Rakuten Group Inc S/Adr

Thank you very much for joining us today. I would like to offer from Rakuten Group, Inc., FY 2018-4 first quarter consolidated financial results. So already on the 1,500 hours, we have disclosed the earning call summary. Rakuten Group, Inc. corporate website, please refer to them from the investor's information page. And you may have not received smooth feed of the visual or audio. In the button that is at the bottom of your screen, you'll be able to be redirected to a different server. And also, we have generated a subtitle generated by AI. It has not been edited or confirmed and verified by humans. So there may be some incorrect information in the subtitle. So I'd like to seek for your kind understanding. So without further ado, I'd like to invite Mr. Mikitani for his presentation. Hello, everyone. And most of you, I presume, are attending through video over 2020 for the first quarter of the financial results like this presentation. So first of all, the large theme that I would like to deliver to you today in terms of our future, of course, strategic project, Rakuten Mobile, which you have engaged on. And this, in terms of EBITDA, in a single month, turning us black, we are now making very smooth progress with the profitability. And, in fact, Rakuten Mobile, the single, of course, unit in terms of EBITDA, for instance, in terms of the acquisition of new customers, the cost could be that ecosystem. There is a major contribution made to our ecosystem. And based upon all these and embracing this EBITDA already on an EBITDA basis, we are around the corner in making the business profitable. On top of that, today, I would like to bring to you the overall highlight and segment by segment results. And at the same time, financial status quo and a future outlook and a strategy and, of course, in terms of AI, artificial intelligence. We harness these new technologies, what I'd like to bring to you.

So starting with the highlight of our performance as for the revenue, on a year-on-year basis, about 8% increase was observed of 513.6 billion Japanese yen. This is record high for first quarter. Rakuten, Ichiba, and Travel. The domestic market was quite steady in its growth, and in addition, the overseas business also made progress in a steady fashion. And also, we have expanded our customer base, and also transaction volume, or value rather, has increased. And as for mobile growth in Rakuten mobile, subscribers boosted. And so MNO service revenue by Japanese 9.6 billion yen year on year was achieved. And Nongap operating income has seen a tremendous improvement. Operating income plus 43.5 billion yen year on year. So we have seen improvement. So domestic EC as well as overseas business profitability has improved dramatically. And also the Internet services, significant profit improvement in growth. Rakuten card profitability improved and Rakuten payment turned profitable. So at one time, there were some views expressed, but for commission, for example, the financial status is quite stable. And so even before, compared against the pre-zero commission level, the Rakuten securities were has the profit level back to those levels. And also cost optimization was conducted in Rakuten Mobile. Therefore, the situation has been improving. And as a result, before depreciation, that depreciation, that is EBITDA, is Japanese yen 52.8 billion. That's consolidated EBITDA. And therefore, cash flow also has improved accordingly. And therefore, well, we have corporate bond issued. We successfully issued a U.S. $2 billion denominated senior notes and 50 billion yen senior notes denominated in Japanese yen. And so liquidity gap for 2025 maturities are largely addressed. So please rest assured. So I would like to move on to the segment-based questions. presentations. Internet first.

So in terms of the revenue, it's plus by 5.4% by 285.5 billion. Non-GAAP, the operating income is 14.8% positive, so thereby 13.6 billion yen positive. So, of course, to a certain extent, the minority investment, there are some, of course, elements that need to be embraced. And if that is going to be excluded, 63.3%, a large, of course, growth has been exemplified by this business. And, of course, this is the SPU optimization is one of the bigger, of course, factors at the same time. in terms of some of the subsidy of the government by the support to have people travel. That has been already concluded. So there are negative factors, but still we are seeing a large amount of growth in terms of the profitability. So the domestic EC, on the surface, it looks as though it's minus by 4.7%, and of course 1.3 billion yen, Japanese yen. in terms of GMS. But we are now pursuing for quality rather than volume. So therefore, there are some sort of the users that are turning deficit. We are going to have a very sound and healthy, of course, customers that generate profit for our robot business. In Rakuten Ichiba, the competitiveness consistently is very strong. And at the same time, The domestic EC and GMS growth rate is the quarter is 1.5 percentage point improved. So Rakuten Travel inbound, of course, total GTV is now within a lot of inbound, so plus by 243%. And for advertisement, plus by 7.2%. And Rakuten TV overseas, that is, is 43.8% on-air growth. The amount of users are increasing. So, therefore, have exceeded over 100 million people altogether. And Global, the second, of course, Rakuten Kobo is a digital book. We have now a total of 65.7 million people that have registered. So, you're on-air plus by 6.3%. So, Colorbase Inc., the readers, digital reader, is also very, very smoothly growing and profitable. And also, Rakuten Viper, we have an increase of 5.4%, so accounting for 1.5 billion people. And what's doing very smoothly, Rakuten Viki, again, we are seeing the number of users increasing by 23%, so totaling to the amount of 86.8 million people altogether. So I'd like to break this down in more detail. So SPU, the revision of the SPU. So first of all, a unique number of unique users is growing steadily. And on the right-hand side of the chart is the graph, histogram. Of course, utilizing other service and being a subscriber of Rakuten Mobile and inclusive of that, we are seeing a reduction on non-contributors. And also at the same time, domestic EC non-GAAP, as I have mentioned, operating income, The one-time temporary factor, if you exclude that, then it's increased by 20%. So inter-baseline is a 20% growth. I think we'll be able to say that. And also large competitors' strategy is needed. So we're putting a lot of emphasis in logistics as well. So logistics services, by introducing them, Some of the merchant compared to non-merchant utilizing, it's a growth by 12.5% compared to non-user of a logistics service versus our users. And in actual terms, as you can see here, the six large warehouse out of that, four of them already is now full capacity. And other logistic business, there are various, of course, efficiency and optimization that has been implemented. So, therefore, in the future, we are going to foresee improvement of the profitability and also in terms of the growth could be quite a larger contribution that we'll be able to expect out of. The overseas business, as you can see, it is quite obvious the large improvement being made and the so-called in terms of 2.5 billion improvement in terms of operating profit. Next is fintech segment.

