Q3 2023 Rakuten Group Inc Earnings Call

November 9, 2023

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Good afternoon, and thank you for joining rocket thing with 23 third quarter financial results meeting.

We haven't disclosed the latest consolidated financial research at two P. M. Today.

You can view the state that one of our corporate website page Plains S stage along.

The presentation documents used English meeting with them, if you don't even give a presentation.

Great.

Good afternoon, everyone and thank you Tanya from rough English speaking.

I think the microphone. So again it is too high so could you know with the volume and then let me talk about the FY 2023 third quarter consolidated financial results.

Let me start my presentation and first of all.

So the current thought dish from the big point of view and I don't even know rocketing visibly excluding overseas businesses, we have internet business seem to find a fintech business and no one's really be working on the mobile business. These segments on diabetes.

And just looking at it over or things that they need to be seen if you take a business both of them.

I'm keeping good momentum.

And as for the mobile business the number of subscribers. They are just starting to pick up.

And then of course, we've been using Montney and then the companywide we have visited the costs distract you.

Without damaging the topline we tried to reduce our costs.

Our results over these average.

First of all.

So December 'twenty two 'twenty three.

non-GAAP operating income finally monthly profitability would be a change now we see signs for that and secondly, consolidated EBIT D. A.

D. We can increase more profitability and another point H no fintech business E D. A.

Then.

When you sit to achieve profitability in Q4, so we had been working days on 10 years.

And we are increasing our top line and also strengthen our profitable there's characteristic and I think its working well and let me get into detail.

Most of it.

So first starting with the other Q3 consolidated performance.

More details will explain later, but for the shale since the revenue.

Year on year.

It is up by 10, 1%.

We have each about travel and that's Oh, it's well say overseas.

Our business and duct and payment of duct and bank all of these sectors are growing very steadily.

Regarding the Fintech segment.

The revenue has gone up but 13% plus.

But in regards to mobile segment.

We have been able to make a $36 four.

Billion yen improvement.

So we're trying to make the other.

Our initiatives more robust.

So we are able to grow our subscriber subscriber base very strongly in terms of consolidated revenue. This is what you can see here compared to previous year the same.

Quarter. It is up by 10, 1%. So as you can see in the last 26 years.

We have continuously.

A marked improvement in terms of the revenue growth and we are expected to.

Gee this speed of growth.

Yeah.

Well it is.

The other growth piece is increasing rapidly as you can see and we want to keep accelerating this trend.

Well what other businesses are mainly focusing on are basically the bottom line.

What we're doing at doctrine is that we're looking at the growth and we're also going to be aiming for a better operating income profit in it.

Yeah.

And in December we're going to be aiming for profitability December 'twenty 'twenty C for consolidated non-GAAP Hawaii.

And the first three quarters due to various factors.

Many improvements have taken place, but for the quarter fourth quarter that.

That improvement is expected to be bigger as mentioned earlier, the Internet Internet service segment, which is our core business.

Has seen our revenue grew up with 13.9%. This is why on a year on year.

And non-GAAP Oi has also grown by 16, 2% year on year.

So you can see a whole robust this growth has been.

Now looking at the each G O within Japan and also outside of Japan. So these are the key topics.

Yeah. The domestic E. C is a plus 15, 7% last year was not so bad but we still saw another growth spurt this year year on year.

Yeah. The growth has been even stronger in trouble and I think Amazon has been a main focus but we have advertising sales that has gone up by 15, 3% with the.

Overseas business, we have a rupture in TV subscript users.

At.

84.4 million people, plus 42, 1% year on year.

We have locked in cobalt plus six 6% booked into Viper Lieber, plus five 7% at $1 5 billion and also rocked in Vicky This has already turned to profitable.

It's close to 88 million users registered users.

So luxton rewards business in U S is going very strongly and also with our content business.

As such our.

Also steadily becoming our sources of profit moving onto the check for a doctor in card securities in payments.

These are strongly contributing to our profit.

Yeah duct bank will be explain more in detail later I'm looking at the non-GAAP Oi.

Hi.

The other profit has grown much stronger compared to last year.

For the revenue is that $184 6 billion.

The revenues at plus 13, 6%.

So year on year.

