[WATCH] FY2021 Results: CEO Mickey Mikitani reflects on industry-changing technology, green ambitions and a year of growth
On February 14, Rakuten Group live-streamed its 2021 full year financial results. Leaders from business units representing the company’s diverse portfolio of more than 70 services worldwide commented on this year’s highlights (details at end of article) and offered a glimpse of what’s to come.
In 2021, the Rakuten Group recorded revenue growth in all three segments: Internet Services, FinTech and Mobile. Consolidated revenue achieved double-digit growth, up 15.5% year-on-year (YoY), totaling 1.68 trillion yen. In addition, global gross transaction value (GTV) reached 26.9 trillion yen, up 20.5% YoY.
“For the future of humanity, it is essential that we focus on our impact on the environment. This year we are also celebrating our 25th anniversary, so it’s fitting that we commit to this theme of Tech & Green.”
Mickey Mikitani, Chairman & CEO, Rakuten Group
As it works toward carbon neutrality, Rakuten Group, Inc. succeeded in adopting 100% utilization of renewable energy in 2021 (based on preliminary figures), a target achieved four years ahead of the original FY2025 target. The Rakuten Group as a whole, including its main consolidated subsidiaries, will now aim to adopt 100% renewable energy utilization by 2023.
To share his perspective on these results and the way forward, Rakuten Group chairman and CEO Mickey Mikitani sat down with UBS Securities Japan analyst Kenji Fukuyama.
What are your core themes for the business in 2022?
We created Rakuten Symphony, a mobile technology company. Looking back, you can see Rakuten’s technological capabilities are at our core. We’re also strengthening our development center in India, and almost 160 new graduates from Indian Institutes of Technology will join us this year. “Tech & Green” is our theme for 2022. For the future of humanity, it is essential that we focus on our impact on the environment. This year we are also celebrating our 25th anniversary, so it’s fitting that we commit to this theme of Tech & Green.
What is your vision for the future of e-commerce in Japan?
The e-commerce penetration rate in Japan is still around 7-8%. In Europe and the United States it is already over 20%, and in China it is 40%. I think Japan will reach 20% at some point. As hybrid approaches continue to emerge, this is an opportunity for Rakuten. We would like to strengthen e-commerce — including live commerce, social commerce and C2C services.
What kind of breakthrough will be required to achieve the new domestic e-commerce gross merchandise sales (GMS) target of 10 trillion yen that you announced at this January’s Rakuten Ichiba New Year Conference?
As the market grows, Rakuten will also expand. But in order to grow faster than the market, we must continue to improve our user experience (UX). We also must strengthen our strategies for each product genre. For food, fashion, home appliances and other categories, we will create dedicated groups of market experts and add customized features. We will also strengthen logistics in collaboration with our partners, Japan Post.
“Rakuten Mobile is proving to the world the benefits of virtualization technology.”
Mickey Mikitani
Regarding fintech, where will your focus be this year?
We still have plenty of room to grow in terms of volume. Rakuten Card has set a target of 30% market share and 30 trillion yen in shopping GTV. In Japan, digital payments are becoming more and more popular, so the market is also expanding. Because we are an internet company, we can work to those strengths as we pursue new opportunities such as diversification of payment methods.
Rakuten Bank’s total balance of deposits (non-consolidated) is already over 7 trillion yen, surpassing that of small regional banks. Going forward, in order to reach the scale of Japan’s “mega banks,” new product development will be required. In addition, we are considering an IPO in the future. If we flexibly increase capital through an IPO, we may be able to finance products that have some risk in terms of Asset Liability Management (ALM), but still offer stable returns. In any case, given the characteristics of Rakuten Bank’s business model, by increasing equity, we can improve overall profitability.
Moving on to mobile, what is the strategic position of Rakuten Mobile on the arrival of 5G?
There are various types of 5G, including 5G with a low frequency band, where there is little merit because the speed and capacity do not change much. So, how to excel with the mid band and high frequency band is important. The difference between Rakuten Mobile and other carriers is that we mostly control the technology ourselves. Beam-forming and Massive MIMO can also be managed by software to enable targeted connections.
In terms of cost, we can do with software what other companies do with hardware — and manage and maintain it with artificial intelligence (AI). By changing the network configuration and managing capacity in case of emergencies, we can reduce costs and return those costs to our customers.
A reduction in roaming costs will start in earnest in 2022. Is it possible to balance the increase in membership and the expansion of capacity?
5G came at a good time. For both sub-6 and millimeter wave, we acquired bandwidth comparable to other companies. 5G will be available at full power in Tokyo, Osaka and Nagoya, so our capacity can offer the coverage. Regarding the increase in membership, subscribers in Rakuten network areas are double that of areas where roaming remains. As a result, I think we’ll see subscriber numbers get a boost from the Rakuten network areas, where subscribers will increase naturally.
Rakuten Symphony has started in earnest, but can you offer any hints on how many projects will emerge this year, and how big they’ll be?
There are three business models. In the case of Germany-based 1&1, it was an end-to-end (E2E) mobile service platform, with a handover for building and transfer. The second is the sale of software. It takes about 600 types of software to configure a network, but most of them are made in-house. One of our acquired companies has some of the best software in the world, so we can sell that software individually. The third is the sale of hardware that we have made. We make millimeter-wave hardware, but at one-fifth the cost of other companies. These are the three models for sales to MNOs, in cooperation with system integrators.
We would like to work more to address green issues, not only within the Rakuten Group, but also with our merchants and customers.
Mickey Mikitani
That’s why you decided to incorporate Rakuten Symphony — and that will come into play this year as well?
Rakuten Mobile is proving to the world the benefits of virtualization technology. Based on that, we are making good progress toward generating cash flow through Rakuten Symphony, that can also be reinvested in Rakuten Mobile in Japan.
AST SpaceMobile, in which you invested, will launch a satellite in 2022. Please tell us how this will change the service for Rakuten Mobile users and how your company’s operations will change.
There are two applications for SpaceMobile. The first is improved coverage in remote, unpopulated areas. The difference from SpaceX is that Space Mobile does not require a ground station and it connects directly to mobile handsets. The second is service provision from Space Mobile in the event of a disaster. There are many natural disasters in Japan, so at such times it will be possible to connect by satellite.
Coverage in remote, unpopulated areas is very costly, but we must provide universal service. It’s essential, but it can increase costs, which have to be reflected back into overall rates. By doing this via satellite, we can achieve a significant cost reduction. This will be a big breakthrough.
ESG management is also attracting attention in the stock market. Is there anything new you would like to take on this year?
In terms of diversity, our employee base represents nearly 100 countries from across the globe. Gathering staff from various backgrounds has greatly benefited us as an organization – in fact, diversity is one of our greatest strengths.
Regarding the environment, that’s something every company and individual needs to work on. We would like to work more to address green issues, not only within the Rakuten Group, but also with our merchants and customers.
For more from Mikitani and Rakuten’s leadership team, as well as business-by-business breakdowns of Rakuten’s FY2021 performance, watch the video from today’s financial results presentation.
For highlights and details on each business segment, please see the press release in full here.