Now, overall, in all business segments, we have realized an increase in revenue and profit has been improved, has been growing in a major fashion. And Rakuten Securities also registered increase. and therefore the revenue increased by 15.1% year-on-year, namely 193.5 billion Japanese yen. Non-GAAP operating income increased by 47.4% year-on-year, reaching 39.3 billion yen. Highlights include a 12.5% increase year-on-year of Rakuten card shopping GTV to reach 5.6 trillion yen. Rakuten Securities' general accounts is over 10 million now, So last month, it actually went beyond $11 million. And also, Rakuten Securities' deposited asset is increasing by about 50%. I think it's in excess of $30 trillion now. And Rakuten Bank accounts, the total number is 15.24 million as of last week, I think. We're actually, JR East collaborating, a virtual bank, I think, is making steady progress. And Rakuten Bank deposit balance on a standalone basis has increased 15.4% year-on-year, Japanese yen 10.2%. And Rakutencard, a shopping GTV, that is 5.6 trillion yen. And 19.2% is the operating income margin, which is showing a very strong growth. And non-GAAP operating income is $15.3 billion, and therefore this is an increase of 22.7% against last year. And Rockton Securities, the number of accounts is increasing, and NISA accounts. 5.2 million accounts already. We are amongst the top, or the top, in Japan now in this area. And operating income, 6.9 billion, which is plus 18% year on year. And Rakuten Bank, this is the highlight of the performance, as you can see here. Things that I haven't mentioned, ROE, 14.1%, and capital adequacy ratio, 10.9%. Therefore, the balance sheet is quite healthy. And rep and payment, competitors like PayPay, D, Payment, AU, Pay. There are many payment platforms that are Pay. has ranked the first. According to MMT Institute, in terms of overall satisfaction, we ranked number one. Downloading of the apps is quite growing steadily. And finally, in first quarter, we have this operating system profit for the first time and Rakuten payment and Rakuten point business, including these are the numbers that are inclusive of those businesses. And now the forecast or what we expect for the future. Now, 2010, that's 14 years ago, the cashless ratio in Japan was 13.2% or so. But now it has come or close to 40% penetration. And at the end of the day, in the future, maybe we will be on par with the Western countries. 70% or 80% cashless payment ratio is expected. And if you look at other markets, Rakuten credit card cards and Rakuten bank debit card included, QR-based or barcode-based Rakuten Pay is there as well, Rakuten Point, Rakuten Eddie, and Rakuten Cash. These are... the different payment methods that we offer. There's no other fintech company that offers so many options. And in addition, about 30 trillion Japanese yen worth of transactions is realized through these services, quite strong, and that is due to the strong teamwork. And in addition to that, of course, we're going to make further improvement of our payment services, but also provide higher value items such as insurance as well as banking services. So we will continue our efforts so that more people will leverage those services as well. In the near future, what is likely to happen is regarding Rakuten card, which has been issued for more than $30 million, and the Rakuten card that these people have, they have the Rakuten card and Rakuten pay functions being integrated so that... There will be more synergistic effects, and that will boost the total number of people using the functions. And RakutenPay, RakutenCard, RakutenEddy, these are to be integrated. And Suikai will also be available on the same terminal. And RakutenCard, RakutenPay are used quite frequently. But in a... On the other hand, there are high-value services by Rakuten Bank Insurance and Life Insurance and Securities as well. Maybe not so frequently used, but higher lifetime value. And as we announced the other day, we're going to have this integration of the fintech business. We will have an reorganization of the fintech businesses of ours. In doing so, the financial services agency as well as others will be involved, and there will be the wallet and others that will be brought outside of this framework today.

So the mobile segment of our business. Well, in other words, the mobile segment, well, like the simple news is included. So overall, the same for me last year, because of the German company business transaction, it is a profit by 100 billion. So but in terms of non-GAAP, last year comparison, it is going to be plus by 30.7 billion in non-GAAP. So EBITDA... 33.7 billion improvements. So we have been able to shrink the losses. So this is the revenue and non-GAAP operating income. So as a group overall... So this is, as you can see here, this is going to be the chart. So Rakuten Mobile, in terms of fixed assets, including that EBITDA last year, the first quarter, it was minus 54 billion. And this is, again, Rakuten Ichiba doing their shopping and transaction and Rakuten Bank being utilised. and Nakuten card, the utilization volume goes up. And those are a large portion of the business in a quarter by quarter business. This effect is going to be 12 billion. So therefore, if you include that altogether, the adjusted EBITDA is on a quarter of eight. It is $4 billion already that I've achieved. So by making this business profitable, Rakuten Group, the ecosystem, it's starting to contribute to our profitability and our revenue. And in terms of Iran, in terms of service, it is going to be 36.6 million. So it is a total of the number of 6.8 million. So BCP, the visa, the second SIM at a time of emergency. So the profitability is high, but inclusive of that, we are seeing that after the adjusted MNO churn rate is 1.27%. So the other, of course, on par with other carriers. It is coming to a quite good area. So ARPU is ¥2,024. So let me proceed and show you the actual scenario of what is happening.

