Rakuten receives a $2 billion capital injection

The Japanese digital heavyweight Rakuten has sold 13% share, worth $2.2 billion to new investors to bolster its balance sheet and to finance more aggressive mobile rollout.

Wei Shi

March 15, 2021

5 Min Read
Rakuten receives a $2 billion capital injection

The Japanese digital heavyweight Rakuten has sold a 13% share, worth $2.2 billion, to new investors to bolster its balance sheet and to finance more aggressive mobile rollout.

Rakuten announced that Japan Post, the country’s largest insurer, largest bank by deposit, and the owner of over 24,000 physical post offices, will invest JP¥150 billion ($1.4 billion) in the e-commerce and fintech giant. As a result, Japan Post will own 8.32% of Rakuten’s total shares and become its fourth largest investor (and the second largest institution investor).

On the same day, Rakuten also announced that Tencent, through Image Frame Investment, its HK-based subsidiary, will acquire 3.65% of Rakuten, implying an investment of JP¥65.7 billion ($0.6 billion). Additionally, Walmart will assume 0.92% ownership of Rakuten, with an investment of JP¥16.6 billion ($0.15 billion).

All three offers put together amount to JP¥242 billion ($2.2 billion), equal to 12.89% of Rakuten’s total shares after the new issuance.

Despite all the strategic and operational synergies that the new partnerships are expected to deliver, the timing and amount of the new capital in-take cannot but draw attention to Rakuten Group, in particular Rakuten Mobile’s recent performance.

Reported in late February, the group registered a “record loss” of $1.1 billion in 2020, almost quadrupling the loss from the previous financial year, against the backdrop of revenues growing by 15% to reach historic high. It all comes down to Rakuten Mobile, which, a junior partner in the whole group when calculated by business size, single-handedly wiped out all the profits by incurring a massive loss of $2.1 billion in 2020.

This loss was caused by both Rakuten Mobile’s lacklustre subscriber growth and the bigger than expected CAPEX needs. The company estimated that it could break even when it reaches seven million subscribers, which it expected to achieve in 2023. By the beginning of February Rakuten Mobile had received 2.5 million “subscriber applications”.

Meanwhile, the challenger operator has had to vastly increase the budget to roll out its 4G network coverage. In mid-February the company announced that it would raise its mobile rollout CAPEX by between 30% and 40%. The initial plan was JP¥600 billion ($5.5 billion), meaning it needs to find an additional $1.7-2.2 billion.

In spite of the challenges, the company vowed to compete in the mobile market and challenge its more established peers. Hiroshi “Mickey” Mikitani, Rakuten Chairman and CEO, declared that Rakuten had “no intention to stay in the number four position”. In addition, referring to the company’s close to 22 million credit card users, Mikitani said he wanted Rakuten Mobile to acquire more mobile users than credit card holders.

The latest decision to take in new investors and additional capital looks to be a move along this line. There is no denial, however, on top of capital injection, the new partnerships may also deliver other benefits.

Rakuten and Japan Post will form a business alliance “to strengthen their collaborations across a range of fields, including logistics, mobile, digital transformation and more”. Specifically, the companies will create shared logistics centres and shared delivery and pick-up systems, as well as share data, though it is not spelt out clearly what types of data. The companies will set up a new company to digitalise their logistics platforms.

In the mobile sector, Rakuten seems to expand from digital to analogue channels with this new partnership. It will use its partner’s post offices to set up customer counters to accept new signup applications and to use Japan Post’s network to conduct marketing initiatives. In return, Japan Post will get support from Rakuten for its digital transformation initiatives, including digital transformation experts. The companies also envision future collaborations in financial services and e-commerce.

“From the perspective of our Group strengths across a physical network of post offices nationwide and a robust logistics system, the cutting-edge digital technology and deep knowhow leveraged by the Rakuten Group in a diverse business portfolio of Internet services position them as an ideal partner,” said Hiroya Masuda, President of Japan Post. “This alliance will further strengthen the relationship between our two groups, and going forward, we very much look forward to driving the momentum of our collaborations not only in logistics, but also mobile, digital transformation and a wide range of fields,” he added.

Rakuten and Tencent see in their new tie-up “potential areas for collaboration including digital entertainment and e-commerce”. Rakuten doesn’t look to be fazed by China’s strict control over digital content and Tencent’s sensitive status in the US. “The new potential for partnering with Tencent opens up a broad portfolio of opportunities, from digital entertainment, including online games, to e-commerce,” commented Rakuten’s Chairman and CEO Mikitani.

“Rakuten has built a vibrant ecosystem through its membership and loyalty program, extending its unrivalled strength from e-commerce to FinTech and digital content. Tencent shares Rakuten’s aspiration of creating value through innovation and empowerment for users and partners,” Martin Lau, Executive Director and President, Tencent Holdings, said in a press statement. “We are excited to invest in Rakuten, supporting its evolution into a global innovation leader. We look forward to pursuing strategic cooperation across activities including digital entertainment and e-commerce, creating value for users and building the Internet ecosystem together.”

Walmart’s involvement signals the American retail giant’s new tactic to expand its footprint in Japan and in e-commerce, having recently sold 85% of its ownership of Seiyu, one of Japan’s largest supermarket chains. That deal went through at the beginning of this month. The majority of Walmart’s shares, 65% of total, were acquired by the private equity group KKR. Interestingly, the other 20% went to none other than Rakuten itself. The two companies also collaborated in the US, for example Walmart’s online channels are distributing Rakuten’s Kobo ebooks, a competitor to Amazon’s Kindle.

“Around the world, we’re making strategic equity investments to enable Walmart to benefit from future growth in a rapidly changing global retail environment,” said Judith McKenna, President and CEO of Walmart International. “We have known and worked with Rakuten for a long time, and in many ways their ambitious journey to develop a world-class e-Commerce ecosystem mirrors our own.”

The new investments are expected to be completed between the end of March and the end of April, Rakuten said in its announcement.

About the Author(s)

Wei Shi

Wei leads the Telecoms.com Intelligence function. His responsibilities include managing and producing premium content for Telecoms.com Intelligence, undertaking special projects, and supporting internal and external partners. Wei’s research and writing have followed the heartbeat of the telecoms industry. His recent long form publications cover topics ranging from 5G and beyond, edge computing, and digital transformation, to artificial intelligence, telco cloud, and 5G devices. Wei also regularly contributes to the Telecoms.com news site and other group titles when he puts on his technology journalist hat. Wei has two decades’ experience in the telecoms ecosystem in Asia and Europe, both on the corporate side and on the professional service side. His former employers include Nokia and Strategy Analytics. Wei is a graduate of The London School of Economics. He speaks English, French, and Chinese, and has a working knowledge of Finnish and German. He is based in Telecom.com’s London office.

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