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SYS-CON MEDIA Authors: Dana Gardner, Elizabeth White, Jnan Dash, Kevin Jackson, Peter Silva

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Rakuten Reports Consolidated Financial Results (IFRS) for the Three Months Ended March 31, 2014

Rakuten, Inc. (4755:Tokyo) today announced consolidated financial reports (IFRS) for the three months ended March 31, 2014. The Rakuten Group achieved revenue of ¥138,263 million, a 22.2% year-on-year increase, in the first quarter of the current fiscal year. Operating income decreased 1.5% year on year to ¥22,563 million, due to temporary losses, etc. arising from management rationalization at some overseas ventures, and net income attributable to owners of the parent company amounted to ¥16,113 million, up 13.1% compared to the same period of the previous year.

Qualitative Information, Financial Statements, etc.

1. Qualitative Information Concerning Consolidated Business Results

(1) Business Results for the First Quarter of the Fiscal Year Ending December 31, 2014

In the world economy during the first quarter of the current fiscal year (January 1, 2014 to March 31, 2014), an improvement trend continued despite the impact of reduced monetary easing by the U.S. and signs of uncertainty regarding the economic outlook in newly developing regions. In the Japanese economy, a moderate recovery continued, as personal consumption increased due to last-minute demand associated with the consumption tax hike underpinned by the effect of monetary and financial measures and other factors.

Under such an environment, the Rakuten Group further strengthened its promotion of the growth strategy. Specifically, in the first quarter of the current fiscal year, we acquired VIBER MEDIA LTD. (hereinafter “Viber”), which operates a mobile messaging service and VoIP service on a global scale, and made it a wholly owned subsidiary. We believe that Viber’s wide customer base of over 300 million users will complement the Group’s digital strategy, while firming up our platform for global expansion of Internet Services and Internet Finance services. In addition, in Internet Services, the Rakuten Group enhanced its services for smart devices (smartphones and tablet devices), and promoted Rakuten Ichiba’s B2B2C marketplace model to the world mainly through large-scale sales events such as the Rakuten Super Sale, while in Internet Finance, the membership base for Rakuten Card expanded further. Through these measures, the Rakuten ecosystem continues to show solid expansion and growth.

 

(Millions of yen)

   

Three months ended
March 31, 2013

 

Three months ended
March 31, 2014

 

Amount Change
YoY

 

% Change
YoY

Revenue 113,148 138,263 25,115 22.2%
Operating income 22,911 22,563 (348) (1.5)%

Net income
(Attributable to owners of
the parent company)

  14,245   16,113   1,868   13.1%
 

(2) Segment Information

Business results for each segment are as follows:

Internet Services

In the Internet Services segment during the first quarter of the current fiscal year, Rakuten actively worked on strengthening its services for smart devices, promoting personalized marketing which utilizes big data, and executing large-scale sales events such as the Rakuten Super Sale among other initiatives in its core Rakuten Ichiba service. As a result of these initiatives, the number of unique buyers and number of orders performed strongly. Rakuten’s domestic e-commerce gross merchandise sales recorded a rise of 31.7% over the same period of the previous year, reflecting last-minute demand associated with the consumption tax hike, and the segment continues to see a high level of growth. In Travel services, demand was strong for leisure travel sales, car rental and inbound services (services for reservations from foreign language websites), resulting in a 13.5% year-on-year increase in gross transaction value despite the impact of the heavy snowfall in February.

In its overseas ventures, Rakuten focused on developing its marketplace-model services. Consequently, gross merchandise sales for these services have grown and are contributing to the expansion of operations.

As a result, revenue for the segment rose to ¥84,906 million, a 23.6% year-on-year increase. While profit from existing businesses continue to grow steadily, segment profit declined 35.9% year-on- year to ¥10,078 million as a result of continued investments in future growth fields, in addition to the recording of temporary losses, etc. due to management rationalization at some overseas ventures.

(Millions of yen)

   

Three months ended
March 31, 2013

 

Three months ended
March 31, 2014

 

Amount Change
YoY

 

% Change
YoY

Segment Revenue 68,667 84,906 16,239 23.6%
Segment Profit   15,727   10,078   (5,649)   (35.9)%
 

Internet Finance

In the Internet Finance segment during the first quarter of the current fiscal year, in credit card and related services, shopping transaction value, accompanying an increase in Rakuten Card membership, rose 51.3% over the same period of the previous year. Moreover, solid growth in revolving shopping balances resulted in a rise in income including commission income, and notable growth continues in profit. In securities services, profit continued to grow, as domestic stock trading value remained at a high level, among other factors. In banking services, solid growth in loan balances led to increased interest income from loans.

As a result of the above, the Internet Finance segment recorded ¥54,390 million in revenue, a 17.8% year-on-year increase, while segment profit grew 11.1% year on year to ¥11,207 million.

(Millions of yen)

   

Three months ended
March 31, 2013

 

Three months ended
March 31, 2014

 

Amount Change
YoY

 

% Change
YoY

Segment Revenue 46,170 54,390 8,220 17.8%
Segment Profit   10,088   11,207   1,119   11.1%
 

Others

In the Others segment during the first quarter of the current fiscal year, operating profit remained strong in telecommunications services due to the growth of call services for smartphones such as Rakuten Denwa, and cloud services. In the professional sports division, profit was recorded as a result of transfer fee revenue associated with the transfer of a key player, as well as robust sponsor sales and sales of related goods.

As a result, revenue for the segment was ¥9,729 million, a 44.8% year-on-year increase, while segment profit was ¥1,643 million, compared with a loss of ¥ 205 million for the same period of the previous year.