Okay, what I would like to draw your attention to is the overall ARPU contribution for the entire group. So 3,060 yen ATN is what we have achieved so far. Not all are gross margin or profit, however. uplift all included, then we reach more than 3,000 yen now.

We concluded the first and the second phase, and now in the third phase, and it is going to make major contribution about business and to the ecosystem, and three carriers are going to be included within this sort of the game of playing with the three carriers. So in terms of 680 to... 800 million, 800 to 10 million. And ARPU, of course, NBA, NBAO, NBCV, what we need to do. And on the monthly cost, it is going to be 23 to 25 billion. So introduction of AI, we'd like to further reduce these numbers. So why it is doing very well is the roaming has expanded. So that inclusive in terms of quality, the communication has improved. So 99.9% will be able to cover the population. And in terms of the acquisition of the contract from ecosystem, we are now seeing a great acquisition from our ecosystem overall. And in terms of on top of the roaming, what we are pursuing as a strategy is Open RAN and also virtualization. So around the world, it is highly evaluated, and not that alone. The actual, of course, quality survey that has been conducted. Many, of course, see item and indices in many carriers. We are a single number one winner of these rankings. especially 5G upload speed, download speed for these areas, we have been very highly evaluated on these segments. And in terms of coverage, open signal, a no signal availability survey out of 100, how many of them with no signal availability? As you can see on the graph, 1.2 somewhat percentage of to in the 12 months and plus, so we have been able to make improvement by 0.57%. So in terms of 77% plus, have said that the quality have improved. So setting the price and fairness, democratization of mobile phone and at the same time we are going to establish the most strong connectivity.

So we're working towards the best connectivity. Now the new roaming contract is the basis for the network expansion which is underway and platinum band to be realized at an earliest possible timing. In May Already the test run has started so that we can start commercial operation in June. And then for subways and indoor areas, using platinum bound in some cases, we're going to make improvements in connectivity and 5G expansion will be promoted further. and network density will be enhanced further. And 5G is plotted here. In Kanto region, for example, it will go to 1.6 times the coverage as of now, compared to now. In Tokai area, 1.7 times coverage. In Kinki or Kansai area, again, it's expanding. And platinum band, as we have been explaining, You have this diagram in the second box there. We are currently using the mid-band 1.7 gigahertz band radio head, but 700 megahertz compliant radio head will be attached so that we can use it for platinum band as well. And investors might wonder why can this be done at a lower cost. Because we are manufacturing this at a new type of factory, that's the answer. And then in 2026, space mobile is going to be used. Broadband will be used so that we have 100% population coverage. That is our target. whether you're in Tokyo or in Tsugaru Strait or in Hokkaido, prairies, or if you're in the ocean, basically you will be able to get connected in the case of emergencies as well. And number of users has been increasing steadily as well. 426,000 cases in Q1 also was experienced. And since February, we have this family program, the youth program, as well as the most recent one, which is the kids program that was announced. which were all well received, and Rakuten card being at the center, there are synergistic effects being felt as well. It's not just about Rakuten card, but travel, Ichiba, and Rakuten pay as well, and also baseball and soccer. There are synergistic effects everywhere that we're trying to expand to the maximum possible. So if you look at the ecosystem overall, ARPU contribution is worth about 1,055 yen and 9.8 billion Japanese yen push-up or lift-up in the group profit. So it will be... 2.55 plus. And of course, there will be various services used as Rakuten Mobile as an entry point, for example, plus 53% Rakuten Ichiba annual GMS increase and also Rakuten Travel annual GMS actually had 88% increase. And therefore, we have this Saikyo family program, youth program, as well as kids program that have been announced so that 3,068 yen, our poo, is what we have now. Two years ago, it used to be 1,045 yen. However, it has gone up to over 3,068. And, of course, we're trying to improve or increase the ARPU further. And data usage is increasing. That's one factor. We offer only a single plan. And so the more data usage, the higher our revenue. And by people using our ARPU, the convenience on their part will increase. For example, Link, Ruxton Link. Threefold increase of the impressions in the past year for Ruxton Link is what we have seen. And also for corporate companies, It's not just them using this service, but for Rakuten Group as well as our partners who provide various services, we can actually promote and contribute to those other services as well.

The largest sort of a mobile phone trade fair, global mobile conference. We have a round software which we have announced that is going to be open. And having discussion with many people about their mobile success is going to change the status quo and the norm of the mobile phone. And I've been told you already changed the norm and you had already disrupted the conventional world. and the Open RAN software also is going to make further advancement. So Rakuten Open RAN software, what are we trying to do is, as you can see, the Open RAN software, there are hundreds of thousands of software that are being utilized, like Linux, Linux, source code. to our affiliated companies that we want to make open. And so far, transparency in terms of strategy that we are going to engage ourselves on. So therefore, in other words, Linux, in the world of Linux, Red Hat has succeeded in the world of Linux. In terms of mobile phone network, we are going to pursue to become red hat of the mobile world. And the other is a cloud strategy. In fact, the Robin.io, which we have acquired, this company in the cloud for the mobile phone network, on top of that, the general enterprise cloud is doing very well in the United States and Europe as well. And having said that, On top of that, our own proprietary Rakuten One Cloud, which we have developed, we're going to multiply or integrate these two in order to converge them as a Rakuten Cloud, a domestic cloud. We are going to launch them. So to do so, not only cloud, but the Lakoten Zone developed Generated AI, Lakoten AI, and, of course, a comprehensive strategy alliance being concluded with OpenAI as well. So on cloud, we're going to empower AI capability as well. And last but not least, this is how AI is going to be utilized. But our chief digital officer, Ting Tai, is going to describe the strategy later on. From me, I would like to just give you a high-level image. We have an initiative called Triple 20, and we made the announcement of the strategy. So what it means is that utilizing AI and leveraging them, specifically marketing productivity is going to improve by 20%, and operational productivity improved by 20%. And at the same time, client productivity is going to be made 20% efficient. So that would be Ichiba. editing and customer service, co-pilot with utilizing AI is already empowered. And we're going to see that further rolled out. So one example of that is that Rakuten Mobile, where we are today, is in other words, at the time of entry, it was a human sort of intensive support. So 2.2 billion yen support fee was necessary. And utilizing AI by launching services first quarter, we have been able to achieve a 70% reduction by 989 million. So therefore, Rakuten Mobile not alone, but all businesses will be able to implement them. And at the same time, what we are really trying to do is For us, the generative AI, the development of generative AI, on top of that, operation will also be made further productive. So engineering code assistance or various documentation. Again, it's not manually intensive, but utilizing AI and customer support. At the same time, the logistics segment and furthermore, in the center, it is quite ambitious, but utilizing AI, optimizing marketing efficiency and direct business or to merchant price and optimization inventory will be recommended by AI. and optimization of ad advertisement. And in terms of AI search, you can find by means of recommendation. So that's already the area AIs already have been extensively utilized. So in the future, UX is going to be centered on voice as well. So therefore, the concierge function also further is going to be enhanced going forward.