Yeah, non-GAAP Oi growth has been 35, 8% now looking at each of the key kpis for the Fintech segment.

Yeah. The cards issuance are growing our initial target husband, a 30 million cards, and we're very close to achieving the school.

We think that this might be achievable within this quarter and also wrapped in cards shopping G. T. V is it enough punishing fine point through Chilean yeah, yeah.

Which is going to easily.

Actual 20th trailing if you convert that to an annual G. T V Ducting Securities General counts, so we're going to be talking about them.

How much of your interest rate about this is this business has also grown very shortly it's points plus 15, 8% 9.68 million users are Roxanne securities deposited assets not just trading but we also want to look at the other asset this is another.

Pillar of profit for US and this has reached 23.2 trillion a year on year 30 point 34, 1% a very healthy growth. This is a doctor in bank.

This is a separate listed company without announcements made so I will quickly go over this.

The ordinary profit growth in the first half.

Is that roughly 66 billion yen.

Year on year, plus 12, 8% in the ordinary profit was at $22 5 billion and this isn't midterm not quarterly so in six months.

But still the numbers are very strong.

So year on year. It is an improving by 25, 4% and our OE is very important for our thinking.

Institutions or is it 13.7% number of bank accounts.

As a 13.

$13 3 million and all that.

People are using these rough in a bank account as a main account as at 31, 4%, which is another improvement total deposit balance is close to 10 trillion.

And G&A expense ratio was 43, 5% capital adequacy ratio was 11, 3%, it's a very healthy and very profitable business, we have been able to carry on.

Okay. Another thing that drawing attention in the market. These are payment business rakuten pay.

And indeed, I'm, the Japanese customer satisfaction Index survey and cosmetics the station to appreciate the quality and the customer satisfaction ranking shouldn't work I'm going to go any deeper value. We have been ranked as number one there might be some ups and downs that the idea of October 25th.

So he didn't.

As for the free vacations I don't know what they didn't lacking record database has become number one. So this is in a good shape and then recap and a rocky time, Inc.

It's not just supporting the members.

So and he adds clarity money flu well ease of circulating that we didn't know ecosystem, so like a self funding.

We are able to grow ourselves just like a self funding and then recently Rocco thing we have the rakuten pay below do you lock with incontinence opinion business I'm not just for any cute odd, but also for the credit card and if any kind of interrupting paint rockwood pinpoint payment, including those payment methods integrated way.

It's something that we would like to open right needs. Therefore, we have been working on your online now we are having a more impact even in the offline business behind us painting schemes.

And the cashless payment in Japan is excellent lengthy.

So 36% and it's about a 101 in Indiana, but still.

Credit card percentage is very high which age 85%.

And the E money.

Such as the QR code payment Farquhar payment I'm assuming that.

Same Andy in China, and in India Q on payment.

A lot and one of the reasons is because of the credit card or debit card penetration rate with them.

But he is one of the reasons so here in Japan.

So again sustainable grayish pushed.

Perspective, this credit card portion and also E money it with a debit card and QR code payment and always was appoint them.

Uh huh.

We are the only one who are integrating those defined payment method, that's our strength.

So dish.

Is that you're drawing attention about zero Commission trains for domestic stocks and do we have made this announcement, which is in the eye and Thanksgiving.

As for the domestic stocks commission becomes zeroed in exchanged U S. CLO entities. So that we can increase the customer. They studied the basic strategy on top of that.

You judge.

Can chase what use other product for this or the commission Oems so in 2020 four.

Our revenue was $95 4 billion, but in 'twenty and we are targeting 119 me then you're in so about me I'm the margin financing financing train train here in Japan, and but we will have the Nisha and then making an investment into a Japanese English members it would be very important but personal.

I think or national I think so and he are they growing.

Yeah as you suggest the overseas I just talked to a Nissan are the way to make an investment for those areas that is very important and.

And we that the number of account would be increasing nafud, he's hitting the mutual fund or did he body or the train two the increase included and what is the most recent performance. After this announcement.

So their revenue.

With this announcement.

So we anticipate that there's more than our expectation as I said they did well.

Well, we didn't see them then you got David in fact, as we anticipated. So when do we make a zero commission trained and Y O y basis.

Putting groups partners, which is 900000.