(Millions of yen)

   

Three months ended
March 31, 2013

 

Three months ended
March 31,2014

 

Amount Change
YoY

 

% Change
YoY

Segment Revenue 6,717 9,729 3,012 44.8%
Segment Profit (Loss)   (205)   1,643   1,848   -
 

2. Qualitative Information about Consolidated Business Forecasts

The outlook for each segment for the current fiscal year is as follows.

Internet Services

Strong growth in revenue is expected for Rakuten Ichiba and Travel services, and corresponding growth in profit is expected. Although it is possible that the growth rate in the second half of the fiscal year ending December 31, 2014 will be relatively moderate compared to the second half of the fiscal year ended December 31, 2013, where the first victory sale of the Tohoku Rakuten Golden Eagles baseball team (“Rakuten Eagles”) in the Nippon Series had considerable effect, the upward trend in gross transaction value is expected to maintain its strong momentum amid market expansion, enhancements to Rakuten Group services, and other factors. Meanwhile, while medium- to long-term profit growth is expected, Rakuten plans to make strategic advance investments in new businesses such as contents services and logistics services, which are just emerging.

Internet Finance

In credit card and related services, revenue growth is expected to be high, on a level with that of the fiscal year ended December 31, 2013. Even taking into consideration the rise in marketing costs associated with capturing new members, profit is expected to surpass that of the fiscal year ended December 31, 2013. In banking services, robust profit is expected following an increase in assets. Meanwhile, it is difficult to make a forecast for securities services due to the substantial impact of stock market conditions. However, domestic stock trading value in April, which is an important indicator for securities services, stood at ¥2,932,247 million (a 55.5% decrease over the same month in the previous fiscal year).

Others

Stable profit growth is expected in telecommunications services. In the professional sports division, profit was recorded due to transfer fee revenue associated with the transfer of a key player during the current fiscal year. However, earnings such as ticket revenue and sponsor revenue may be affected by the performance of the Rakuten Eagles. As for messaging services, it is difficult to estimate its revenue as of this time.

3. Matters regarding summary information (Others)

(1) Changes in significant subsidiaries during the current period

No items to report.

(2) Outline of changes in accounting policies and accounting estimates

(Changes in accounting policies as required under IFRS)

Apart from the cases stated as follows, significant accounting policies adopted by the Rakuten Group in this summary of consolidated financial statements for the three months ended March 31, 2014 basically remain the same as those adopted in the consolidated financial statements for the previous fiscal year. In addition, income tax expense for the three months ended March 31, 2014 is calculated based upon estimated annual effective tax rate.

Impact from the adoption of the new accounting standards

The Rakuten Group adopted the following accounting standards from the first quarter of the current fiscal year.

     
IFRS   Newly established or revised contents
IAS 32  

Financial instruments:
presentation
(Amended Dec. 2011)

Clarification of the meaning of requirements of possession of current rights which are legally enforceable and clarification of offsetting criteria regarding settlement systems which apply gross settlement mechanisms that are not carried out simultaneously under existing IAS 32
IAS 36  

Impairment of assets
(Amended May 2013)

  Clarification of the guidelines on disclosures of a recoverable amount of cash-generating units, which include important goodwill and intangible assets with indefinite useful lives
 

These standards have been adopted in accordance with their respective transitional provisions, and the adoption of above standards has no significant impact on the three months ended March 31, 2014.

 

Notes

(1) Changes in significant subsidiaries during the current period

(Changes in specified subsidiaries resulting in change in scope of consolidation): No

New - (Company name - ) Excluded - (Company name - )
(2) Changes in accounting policies and changes in accounting estimates
        1. Changes in accounting policies as required under IFRS: Yes

2. Changes in accounting policies due to other reasons: No

3. Changes in accounting estimates: No

(3) Number of shares issued (Common stock)

1. Total number of shares issued at the end of the period (including treasury stocks)

1,326,429,700 shares (As of March 31, 2014)

1,323,863,100 shares (As of December 31, 2013)

2. Number of treasury stocks at the end of the period

6,033,339 shares (As of March 31, 2014)

6,033,466 shares (As of December 31, 2013)

3. Average number of shares during the period (cumulative from the beginning of the period)

1,318,512,655 shares (Three months ended March 31, 2014)

1,314,686,838 shares (Three months ended March 31, 2013)

 

Indication regarding execution of quarterly review procedures

  • This quarterly financial report is not intended for the quarterly review based on the Financial Instruments and Exchange Act. At the time of disclosure of this quarterly financial results report, the review procedures for quarterly consolidated financial statements in accordance with the Financial Instruments and Exchange Act are not completed.

Explanation about the appropriate use of earnings forecasts, and other special matters

  • Consolidated forecasts for the year ending December 31, 2014 are based on information that is available at the time of writing, but a number of known and unknown factors could cause actual results to differ from the projections.

The above information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Tokyo Stock Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with International Financial Reporting Standards (“IFRS”).

*The full report is available at:
http://global.rakuten.com/corp/investors/documents/pdf/14Q1tanshin_E.pdf

About Rakuten

Rakuten, Inc. (4755:Tokyo), is one of the world's leading Internet service companies, providing a variety of services for consumers and businesses, including in the areas of e-commerce, eReading, travel, banking, securities , credit cards, e-money, logistics, portal and media, online marketing and professional sports. In both 2012 and 2013, Rakuten was ranked among the world’s Top 10 most innovative companies in Forbes magazine’s annual list. Rakuten is expanding worldwide and currently operates throughout Asia, Europe, the Americas, and Oceania. Is the headquarters of the company founded in 1997 with over 10,000 employees and partner staff worldwide, Tokyo. For more information: http://global.rakuten.com/corp/.

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