Rakuten: Staying Bullish On EBITDA Beat And Re-Rating Potential

Rakuten Group (RKUNY) reported robust Q2 financials, with normalized EBITDA surging 54.5% year-over-year to ¥0.103T, beating consensus by 4%. This outperformance was largely driven by its Mobile Network Operations (MNO) unit, which achieved positive EBITDA of ¥5.6B, a significant turnaround from a negative ¥13.5B a year prior, fueled by subscriber growth and increased ARPU as competitors raised prices. The company also saw solid gains in its FinTech and Internet Services divisions and reduced its net debt-to-EBITDA leverage. Analysts highlight Rakuten's current valuation at 5.1x NTM EV/EBITDA, a substantial discount to peers, suggesting potential for a re-rating as the MNO unit progresses towards FY25 EBITDA breakeven and the market recognizes its strong ecosystem synergies and deleveraging efforts.

Analysis

Rakuten Group's Q2 2025 financial results demonstrated significant operational improvement, headlined by a 54.5% year-over-year surge in normalized EBITDA to ¥0.103 trillion, surpassing consensus estimates by 4%. The primary catalyst for this outperformance was the Mobile Network Operations (MNO) division, which achieved a positive EBITDA of ¥5.6 billion, a stark reversal from the ¥13.5 billion loss in the prior-year period. This turnaround is supported by a 4.6% sequential expansion of its paying user base to 9.0 million, a trend likely accelerated by price increases at competitors NTT Docomo and KDDI, which widened Rakuten's value gap. Furthermore, Average Revenue Per User (ARPU) grew 4.8% YoY to ¥2,474, driven by the successful attraction of high-volume data users. These trends reinforce the credibility of the company's guidance for the MNO unit to reach full-year EBITDA breakeven in FY2025. Complementing the mobile segment's success, the FinTech and Internet Services divisions posted solid core operating profit growth of 12.2% and 8.0%, respectively. Despite these strong fundamentals, Rakuten trades at a discounted 5.1x forward EV/EBITDA multiple compared to the 8.3x peer average. This valuation gap is attributed to its conglomerate structure and debt load, but two clear catalysts exist for a potential re-rating: strong ecosystem synergies, evidenced by mobile subscribers spending 47.6% more on its e-commerce platform, and a clear deleveraging path, with net debt-to-EBITDA already reduced to 9.0x and a target of 5.0x.

Key Decisions for Investors

• Given the MNO division's swing to profitability and a significant valuation discount relative to peers, investors may consider the current stock price an attractive entry point, anticipating a re-rating as deleveraging and synergy realization progress.
• Investors should closely monitor the MNO unit's key performance indicators, particularly subscriber growth and ARPU, as continued positive momentum is crucial for achieving the FY25 EBITDA breakeven target and validating the bullish thesis.
• Be mindful of the key risks, specifically any deviation from the stated capital allocation policy emphasizing debt reduction or any strategic ventures into unrelated businesses, as these could negate the current positive catalysts and widen the conglomerate discount.