And then also the oil companies and local governments, we have a strong partnership so we would like to grow this business not just selling the product, but on mobile network solution to be provided to our customers. Therefore, so the various services, including security and the AI and translation so using a mobile what can you do with mobile app.

And then it will actually provide the solution together with the mobile.

In addition to that the various ecosystem to be elimination.

And it's something that we would likely do.

So.

Yes.

Net and gross and then the last month, it's close to 200000, and we will likely continue this pace and then churn rate and it has been declined drastically and as for the RP.

So it used to be 837, and it is now 2040 6 million and our ultimate goal S T.

Including the up option addition of value up in base mobile phone services base under 3000, an uplift and 1000 in total 4000 in.

As a record day in group.

The revenue up.

Be done with this Apple improvement as a part of this journey.

No.

So Archie.

Application. So I think we are the only one who is successful in this are they using.

The rocketing included I think there are many of our record ending to users and in this record handling application.

We.

Set up home button with that $21 million.

This is in a cumulative number and they are using the Rakuten group of services through this home button and that can be reached to $100 million at the end. Therefore, the erecting link applications will become a super obligations at the end of the day.

Capex.

This year's plan is 200 billion yen.

That is a target, but we are much lower than that and then 2024, we would like to make this half.

So.

Please be seated.

So the with the I'm directing group power and with the wisdom and knowledge.

And then high performers, but the less expensive.

Network to be developed.

So the current network 13 million subscribers can be supported with the current network structure. So if it goes beyond that and that would be a good timing.

Do you think of.

New investment in the future, but for the time being it is not necessary to make additional investment to strengthen our capacity last month at least.

Yes.

Softbank and <unk>.

I think they.

Make some announcement about this.

NTT low abolition.

And also NTT.

In our various contracting integration being progress.

So I will make one comment about this stuff so the basic is.

Angry that wireless would be advanced and the backbone all of them are using D. On the fiber optics, and then if I BG and 60 day window those ore comes.

And then the in this town become much closer when that time comes.

Therefore, the fiber optics will become more important in such situation.

So.

So this is.

Use it for MTM the.

Taxes paid by the citizens.

And other public.

The collaboration and they have been developing this asset based on the in the People's attacks into others effort nipple.

Under the special.

Regulation or law this needs to be.

The managed appropriately and then what's being ingested by Andy D. As in terms of the technology development. They said they cannot make announcement, however, NTT law.

Is he under holdings.

In the NTT East and West these are the subject for that low and outside of that is not subject to the law. So the development doesn't have to be done there.

Longer they are group companies of MTT. They can do the same development plus things therefore.

So I think they can do some technological development, but I think they are using that as their excuse.

Or maybe the vertical dominant they have an asset poverty vertically dominant.

In other words, let's say or the petrol station Monopolised and then only the car manufacturer by themselves.

Subject for the Petro probe vision or maybe they can raise the price of oil.

And then he added that can be managed or supported by the telecommunication law, but the NTT Docomo is 100% subsidiary to Andy D. C. There is totally irrelevant to the consolidated revenues. So if I am the NTT CEO either raise the price.

So.

It's not that the matter based on the verbal commitment and NTT group it shouldnt be integrated but they broke that promise.

So their verbal commitment or degradation cannot be trusted at all therefore as for the NTT law.

I think you should leave it as is that is a record names.

Comment and then that is all from the ambitious side update about the financial results I now move on to the financial strategy that will be covered by a hela system.

Thank you.

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Also today's session are going to be archived.

We'll be following up with an announcement of how to access them. Thank you.

Next will be the financial strategy, Mr. Hirata will do the presentation.

Hello Al Thank you.

I would like to speak a little about the financial strategy first.

This is our commitment.

We have made an announcement on the early redemption of Japanese yen six 8 billion subordinated bonds at the first call date December of this year.

There's a remainder of $8 6 billion.

We're going to be making.

Making a redemption at the first call.

Our announcement is to do that this year in December.

So to explain what institution right now. So every day is as Mr. Mcdonagh already explained it continues to improve.

Also.

I mentioned it.

I mentioned previously the consolidate EBIT EBITDA.

Has turned profitable.

And as you can see it has been growing steadily.

And in terms of the financial businesses.

