Rakuten might need to phone a friend

Hiroshi Mikitani, founder of Japanese e-commerce empire Rakuten Group Inc, is keeping investors on hold while his own fortune declines.
Once ranked the 25th richest person in Asia, Mikitani no longer even features in the top 140, according to the Bloomberg Billionaires Index. It’s not hard to see why: Rakuten shares are trading near levels last seen in 2010 as investors sour on attempts to grow itself into Japan’s fourth-biggest mobile carrier. That business lost 124 billion yen ($848 million) last quarter alone, an 18th consecutive period of red ink that has ballooned to a total of nearly 1 trillion yen as the firm builds out its mobile operations.
Investors’ patience with the plan has been waning for months. Earlier this year, Rakuten blinked first when it abandoned its “zero yen” data offering, which gave users effectively free bills and was its chief differentiator in a crowded market. Shares have fallen more than 20% since, leaving Mikitani’s $2.7 billion fortune at less than a quarter of its 2015 peak.
More concerningly, Rakuten is carving off parts of its best businesses to finance the cellular aspirations. Last week, the company agreed to sell 20% of its online brokerage, Rakuten Securities Inc., to Mizuho Financial Group Inc. for a little over $500 million. It plans to offload more of its securities unit in a forthcoming initial public offering, with its banking subsidiary also poised to go public.
Rakuten may be throwing good money after bad. The plan for mobile is another effort to get customers into its points “ecosystem,” in which users of one service (such as its mainstay online mall) are encouraged to use and earn points on another (such as insurance or credit cards). It’s hard to see how mobile will contribute significantly to this in the near term; Rakuten has just 5.5 million subscribers, compared to market leader Docomo’s 85 million. Rakuten says that losses have bottomed out and it’s targeting profitability in the year ending March 2024, while it plans to reach 10 million subscribers before the end of the decade.
The bet on phones wasn’t a bad one at the time; Japan’s three main carriers are among the country’s biggest money-spinners. The plan seems to have been to hive off some of the cash generated by Nippon Telegraph & Telephone Corp.’s Docomo, KDDI Corp.’s AU and SoftBank Group Corp.’s listed mobile unit SoftBank Corp.
That cash in turn could have been shifted into finding potential new sources of revenue growth. Like many Japanese tech firms, Rakuten’s overseas ambitions have largely gone nowhere, despite its controversial “Englishnization” decision to change its official company language to English to help it compete. Over a decade later, more than 80% of its revenue still comes from Japan, a share that’s little changed in the past five years.
But instead of boosting Rakuten’s other businesses, mobile has become a millstone around Mikitani’s neck. S&P Global Ratings, which cut the company’s credit to junk last year, has warned that delays in improving cash flow due to spending on mobile risk further reductions to its debt rating.
Can things be turned around? Rakuten Mobile’s chief executive officer, Tareq Amin, certainly has prior experience, having helped build out Reliance Jio.
—Bloomberg