So this is all I have for you from me.

Thank you.

Hirose, it's my name. I'm in charge of finance. I'd like to give an overview of the financial strategy first. This might be a repetition, but mid to long term financial soundness is what we are aiming for. And three pillars, profitability improvement, as Mr. Mikitani already explained. The core business will grow its growth, profit growth will be increased, and so achieve profitability on annual consolidated non-GAAP OI basis in fiscal 2024. And also for Rakuten Mobile, monthly EBITDA-based annual business, increase as well as annual basis as well. And efficiency improvement, yes, we have been improving our efficiency, and we will make further efforts. And SBU, various revisions will be underway, marketing-related improvements are being made. And also a working capital improvement and also cash conversion cycle being optimized. That was already mentioned. And internal cash will be increased as a result of that. And by using AI, we are going to further improve our efficiency. And financial soundness being maintained for interest-bearing companies. debt we will increase rather a decrease and we have been decreasing that but we will continue that and also proactive debt maturity management is next which I will explain a little more later but we will take more proactive actions to finance this so and we have already done that and to a large extent I think this issue or concern has been addressed and And the third one is a credit rating improvement so that we will have a very sound financial basis. And let me talk about refinancing risk in 2024 and 2025. So the redemption was $321 billion, but we have already addressed them. Redemption, of course, we wanted to redeem 100%. However, there are... still some remaining. That is $145 billion that is still remaining. And the funding is on the right-hand side. And so we have had additional sales of Rakuten Bank and Rakuten Securities shares. And also we have issued this corporate bond, senior notes issued. And then that's for the 2024 maturity. And $400 billion is the amount for 2025. $2 billion U.S. denominated senior notes. And we also have Japanese yen denominated in private placement. So that is $350 billion. Now, domestic hybrid bonds, maturity will come in November, December, and June. $76 billion, we will use products that receive equivalent equity certification. And so we are addressing that as well. And, of course, depending on the market situation as well as other situations, corporate bond-type class shares might be issued or hybrid bonds being issued. But we will have this call on the first call date. And path to self-funding mobile segment. Free cash flow improved dramatically. EBDA will be improved dramatically. But in addition, the capital expenditure will be or cap is will be reduced. And so that is our plan for free cash flow improvement and Internet service free cash flow. EBDA will continue to increase and cash conversion cycle will be shortened so that internal cash will increase. So these are the measures that we plan on doing and FinTech. We will, of course, have dividends as well as management fees coming in also. So 2024, self-funding will be established. And then beyond that point, we will have free cash flow being established. And with regard to the project to reduce cash conversion cycle, the entire company has been improving, trying to improve the cash conversion. And so we're trying to have improvements or prolongance of the payment terms, for example. And so there have been various measures undertaken. And also at the same time, in addition to the accounts receivable and accounts payable ratio improvement, we're revising and analyzing points program as well. Minimum 50 billion Japanese yen, non-fintech funds. cash will be generated and we still have upsides to that amount. So we're on a path to further soundness in financial basis. Thank you.

Good afternoon, everyone. My name is Ting. I'm speaking from the Silicon Valley today. After meeting with many companies here, I truly believe Rakuten is in a unique position to develop cutting-edge AI technology and bring the benefit of AI across multiple industries. We'll continue to push our strategy to leverage our unique data, ubiquitous channel to deliver a flywheel so we can continue to accumulate our sustainable competitive advantage. While strategy is important, execution is even more crucial. Next slide, please. In Q1, we demonstrated strong momentum on all fronts. We continue to scale our deep learning application and shift our first generative AI application to merchants and continue to develop and incubate our future technology for consumers. Next slide, please. And last year, we shipped Semantic Search for Fashion, and in January, we shipped for Ichiba. And in 2024, we're going to scale Semantic Search applications to 10 additional services across Rakuten Group. In addition, we're going to leverage our deep learning foundation to extend from search to recommendation to advertising. Next slide, please. And the beauty of Rakuten AI solution is that our solution is so easy. that we can enable merchant to use it right away in their existing flow and tours. In Q1, we launched IMS Assistant for Merchant, so they can quickly analyze merchant reviews and draft responses to their customers, and they can leverage Rakuten AI to understand the data and grow their sales. And for advanced users, we also launched Rakuten AI University so they can learn about Rakuten AI technology and broader industry knowledge as well for the best of their advantage. Next slide, please. And you can when we also launched Rakuten AI 7 billion. As you know, 7 billion is the number of parameters for a large language model. And today, large language model is growing bigger and bigger. The largest model today is over 1 trillion parameters. As the number of parameter grows, the cost of operation is also growing. And here at Rakuten, we can leverage our data to develop cost-effective model. Rakuten AI 7 billion is probably the best cost-effective open model for Japanese language and Japanese audience. And recently, Lama launched open 8 billion model, and our performance is comparable with that. And in the open Rakuten AI 7 billion performance, even better than the Google Gamma 7 billion model. As Mickey mentioned earlier, we have a broader portfolio of AI product. We continue to help the entire recording group to improve its operation, whether it's a customer support and software engineering and documentation, translation and search and advertising and from all all experiences to operations. So we have a lot to come to share with you later. Today, I want to thank everyone at Rakuten to participate in the AI-nization effort. And I'm very excited about progress and look forward to share more with you later. Thank you.