Rather we're going to be aiming.

Aiming to turn profitable with a non fintech.

During this quarter.

Moving onto the capital business aligns with Mizuho Securities.

Once again their doctor and Fintech structure is shown here.

We're looking at maximizing the synergy is fintech and also further enhancing the management.

Base.

Investment from Mizuho Securities in the amount of 87 billion for additional 29% of Arctic Securities.

You can see how the others. The system. The organization has been organized as was explained announced today.

We have.

Enhanced the existing partnerships, we have had with Mizuho securities.

We remain positive on the potential.

Listing of the company I.

I would like to talk about the path to self funding.

First.

We want to make drastic increase with the cash flow through mobile business.

Yeah.

And we want to grow the Internet services, FTF and grow shift from Fintech.

EBITDA has to be grown in a robust manner.

Thrilled organization wide effort is going to be made for overall casual improvement.

As mentioned.

There's going to be.

Yeah.

Fintech performance is going to be pushed forward and.

He will be followed up.

This is how we're going to.

Become.

Self funded.

Proactive management of bond maturity, which might be one of your concerns as we see it.

By using equity related financings to reduce gross debt that is our main focus and also we're proactively.

Managing the debt maturity under.

And our work and we're looking at the best timing for maturity.

Continue to.

Work on the matter.

As shown here. So that was very brief that concludes the presentation on our financial shortage. Thank you.

Okay.

Yeah.

Good afternoon, everyone in the last earning call, we announced our AI strategy and roadmap today I'm very excited to share with you. We are off to a great start integrating AI into everything we do in our initiative called AI innovation Rocco.

<unk> is in a unique position to realize this vision for three reasons first.

We have a unique data asset.

We have domain knowledge across multiple industry combined with the customer contacts over 25 years, and we have the wall knowledge and the best technology through the collaboration with <unk>.

Second rocket and has the rich two cut to millions of consumers online and offline through rockwood and credit card rather than pay and Rob for good endpoints network and lastly, rather than is known for good at execution with the discipline and determination that we can do to the flywheel too.

To reach consumers and continue to build a better model to serve our customers with better and faster services.

Yeah.

The core to our strategy is generative AI generative yeah. It works like a human brain and if you remember it sometimes could use some of the external towards like a whiteboard for brainstorming a notepad for capturing the ideas.

And generally say I like can use some external torch and we use a technique called retrieval augmented.

Generation, two Connecticut, degenerative AI with external torch.

And one of the most important tool is semantic search.

We have building semantic search on top of deep learning foundation for over a year.

As of Deep learning Foundation is to capture everything in AR.

The concept in a technology called embedding embedding can be used to represent any item a quarry a product in efficient messing medical phone.

We're starting with Rakuten fashion.

And Here's an example, Alaska summer I wanted to go to a fire works festival in Endo Ogawa and before I went to the festival I went to record and fashion for what clothes I shall wear.

And it's for such a long quarry normally you won't get any result, but rakuten fashion gave me plenty of results.

As we can deliver more relevant results to our user user are searching more and if they are happy with all the result, they are coming back more often as a result, they are pushing some more from brokered infection by the numbers, we have seen the searches precession increased by 3% and sessions for you.

<unk> increased by 4% and sales from search all Rockwood and fashion increased 5%.

But that's just the beginning.

In guiding us such a fundamental technology it capture the SaaS characteristics of any item you can represent an item a person that product in so many dimensions efficiently by analyzing what people purchase online what started visit offline, we can compute embedding in probably the world's most efficient.

Wei Tzu Rakuten data.

We are looking at leverage it is embedding technology to help people to find anything on Rakuten services through search ads and recommendation.

I want to end with what I beginning we are on a mission to augment human creativity with the power of AI, we are combining human expertise across multiple industry with the latest cutting edge technologies through tools, such as cement search and which sue retrieval augmented generation.

Yeah.

So we are combining them.

We're delivering this technology together with all the expert in multiple areas, we want to create value for our consumers our merchant and bring value to our society. This is just the beginning we are very excited about the future. We're so happy to be on this journey with you. Thank you very much.

Yeah.

Thank you that concludes the financial results report.

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Q3 2023 Rakuten Group Inc Earnings Call

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