q1, we also launched Rakuten AI 7 Billion. As you know, 7 billion is the number of parameters for a large language model. And today, large language model is growing bigger and bigger. The largest model today is over 1 trillion parameters, as the number of parameter grows, the cost of operation is also growing. And here at Rakuten, we can leverage our data to develop cost-effective model. Rakuten AI 7 Billion is probably the best cost-effective open model for Japanese language and Japanese audience. And recently, Llama launched open 8 billion model, and our performance is comparable with that. And in the open Rakuten AI 7 Billion performance, even better than the Google Gemma in 7 billion model.

As Mickey mentioned earlier, we have a broad portfolio of AI products. We continue to help the entire Rakuten Group to improve its operation, whether it's a customer support and software engineering and documentation, translation and search and advertising and from all experiences to operations. So we have a lot to come to share with you later. And today, I want to thank everyone at Rakuten to participate in the AI-nization effort, and I'm very excited about progress and look forward to share more with you later. Thank you.

[Unknown Executive]

So this concludes the financial results announcement. Thank you very much.