So this concludes the financial results announcement. Thank you very much. Thank you very much for joining us for the fiscal 2020 for first quarter financial results announcement QA session. So this will be a QA session for the press. And so these are the six participants for this Q&A session. Now, there are some housekeeping announcements as to the Q&A session. This session will be simultaneously translated between English and Japanese. So please select the language of your choice from the Zoom Navi bar. And please do not select mute original audio. When the interpreter speaks, the original volume will be lowered, and you will hear the interpreter's voice overlaying the speaker. The presentation materials shown have been aligned with Japanese. If necessary, please download the presentation material from the investor page on the corporate site. And if you're joining online, a raise your hand button is available. And also smartphone users, you can actually tap the relevant part to raise your hand. And once you're selected or your name is called, please unmute yourself and then ask the question. And please limit your question to anything that is related to the financial results, and maximum two questions will be entertained at one time. Please ask them at the same time. Okay, so if anybody has a question, please raise your hand. Thank you. Mr. Ono from Yomiuri Shinbu newspaper, please. Ono from Yomiuri Shimbun speaking. So about mobile business, I have two questions. The growth of the users or subscribers is one question. Looking back on the business in April, until the end of the year, I think there were last-minute increase for the corporate customers. So I think that was one of the key drivers. Now, family plans like your family, among others, have been introduced. And so of the growth of subscribers, especially B2C, how much acceleration have you seen? How do you view that situation? That's my first question. Second question is about your thinking about the ARPU, MNO ARPU and ecosystem ARPU. These are positive numbers that you showed us. Now, towards profitability, above 2,500, and I think that is the number. Is that our pool, strictly speaking, or is that a correct understanding or not? Okay, so about the subscriber or the circuit user growth. I think there are three parts. One is corporate customers. One other is new individuals becoming our subscribers. And the third one is individuals leaving us, a churn, that is, for April. New subscription as well as churn, both new. improved dramatically, so improvements on both ends. The causes or the factors behind is family program and the youth program. At that time, kids program was not offered yet because it came in in April. But in addition, collaboration with Rakuten Card, function quite well, and therefore, you know, referrals are coming, people coming from the ecosystem is one that grew, and also the network quality and coverage giving people peace of mind. I think they have more confidence in the quality and the coverage now, and therefore... More than the specific measures pushing up this number, I think the overall new subscription is increasing. And Arpu is your question as well. 2,000 yen, well, we want to push it up to 2,500 on a standalone basis, and we will continue our efforts to... For the entire group, however, we're not doing business on a standalone basis, but rather once one becomes a user of Rakuten Mobile, Rakuten group loyalty will increase. They will be more loyal to the group overall, and so I think that is a bigger piece or factor. And 1,050, well, I think that is the current number, but group synergies will push it up to 1,500 or 2,000. That is what we would like to see happen. Thank you very much. Thank you so much.

Thank you very much.

Thank you very much. So from NHK, Ishigata-san, thank you for raising your hand. So please. NHK newspaper. So there are two questions that I would like to ask. The first question, in the financial business, in the restructuring, what are the objectives that you do have? I would like to ask this intent from you. And non-financial, fintech, you are working with the other companies or you may have considered alliances with other entities. So I would like to seek your opinion on this. This is the first question. The second question is regarding mobile. In terms of operating profit, the profitability, when would that be is the question I would like to ask. Thank you very much. So, well, probably there are several reasons. But one of them, governance-wise, there's a high synergy effect in the financial industry and verticals. Of course, money-related center around Rakuten Bank, Rakuten Card, Rakuten Securities. and they are supporting these, of course, functions overall. And cross-usage is also very large in this segment. So therefore, the corporate governance and business strategy-wise It's one sort of cluster. Business strategy-wise, it lowers the silos of barriers between different disciplines. So that is good for the business. And the other is the Kuten group as a whole. In a way, It's a new sort of a structure for being a group company, meaning that high synergy effect. And from the investor's eyes, they need to look into financial, mobile, travel, and overseas business. e-commerce. There are a lot of so many disciplines that needs to be followed. It's a lot of hard work. So therefore, to make it into one big sort of a cluster of blanket from the investor side, it's easier to see about our business. So that is the reason why we're now working on the reorganization of our company, and we're considering and pursuing this goal. In the mobile long gap OI, the timing of when it is going to be profitable, we are not going to make that public, so I am sorry. I would like to refrain from answering that question, but the answer is I would like to realize that as quickly as possible. Thank you. non-financial interim reorganization and also alliances with the other entities, what is your plan? If you have a good plan or idea, please let me know.

I would love to hear from you. Thank you.

