On May 13, Rakuten shared its virtual video presentation of FY2021 first quarter financial results from across the Rakuten Group. Leaders from business units representing the company’s diverse portfolio of more than 70 services worldwide commented on the quarter’s highlights.
To share his perspective on the results, Rakuten Group Chairman and CEO Mickey Mikitani sat down for a Q&A with Credit Suisse Securities analyst Takahiro Kazahaya. This wide-ranging discussion highlights the growth of the Rakuten Ecosystem through strategic partnerships and the creation of an ecosystem premium that is increasingly gaining international recognition.
First, regarding your business and capital alliance with Japan Post. What kind of initiatives will Rakuten implement to support structural reform of the Japan Post Group, and how will that increase Rakuten’s corporate value?
As Rakuten Ichiba GMS surpasses three trillion yen, logistics is extremely important. We can already deliver to around 70% of households ourselves, but the cost of reaching the remaining 30% is high. For Japan Post, the business of delivering letters is contracting, while home delivery of internet shopping has grown in importance. For us, the future cost benefit represented by this alliance is tens of billions of yen, and for the Japan Post Group, that is also the potential size of this business for them.
I started Rakuten because I wanted to do business, but I did it with the desire to make Japan and the world a better place to live.Mickey Mikitani, Chairman and CEO, Rakuten Group
Next, let’s talk about the Seiyu investment. I think online grocery has high growth potential in global markets, but especially in Japan, where e-commerce penetration rates are low. Efforts here can lead to increased corporate value as shoppers purchase food frequently, and it also holds great significance for increasing LTV (lifetime value of customers.) Tell us about your strategy for online grocery and omnichannel retailing.
First of all, as Rakuten has become a 20% shareholder of Seiyu, we will use our AI expertise to further the digital transformation of Seiyu’s core business.
Second is Seiyu and Rakuten’s online supermarket business. The growth of Rakuten Seiyu Netsuper is astonishing. It is crucial to implement automation, especially for frozen foods and other refrigerated goods. By advancing automation, we can become one of the few online grocery businesses capable of generating profit. That said, we are not positioned to cover every corner of Japan, so we will partner with local supermarkets to help drive their digital transformation.
Mobile phones are a part of us
Let’s discuss the mobile phone business. If the mobile phone bills of 100 million users are reduced by even 10,000 yen a year, this could have a big impact on overall consumer spending. So your mobile business not only increases corporate value for your company, in effect it has the ability to contribute to Japanese society and the global economy. Please tell us about its significance for ESG and sustainability.
I started Rakuten because I wanted to do business, but I did it with the desire to make Japan and the world a better place to live.
Mobile phones are a lifeline: They have become a part of our body. Not just the phone itself, but watching content, making payments, listening to audio, checking your health stats, and more, have all become essential. The macroeconomic efficiency of this is poor if users have to worry about their data use, or if their phone bills are expensive. We need to bring these costs down, similar to or lower than international standards. Even with our aggressive pricing strategy, we will drive sufficient profit, and the fully virtualized technology we have developed will be a great tool to support this economic structure. Of course, prices will come down, but virtualization is also more than that. We have begun a platform revolution.
Rakuten Mobile is running two businesses: One as a Japanese mobile operator and one as an exporter of mobile platforms. Our mobile operator business in Japan has three roles: Contribution to profit on a stand-alone basis, contribution to the Rakuten Ecosystem and as a showcase to the world. When both of these businesses are in full swing, we will be capable of driving tremendous profitability.
As the incumbent companies have benefited from industry regulation, they are uncomfortable with change. Does that make it easy for your company to establish models for success?
We derive strength from not being tied down by legacies. Rakuten Card is already number one in the industry, Rakuten Securities is getting closer to number one and is just about to overtake the top player. Rakuten Bank is number one in online banks and accountholders are set to grow to a scale comparable to the mega banks. Society as a whole is shifting to virtualization. We have enormous advantages in allowing customers to do so much online and in offering an open system for technology.
The future of Fintech
What are your thoughts about an IPO for FinTech? Since each business is closely related, won’t taking something out have more of a negative impact on the entire Group? Rather, I think it’s better for you to try to increase corporate value as a Group and pursue a conglomerate premium, but what are your thoughts on a FinTech IPO?
Synergies between our businesses are strong. Card, Securities and Bank all work very well in our ecosystem. On the other hand, it is also true that the risk factors of each business are different. Even if we took the option of an IPO, we would need to ensure we could maintain those synergies and governance. Our first priority is to aim for an ecosystem premium.
We derive strength from not being tied down by legacies. Rakuten Card is already number one in the industry, Rakuten Securities is getting closer to number one and is just about to overtake the top player. Rakuten Bank is number one in online banks… Society as a whole is shifting to virtualization.
Which of the global businesses do you feel have the most potential?
The export of mobile technology will be significant. When we talk to huge mobile companies, they ask if they can use not only the platform but also create a point program, membership and use our AI. In addition to promoting the export of our mobile platform, it is quite possible we could form business partnerships with global telecom players to export e-commerce, FinTech and the membership program.
Are global mobile companies already starting to see you with a conglomerate premium?
For more from Mikitani and Rakuten’s leadership team, as well as business-by-business breakdowns of Rakuten’s Q1 FY2021 performance, watch the video linked above.
For highlights and details on each business segment, please see the press release in full here: