[WATCH] Q2 FY2021 Results: CEO Mickey Mikitani reflects on a ground-breaking quarter of growth
On August 11, Rakuten live-streamed a video presentation of FY2021 second quarter financial results from across the Rakuten Group. Leaders from business units representing the company’s diverse portfolio of more than 70 services worldwide presented highlights from the quarter and offered a glimpse of what’s to come.
Groupwide, Rakuten recorded revenue of 402,158 million yen for Q2 FY2021, up +15.8% year-on-year (YoY). This marks the highest revenue recorded by the Rakuten Group in the second quarter of a fiscal year. Excluding profits and losses of Rakuten’s Mobile, Logistics and Investment-related businesses, where the company continues to invest strategically for future growth, non-GAAP operating income was 46,852 million yen, a significant increase of +35.6% YoY.
Rakuten’s ecosystem expands
Rakuten’s ecosystem user numbers continue to demonstrate sustained growth in Japan, with the percentage of members using two or more Rakuten Group services increasing to 73.9% in Q2. Average active monthly user numbers also showed solid growth of +12.5% YoY across Rakuten Group services, even with the added impact of increased stay-at-home demand for online shopping services that began a year ago.
“In 5-10 years, it is possible that we will see RCP’s (Rakuten Communications Platform) revenue and profit outpace our other businesses.”Mickey Mikitani, Chairman and CEO, Rakuten Group
By leveraging the Rakuten Ecosystem, which is centered on membership, data and its points loyalty program, Rakuten Group promotes cross-use between services and increases customer retention. Ecosystem development also minimizes risk through business diversification and the added value of synergy generated between Rakuten services.
This was a big quarter for Rakuten’s Fintech segment as well, with both revenue and profit in Q2 FY2021 up compared to the same period of the previous fiscal year.
Rakuten Bank reached yet another milestone in the quarter, becoming the first online bank in Japan to reach 11 million accounts, as the number of customers using their account as the main account for their daily lives continued to increase.
The number of Rakuten Cards issued also surpassed 23 million in June 2021. Rakuten Card shopping Gross Transaction Volume (GTV) achieved significant growth of more than +30% YoY, and Rakuten Card’s overall GTV market share is now more than 20%.
Additionally, Rakuten Securities achieved strong growth of +20% YoY growth in operating revenue and reached 6.24 million general securities accounts at the end of June 2021. In Rakuten’s Insurance business, new subscribers due to cross-selling between Rakuten Group insurance companies increased 14-fold since the Comprehensive Insurance Center launched two years ago, contributing to an increase in profit of more than +20% YoY.
“Rakuten Ichiba’s biggest bottleneck was delivery. Delivery differed merchant-by-merchant, and prices were also different. Now we’ve introduced a 3,980 free shipping threshold line — this is having a positive impact with our customers.”
Q&A on a momentous Q2 for Mobile and sustained growth in E-commerce
To share his perspective on the results of Rakuten’s Mobile business and recent headline-making announcements, Rakuten Group chairman and CEO Mickey Mikitani sat down for a Q&A with Tsuruo Mitsunobu, director of Citi Research. Below are some of the highlights.
“Traditionally, it was the accepted common standard to build mobile networks completely around hardware, but three and a half years ago, Rakuten moved ahead with a fully virtualized network: centered on software in the cloud.”
Congratulations on Altiostar becoming a wholly owned subsidiary and announcement of a large deal for RCP [Rakuten Communications Platform]. Now you’ve invested about 40 billion yen to make Altiostar a wholly owned subsidiary and you’ve secured this RCP customer — what are your plans to generate return on this investment and expand earnings in the future?
Traditionally, it was the accepted common standard to build mobile networks completely around hardware, but three and a half years ago, Rakuten moved ahead with a fully virtualized network: centered on software in the cloud. Transition to the cloud is now a hot topic, but this is still mainly happening with the network core, while the final outpost of base stations is still largely dependent on hardware. Through collaboration with Altiostar, and the support of other partners, we were able to make full virtualization a reality.
The biggest investment required to build a network is not for the core but for the base stations. Finding ways to automate and reduce investment required for the base stations is crucial to keeping overall costs down. It is very significant that we have acquired the only company that is currently able to realize this.
Please tell us how you plan to expand the RCP business in the future, and how it will contribute to Rakuten’s earnings.
We believe that our mobile business is able to hit three birds with one stone: Monetization of Rakuten Mobile as a standalone business in Japan, contribution to the Rakuten Ecosystem, and RCP. We will not need a lot of additional investment for RCP’s development, and the significant size of its market potential is very exciting.
RCP’s business model includes both the offering of end-to-end solutions and the sale of individual software solutions. In 5-10 years, it is possible that we will see RCP’s revenue and profit outpace our other businesses.
At Mobile World Congress, Rakuten Mobile received awards for Best Mobile Technology Breakthrough and is receiving worldwide attention. I think RCP is seen as a very effective way to enter the MNO business, even in other countries. Please tell us about the room for expansion into other countries and businesses.
In some cases, we will see existing operators utilize RCP when making the transition to 5G, and in other cases we will see new entrants to the MNO business taking advantage of the Rakuten model.
In the future, private 5G will also become a large sector, and in this case our highly cost-effective approach will become a very compelling option.
Customers interested in working with us on RCP are interested not only in cost-performance but also potential extensibility of services.
The private 5G business model is based on the essential role 5G can play in the automation of machines in factories, the synchronized operation of logistics equipment, and other use cases. Private 5G can enable this diverse range of applications with its ease of use and the high flexibility of software.
Regarding the EC business, Rakuten Ichiba’s GMS growth is stronger than other companies. What’s behind this growth?
In e-commerce, important factors include the diversity and quality of products and merchants, and UX. Compared to its early days, UX has improved considerably in many ways over the last 20 years, including personalization using AI and optimized search.
On the other hand, Rakuten Ichiba’s biggest bottleneck was delivery. Delivery differed merchant-by-merchant, and prices were also different. Now we’ve introduced a 3,980 free shipping threshold line — this is having a positive impact with our customers.
At the same time, with e-commerce at the center, the Rakuten Ecosystem integrates services such as credit card, banking, loyalty points and payments, so our e-commerce service is not competing as a stand-alone business.
What is also successfully driving growth is our balance of attentive support for our regional merchant needs, the promotion of the unified free shipping threshold, use of AI, community initiatives and synergies with the Group. Due to the pandemic, it also appears that more people are becoming accustomed to using online shopping.
So many breakthroughs being announced one after another — it’s quite impressive. We look forward to further developments!
For more from Mikitani and Rakuten’s leadership team, as well as business-by-business breakdowns of Rakuten’s Q2 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.