Thank you. Next. Mr. Ishino-san, a freelance journalist, please. Ishino, a freelance journalist. I have two questions. First, In the past few years, since the start of the business, in Q1, or right before the Q1, and I think in the mobile segment, you actually revised the plans, but I think this year you didn't have that plan change. And therefore, the Saikyo plan that you have now, do you intend to continue that for some time? You have, of course, the youth as well as the family. So is it correct to understand that the plan has been sort of crystallized and it will continue? Is that a correct understanding? And 2,500 to 3,000 ARPU is your target. But I think when you look at other competitors' ARPU, it would go up by several hundred yen. So 1,000 yen push-up is a hard improvement that you might need to make. So what is really the progress on that right now? As for the pricing or the plan, cell phone or mobile phone pricing is something that we wanted to make more fair for people to use, especially those that are using a lot of data. unlimited Saikyo plan family discount, 2,880 before tax, I think, is offered, which is quite attractive in our view. In addition to that, as a major strategy, higher value-added services are to be added. I think that's another aspect that is needed. And Rakuten Link in the... M-I-C, or communication, not just App Store, but communication. I think we are, the Cabinet has already decided that this will be made more open. And so advertisement revenue applications in Rakuten Link is growing. effective already, but we have not been able to sell that service to the maximum yet. And therefore, we would like to consider that as well going forward. And the third point is various business deployment using data or leveraging data. In other words, effectively, we will increase the ARPU by doing that. And also going forward, security enhancements will be important. AI services will be added maybe. is another attractive option that we can offer in the future. Therefore, And those are the kinds of services that we would like the people to use so that that will translate into ARPU improvements. And with 5G, ARPU will go up quite a lot because when you use 5G in Osaka area, we're using that or offering that in a full scale. And, of course, the value or rather the volume will increase as a result of 5G. being more prevalent. Therefore, wider spread of 5G network speed will be higher, and that means more data will be needed. High resolution will be needed. Therefore, more data. And so that is what we're expecting, and also bundling it with the Hikari service and Turbo. will be leveraged in a strategic fashion, so we would like to increase ARPU in a strategic manner. And so I answered both of your questions together, but again, it's been only four years since we started, and various services have been offered, but improvements in options are being realized and bundling, how we can best bundle services together. is something that we would like to and we plan on carrying out this year. Thank you. Okay, thank you very much.

Thank you.

So, from Fleebounce, Onishi-san, please. Thank you very much for the opportunity. Well, from the past, you have been saying the new roaming contract with KDDI On Kikiri's side, there are some delay that I've heard. And in terms of what you have described, in 99.9%, the actual coverage has been already achieved, meaning that more of all, or completely the KDDI network could be fully utilized? And you're at this point in time, but there's still some marginal area remaining is the question that I'd like to ask, number one. And number two, service utilizing AI. You talked about the specific strategy for AI, but behind it, the recommendations or doing something behind, under the water, is the image that I kind of assume. But the users, various users of Rakuten service, so really something that is quite evident to see, oh, okay, this is what AI is utilizing. What kind of service would be available for the user to really appreciate the usage of AI? So in terms of roaming, exactly as you described, we are at that state and platinum band to utilize them more effectively. And by 2026, within 26, there is a direct, of course, a link from the satellite. And that is what we are considering. So therefore, in a way, the easy connectivity is going to be number one. It's something that we would like to realize. and also regarding AI. Well, for instance, the past recommendation is more or less the past purchase history. The recommendation is calculated based on the past purchase, but that was the main gist of it. But the data is going to be fully leveraged in order to evolve the recommendation. So on a real-time basis, submitting recommendation on real-time or simply Like a mobile user, you or general AI can be utilized at quite an affordable price. So that is what we are planning for its implementation on our part. So behind it, well, it's an operation efficiency. We would like to achieve 20% improvement. And if we can achieve that, it's an explosive improvement in terms of profitability. So somehow we'd like to make this feasible. Thank you very much.

Thank you.

We have limited time. Therefore, we would like to entertain just two more questions from the press. Next. Sekiguchi-san from Keitai Watch. Thank you. Sekiguchi from Keitai Watch. I have two questions. One is platinum band related. You have conducted this testing two weeks ago at the end of April. So what are some of the challenges that you identified or what are some of the positive feedback that you have now in relation to that? I think it was an investment of 54 billion yen in 10 years. I think that was a forecast beforehand, before, but has that changed or not is my question. The second question also is about mobile. how to maintain customers and increase the stock. When you think about the churn rate, compared to one year ago, churn has come down to about half, which is quite low now. According to what you mentioned, Mr. Miktani, the family program is quite effective. That's one factor. Now, if you just focus on the churn rate coming down, is it because of the effective program that you have been offering? What about the terminal sales? Looking at a separate data sheet? This term, well, compared to last year on year basis, maybe the terminal sales has come down. At least that's how I can interpret that. But in other companies, competitors, maybe terminals, they want people to use over a longer period, and so that has to do with the stocking or the stocks as well. So do you see any challenges that requires certain measures to address the situation? Please. Okay. Platinum band first. Now, according to the business growth going forward, that might have some impact, but this is three megahertz being the focus, rather limited bandwidth, and focuses more on coverage and 99.9% population coverage 99.95 or 96 is what we would like to bring it up to. And therefore, capacity is not really our primary focus right now. And 1.7 gigahertz that we're working on, software upgrades have been realized in the meantime as well. Uplink, downlink, fine-tuning of the... And the effective coverage is increasing quite dramatically as a result of that software upgrade. I think we're doing it ourselves, which is a major factor in our view. And also congestion, capacity expansion. By having our own software upgrades, I think we can make improvements there as well, which is a major differentiating factor against other competitors. As of now, as far as I have been told, with regard to platinum band, the emissions test that we have conducted was a great success. That's my view as well, meaning I don't think there's any challenge. That's how we see it. Now, churn, yes, it's improving quite well. One factor there is the network quality improvement as well as the coverage increase. And another factor is with regard to the use of ecosystem technology. because use of ecosystem will benefit the users. People have more awareness about that. And the family program at the center, there are several, well, there's only one plan, single plan that we offer. However, there are many incentives that can expand from there on. As for the terminal sales, frankly or honestly speaking, SIM-free is the way forward. in this society, therefore, discounting the device, too much discount is what we want to avoid. Of course, there is regulation there as well, but rather than focusing there, And even with that level, we need to and we should grow and we need to have a strategy to enable us to do that. And so we want the pricing, the mobile payment to be kept low. So it's not marketing strategy that depends solely on the sales of terminals, which may have been the strategy in the past. However, rather than that. we want to strike the right balance to optimize the performance revenue-wise.

So this will be the last question. Newspeaks, Hatani-san, please. My name is Hatani from Newspeaks. Thank you. So this time, it is not including the financial result, but from May, There is a special Rakuten campaign, Welcome Home Rakuten campaign. So due to some network region, they have churned and left, but they have returned. And I think there's a special campaign for these people returning. But only about two weeks now, but I'd like to see how this program is doing. I don't remember the specific number, but it's very well received, very popular. And so... Many points can be accumulated, 2,900 yen, the no-limit family plan available. It sounds very attractive, and many people are returning. Kono-san, can you share a word or two on this, please? Thank you. already have been well explained. But if I can supplement, as it kindly has been pointed out, it just has started the campaign itself, so we need to further analyze the situation. But the network is doing very well, and the number of subscribers are increasing, and so therefore the ecosystem... The benefit compared to the past is increasing, and many people are interested at the moment. So therefore, running this campaign has been launched. So I believe that more than what we have anticipated, the evaluations are very high. So continuously, I would like to do our utmost. So thank you very much. Thank you. Thank you very much. So that concludes a special Q&A session from the media. We would like to conclude this session. Thank you very much for participating in this session. Thank you.

Thank you very much for joining our live question and answer session on Rakuten Group's 2024 first quarter financial results. So this is a session with the investors and analysts. And these are the six members that are here to answer the questions. And there are some explanations needed for the Q&A session. The session will be simultaneously interpreted between English and Japanese. Please select the language you would like to hear in your audio feed from the Zoom Navi bar at the bottom of your screen. Please do not select mute original audio. When the interpreter speaks, the original volume will be lowered and you will hear the interpreter's voice overlaying the speaker. The presentation materials shown have been aligned with Japanese. If necessary, please download the presentation materials from the investor page on the corporate site. Please raise your hand to ask a question. For those joining from their PCs, beneath the participants gallery view, you will find the Zoom Navi bar. Please click raise hand and ask questions. And for the cell phone participants, please use similar functions there. If your name is called, please make sure your mic has been unmuted before asking your question. Please limit your question to two at one time and limit your question to those regarding the financial results. So we now would like to open to questions from the analysts and investors. So first question comes from CLSA Oliver. Please make sure that you are unmuted and then ask the question.

Hello, thank you. I have a question about the e-commerce market in Japan. What kind of industry growth you're seeing? And I see you mentioned the GMV declined. What is your outlook for GMV growth? And finally, you mentioned there's some unprofitable customers you are getting rid of. Could you tell us a little bit more about this customer group and how you determine they are unprofitable? Thank you very much.

Takeda in charge of e-commerce. So regarding your first question, in this term, the trend that we see is in terms of the customer base, the foundation has been strengthened quite a bit, and we are very relieved, and many people will make purchases on our platforms, and so this is something that we want to see continue into the future. But since last year, There has been various price hikes, especially home appliances that are higher priced. People are refraining from buying those home appliances. And in the past, there have been promotions done so that people see the prices be more reasonable or affordable. affordable, however. And we have actually optimized our marketing costs, among others. But actually, so the growth has come down, has been reduced. However, in addition, aside from those, for daily necessities, including food, It's a positive growth against last year as well. Against Q&Q, against last year's equivalent quarter, it has been growing. So in Japan, especially food has not seen a high percentage of e-commerce in the overall market. So hopefully the merchants will grow in this segment.

We did this rule change of a Super Point Up program. And also last year, we had a huge subsidy for travel from Japanese government. And that has been kind of gone. And we are seeing a very strong fundamental growth, as a matter of fact. So Q3, Q4, we're expecting we're going to start seeing the growth. On top of that, all these UX improvement, including AI, and the fact that we are really trying to enhance the synergy with Rakuten Mobile and e-commerce is getting stronger and stronger. So we are now shifting basically from heavily dependent on just points, which we are kind of, to be very honest, we really started to We look into who we are making a reasonable return and who we are losing continuously. These people may be just chasing after the points and everything. This is not only for e-commerce, but including credit card and banking and everything. So now we are optimizing our marketing expense and investing into the healthy user, which we will make, you know, of course, it's very convenient for them to buy, but also making for us reasonably good revenue as well. So we are very, very confident. And if you look at over two years, I think we are still stronger than our competition, as a matter of fact. That's it. Thank you.

Thank you. Thank you very much. So HSBC Securities, Neil, please make sure you unmute and kindly ask your question.

Good afternoon. Two questions, please, both on Rakuten Symphony. First question is, are you able to give any guidance for revenue growth for this year? And the second one, it looks like it's still difficult to convince existing operators to adopt Open RAN technology. So I wonder if there's any technology changes or anything else that might change or accelerate that coming up. Thank you.

