Rakuten Group Inc

TSE:4755

Earnings Call Transcript 2017-Q4

[Unknown Executive]

Thank you for waiting, and welcome to Rakuten's 2017 Fourth Quarter Financial Results Meeting for Analysts and Investors. First, I'd like to introduce to you the Rakuten executives here today. In the front row, on your left is Hiroshi Mikitani; Masayuki Hosaka; and Yoshihisa Yamada will join us later -- he has just arrived; Yasufumi Hirai; Kentaro Hyakuno; Makoto Arima. Starting from the left in the rear row, Naho Kono and Noriaki Komori. We have those 8 executives. We have those 8 executives -- these 8 executives will be present and available for questions at the end of the presentation. I'd like to remind you that around 4:45, Mikitani has to leave.

Now Mr. Mikitani, please go ahead.

[Hiroshi Mikitani, executive]

Good afternoon, and thank you for taking the time despite your busy schedule.

As the numbers would be brief and succinct in principle, I'd like to mention at the outset as a take-home message that we will continue to be aggressive, that as we'll continue to seek for massive expansion of our ecosystem. And for that -- because population is not growing in Japan, we have to consider how we can further capture a big chunk outside of ecosystem to grow it more and grow its advantages and then try to rectify disadvantages or shortfalls.

And we're now receiving data. And we have a lot of ways for utilizing them for advertisement, which is considered to be the major source of income or one of the major sources for income. Therefore, membership, data and brand, those are the 3 factors that we're going to utilize.

In terms of revenue, operating income and global annual GTV, they're growing successfully. And the card shopping GTV, we're now #1 and still continue to grow at 20%. As to C2C, integration was announced recently. We're now seeing the signs of the #1. And therefore, that also demonstrates how strong we are in catching up with #1. And as to global investment, we are enjoying the sizable revenue, which is growing.

We're not planning to launch a big fund like software -- SoftBank rather. But rather, I would like to utilize our advantages and use our income for various business activities. So this is how the global -- the GSM (sic) [ GMS ] is growing, and now reaching JPY 3.4 trillion in terms of the domestic E-CGMS.

I'd like to introduce some highlights. Rakuma and Fril are integrating, reaching annual GMS of JPY 140 billion, and we hope to bring it up to JPY 300 billion.

And investment is growing successfully. And frankly speaking, about the supply chain management, this is where we're going to launch major activities. They're so far centering around [ SPE, ] the loyalty improvement, I mean, loyal customers are the activities that we have been emphasizing, and I'd like to touch on that later on, centering around platinum and diamond members. And loyalty is enhanced day-by-day, in fact, nearly 60% of the consumers are using Rakuten Cards, and we want to acquire even more new members. And therefore, whether it is internet, the supermarket or the first-party sales, those are the activities that need to be further focused on.

The net shopping and off-line, as you may know, are no longer clearly delineated or differentiated with each other. And because our activities are working well with our partners, based upon existing distribution network as well, we want to further expand activities. And as I said, we want to grow our advantages as strength so that the chat function would be installed in each merchant, which is going to be implemented at a [ less ] time. Already, we have about 20 -- oh, no, it's on the order of hundreds. Hundreds of merchants are already deploying chat function.

This is something that is unique to Rakuten. 45,000 merchants are selected, which would offer the care and service to customers. And for the payment and logistics, they will be integrated for payment, Rakuten Pay, in early Q4. All of them will be settled through Rakuten for all the merchants, announcement has been already made. And therefore, we expect further growth in revenue and don't want to elaborate on that much. It's a kind of touchy point.

Turning to investors, I really want to say that revenue is growing, but to merchants, I somewhat feel hesitant. But anyway, what we're trying to do is to further expand the business in what is called the One Delivery or unified delivery. I wonder whether you may know that already within 13 [ VOC ] within Tokyo, Rakuten Express Service is already available. That is uniquely launched by Rakuten, and the products are delivered to consumers. It doesn't mean that we have trucks. We have alliance partners, and they are in charge of delivery with their trucks.

And we want to make it default delivery format. And with that, starting from the picking up products up to the last 1 mile, that is the One Delivery or unified delivery would cover end-to-end, not only for the first party but also the marketplace as well.

And to further strengthen ecosystem, we will also develop activities in nonlife. And we're quite confident with the person in charge that the revenue and profit would grow here. That will be on the order of tens of billions of yen that would be realized.

And synergy as well. With the Rakuten Travel or Rakuten GORA or Rakuten STAY or for the products purchased at Rakuten Ichiba, there will be nonlife insurance that will be covering those products purchased. So I believe there will be even more synergy there. And for advertisement, in 2021, we want to achieve JPY 200 billion. And that's our plan.

And product development is currently going on. And MNO, the -- we have already 1.5 million members in MVNO. And now we have Rakuten ID members and the Rakuten cardholders of 15 million. When we consider that for us to deploy services on MNO, we believe our future is quite bright.

When we started the Card business, of course, we don't have any negative assets, so we believe that we are quite confident in being able to deliver and explain about the MNO. As for the network, the existing MNO experts, a number of them have been employed. And we have received some estimates from the vendors. The structure of the networks, the grids, all these plans are underway. So we are looking at about JPY 600 billion, Japan -- Japanese yen, as planned capital investment using lease finance for our financing, so that will be efficient.

As for the financial results of the consolidated -- the consolidated financial results, I think this is what I showed you. The capital -- because of the capital investment, it was JPY 150 billion and the non-GAAP was JPY 167 billion. This is operating income. So I've been saying JPY 300 billion. That will be the goal, and I think we're in the right direction as far as reaching this is concerned.

Domestic EC, as I said, the revenue is 25.6%, and I think the operating income is negative, but the advertisement income is increasing. So compare to the initial competition, I think the loyal customers will be further taken up and so that we can expand with new customers as well as expanding the e-commerce to daily commercial products.

As for the first party R&D, the Rakuten Direct, Rakuten Books, it should surpass -- or it has surpassed 30%. So we would like to grow this. And about marketplace, we want to be able to increase convenience with One Payment.

I will skip this and then go to the other internet Service. In the fourth quarter, it was JPY 4.1 billion. And profit -- and FinTech is also doing well. And also, Card -- the Rakuten Card, 14% is going to be the year-on-year revenue. And it was 22.3%, the transaction rate, and the operating income was 13.6% year-on-year. It's over JPY 520 billion. And also the total Rakuten ecosystem, I think, is going very well. And also we are able to increase our membership as well.

It's about the GTV and some accounting-related topic, you can make an inquiry to the finance department, if you have any. Starting Q1, new rule would be applied to take a more conservative approach. So this is just a report.

Rakuten Bank. In fact, it is the anchor, so to speak, in the financial business. In terms of revenue and operating income, they are growing and, super loan, it will soon reach JPY 400 billion.

And Rakuten Securities. Because Security market is quite vibrant today and in addition to that the investment trust using the points or the stable revenue, that is maintained, are major factors together with the business in Malaysia, we are seeing growth of the international business as well.

Rakuten Life Insurance. This is going to be one of the major income sources. In Q4 last year -- since Q4 last year, we started some aggressive advertisement strategies. And therefore, although the revenue is showing the negative growth compared to previous year or the year-on-year, still in terms of number of policies and the annualized premium, they are growing. And what is called the direct marketing, either on internet based or call center based, we're seeing increase in number of policies purchased. And for Asahi Fire, they are still in red. But given the size, I believe, this is also going to grow as a major incomes earner together with Rakuten Card or even more significant as the revenue source.

And Internet Service, I mentioned earlier, if I touch on one strategy with SPU program, this is going to be expanded even further. And now we have books and other services would be added. Therefore, we expect more synergy to be generated.

And as to C2C, for the time being, we will maintain the current strategy of no commission fee to be #1 in the segment. And for open commerce, rebates. They're quite successful centering around the United States. We want to also promote them in Japan and also ID-based payment. And One Payment, One Delivery, and First Party, that includes alliance with retailers and further strengthening the First Party business.

And SPU, this is a report. Now we are joined with Rakuten Books. And the 33% growth year-on-year was achieved. And we believe we can further grow this business. That is 50% year-on-year growth. I mentioned earlier that we are now successfully looking at the loyal users. And then the question is how we can further acquire new users. That is going to be the major -- the focus. And now, the share of the mobile GMS is more than 70%. And therefore, what is called the Mobile First -- and I would say that entry into Rakuten Mobile for one aspect, it could be offensive approach and at the same time with integrated service that will be deployed, with that, this could also serve as a defensive purpose as well.

Already, we are seeing the synergy with the Rakuten Card, about 56% of that -- the payment are made by Rakuten Card. And for Rakuten Mobile, as we're going to acquire more than 10 million subscribers and then we want to create a situation where they will be buying or enjoying shopping using Rakuten Card.

Now Rakuten Direct, sir. LOHAS is our competitor, but we have been able to accrue double the revenue of LOHAS. And Rakuten Books is doing very well. Now e-commerce outside of Japan, rebates, Ebates has exceeded 1 trillion. So it's also transitioning very, very well.

Viber Unique ID. We will reach about 1 billion users soon. And for the revenue, too, it's doubled. And it is becoming a profitable business.

As for Rakuten Mobile, the MVNO business basically, it is also going very smoothly. And the number of stores, physical stops or shops, 182. So they're confident about the mobile business.

So 62% of the subscribers pay with Rakuten Card. And those who pay with Rakuten Super Points, 26%. We want to increase this. So we want to strengthen the ecosystem, which is going to be contributed by MVNO.

As for advertisement. It will become one of the major sources of revenue. As our first step, the Rakuten Group, internal group external advertising will be done in a second step. Using our data, the external platforms will be utilized to increase the revenue. In the future, it should exceed the e-commerce in terms of revenue.

So we are already rolling this out, the RPD, the brand service. And the advertising percentage is very high, even the cost per click is high. And this kind of product development as well as our partnership with Dentsu will be strengthened so that we can increase our clients, so that we can rapidly expand the advertisers.

So that concludes my presentation. Thank you very much.