(Bloomberg) — Rakuten Group Inc. looks set to report on Friday a narrower loss in the April-June quarter, which would shore up confidence in its ability to pay bonds due through next year.
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The focus is on billionaire founder Hiroshi Mikitani’s efforts to turn around his four-year-long foray into the saturated mobile market without a single profitable quarter. Investors are also seeking clarity on the Japanese online shopping mall operator’s delayed plan to combine its profit-churning financial arms.
The Tokyo-based company is expected to post a net loss of ¥24.1 billion ($165 million) in the three months ended June, according to the average of six analysts’ estimates compiled by Bloomberg. That’s a narrower loss than ¥57.4 billion a year ago, helped by better connectivity at its mobile unit.
Rakuten is preparing for about ¥500 billion worth of bond redemptions through 2025. The company began talks in April with Rakuten Bank Ltd., in which it holds a 49% stake, about ways to combine the group’s financial businesses under one umbrella. But that plan has been delayed, due to regulatory issues and a push to protect minority shareholders.
If the integration of its banking, securities, card, and insurance operations doesn’t materialize, the company may miss a chance to bolster its finances ahead of the bond redemptions.
The cost to insure Rakuten’s debt against nonpayment is among the highest in Japan’s corporate sector, Bloomberg-compiled data show. But its credit-default swaps, trading around 356 basis points, have come down from as high as 784 basis points in July last year. Similar signs of reduced concern about its credit outlook are apparent in its bonds as well.
Rakuten Group’s shares have risen 23% this year, surpassing the 4% increase in the Topix index of Japanese shares.
What Bloomberg Intelligence says:
Rakuten’s mobile performance remains a key focus for 2Q, as the company failed to narrow the unit’s adjusted operating loss last quarter on a sequential basis. We remain skeptical of Rakuten’s ability to boost average revenue per user (ARPU) when rivals managed to stabilize it at best. The company’s slowing mobile subscriber net additions and rising churn rates imply gross additions may have deteriorated. The reorganization of the fintech unit likely blunted profit upside amid restructuring costs and ongoing business strategy, despite potential synergies in the long run. The internet unit’s operating income growth might have improved from 1Q’s 15% amid less competitive pressure from rival LY Corp., which may be focused on the restructuring of its security system.
Marvin Lo and Chris Muckensturm
The key to Rakuten’s turnaround will hinge on whether it succeeds in winning new mobile subscribers, reducing the churn rate of customers canceling their contracts, and raising average revenue per user in a highly-saturated market that’s more than 90% controlled by heavyweights NTT Docomo Inc., KDDI Corp. and SoftBank Corp. Mikitani has said he’s going door-to-door to win more corporate accounts.
–With assistance from Mayumi Negishi.
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