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Rakuten – the Alibaba of Japan

Posted on Monday, May 19th 2014

According to a recent report released by Forrester, e-commerce sales in the markets of China, Japan, South Korea, India, and Australia will grow at a compound annual growth rate of 16.6% to $858 billion in 2018. The report predicts that growth rate in the developed markets of Japan will be comparatively slower at 10%. Japan’s online retail sales accounted for revenue of $59 billion in 2013. That number is projected to grow to $96 billion in 2018.

Rakuten’s Offerings
Tokyo-based Internet service company conglomerate Rakuten (4755:Tokyo) is making it big in this high growth market. Rakuten is Japan’s leading Internet service companies that offers services focused on both the consumer and the business segment. Their wide range of services range from e-commerce options including retail and travel sales to financial services such as banking, securities, and credit cards.

Rakuten was founded in 1997 with the release of Rakuten Ichiba, an online shopping mall that featured products from 13 merchants. Seeing their initial success, the company expanded their offerings through several acquisitions and additional service launches. They went public on the JASDAQ in 2000 and by 2004 had added a credit card company and a professional baseball team to their portfolio. Today, Rakuten has established their presence globally into the major markets of Asia, Western Europe, and North America. Their online sales portal hosts more than 19.5 million products from more than 38,500 merchants worldwide that are accessed by more than 300 million users globally. It is ranked among the leading three portals in the world.

Rakuten’s Financials
Rakuten has also translated their business growth to strong revenue and margin expansion. In the recently ended first quarter, the Rakuten Group saw revenues grow 22.2% over the year to ¥138,263 million (~$1.35 billion). Net income during the quarter grew 13.1% to ¥16,113 million (~$157.58 million).

By segment, revenues from e-commerce and Internet services grew 23.6% over the year to ¥84,906 million (~$830.4 million). Revenues from their Internet finance segment increased 17.8% to ¥54,390 million (~$531.9 million) and the other services brought in the remaining revenues, growing at 45% over the year.

Rakuten’s Continuing Expansion
Rakuten continues to add additional services and products to their portfolio. Recently, they announced the acquisitions of Viki and Viber. Rakuten acquired Singapore-based video streaming site Viki in September 2013 for an estimated $200 million. Viki’s video streaming platform offers TV shows and movies with crowdsourced subtitles in more than 160 languages. Within five months of the acquisition, Rakuten released Viki to their Japanese users under a beta test version. Japan is attracting attention for video streaming services as Amazon has also announced plans recently to open video streaming on their Japanese website.

Earlier this year, Rakuten also announced the $900 million acquisition of Cyprus-based mobile messaging platform Viber. Viber brings with it a member base of over 225 million subscribers. Like other mobile messaging services, Viber allows users to exchange messages and media content over the Internet. The company earns revenues through sales of additional features such as stickers. Viber had also expanded their offerings to include VoIP-based phone services that let users call mobile phone and land line numbers using Viber Out. Viber currently does not have games as their service offerings, but Rakuten plans to add that soon enough. Rakuten is aiming to get their total active member base to more than 500 million by the end of this year. Addition of services such as Viber and Viki will surely help them reach that goal.

Their stock is currently trading at ¥1,214 (~$11.87) with a market capitalization of ¥1.6 trillion (~$0.02 trillion). It touched a high of ¥1,810 (~$17.70) in January this year.

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