Neil, I think the fact that we started to kind of open license our source code is getting a very, very strong attention from many players all over the world. And this is probably one of the biggest disruption we want to make. Because now, because of the success of Rakuten Mobile, all these operators, if you ask CEOs, they are convinced that Open RAN is the only future for them. Because as far as you use legacy RAN, legacy hardware, It is going to be very difficult to use AI to optimize your operation, and also it is very difficult to use AI to reduce your cost. The Moore's Law doesn't apply to legacy platform. So now they are convinced. But at the same time, it is not easy for them to just get rid of everything and just jump on to, let's use O-RAN. It takes time for especially big players. But even if you ask all the CEO, they are very, very convinced. But what we have decided to do is instead of setting our O-RAN software to our network clients, We said, even our competitor, you can use our source code. And then, this is very similar to Red Hat strategy, and I have been talking with all the crowd players, all the big IT companies, all the CEOs, and they are extremely intrigued. Because now, everybody's kind of developing the same thing, right? Ericsson, Nokia, Samsung, Maveneer. Everybody is trying to develop what we have already developed. And the factually, you may want to check, but we are the only company which have open RAN for 4G. Other companies are developing 5G, but they don't have 4G, which is much more complicated than 5G, as a matter of fact. And then they have no plan to build 4G software. But they need 4G software. If you wanted to bring down TCO down, you need to have 4G and 5G, because otherwise you have a legacy for 4G, and open RAM 5G is going to be redundant. The beauty of Rakuten Mobile is our 5G and 4G lives on the same hardware, just on the same radio software, right? So that's so powerful. That's why our network quality is very, very speedier. And everybody started to realize, oh, my God, this is the future. But they are really looking for, okay, I need to test this. I need to test this. Yes, it will take time for big guys to completely replace their legacy platform. But it is now what we told to them, okay, we're going to open source it. Some, even the government, wanted to have our source code. Right. because of the security reasons. Department of ABC, Department of XYZ, they need wireless access, and wireless access has been a black box for everybody. So we are gonna open up this black box to basically not to everyone, but most of the players, they can use source code, they will pay us a membership fee, and they will pay as they scale. which is gonna be much more economics for them than developing what we have already developed. So this open RAN, I should say open RAN strategy, And why we can succeed is we are the only 100% commercially proven open-run software company in the world. In Japan, in Germany, and we have tested in 25 countries. We have tested interoperability with almost all cloud, almost all OS, and many, many radio unit hardwares. So we are really trying to make huge disruption for Open RAN. So keep tuned, right? And we are super excited. And with regard to the overall revenue of Symphony, Of course, if you sell the hardware, it is going to be pretty big, as a matter of fact. But that's not really so profitable business for us, right? So we really wanted to refocus just on software and selling software for Roving IO, which we are going to rename it to Rocket and Cloud. Very good. OSS, very good. And finally, RAN has been moderate, but the interest rate is very strong. But with this new strategy, I think we will become the biggest disruptor in radio industry.

Thank you. Thank you. We have limited time. Therefore, questions from the analysts and investors? The next one will be the final question. So Nagao-san from Bank of America Securities, please unmute yourself and ask the question. Thank you. I have two questions. First – is about mobile business, the subscriber trends, January, March period for individual and corporate customers. What are the situations for new subscriptions or subscriptions overall? And April onwards, I think you said that things are quite growing steadily. So what is the expected situation Net increase in April to June. What is your expected rate? Do you foresee acceleration there? So that's first question. Second question is about a different segment, which is e-commerce. Timu is coming from China and competitors are strengthening their membership. and I think there is a return of the momentum, so to speak, of your competitors as well. Therefore, the domestic e-commerce competitive landscape, how do you view that now? It's my second question. Okay, unfortunately, individuals and corporate customers or subscribers, we don't announce that, but individuals is where we are quite strong at. At the same time, BCP... We intentionally exclude that portion. BCP is, for example, you know, if something is wrong, goes wrong, you still can have this second shim using Rakuten. So in terms of lifetime value, the individuals and corporate, actually corporate customers has higher lifetime value because we don't need to give them points. That's an honest answer. And the churn rate is very, very low, extremely low. In case of other competitors, I think the network cost to begin with, as well as the fixed cost, was quite high. Therefore, maybe their formula would be different from our formula, the calculation formula, that is. But in our case, the profitability of our corporate customers, especially in terms of LTV, it's very high. And April-June timeframe. Basically, for corporate customers, there was this last-minute demand at the end of March. So that was, in fact, the case. But it is going quite steadily and growing well. And individual customers, I think there is an acceleration going on. I think you can see it as such. Yes. And as for e-commerce... China, the transboundary EC, e-commerce, I think it depends on how you view it or think about it. In the past, there were situations, for example, companies starting with W, for example, offering very low price services, popular among young people. However, it didn't take root quite easily. So things did happen. And I think maybe we don't need to compete against those people. Lower price, high quality? Well, that's not how we think, but rather high quality experience with Rakuten is what we want people to experience. And people who value the ecosystem of Rakuten is what we would like to approach, providing them with high quality services, high quality opportunities for shopping, for example. That is what we would like to base ourselves on. That's our approach. Now, our competitors, of course, are providing good services. I'm sure they do. And so there should be a friendly competition, so to speak. But including mobile business, this comprehensive capabilities that we have in the mid to long term will win much larger numbers of loyal customers. That's our view. And... AI being leveraged using data is something that we can use for more frequent shopping by customers. And also in regards to sustainability, the delivery services can be made more efficient. And what's more, most of all, You know, Rakuten mobile users shop 55% more, likely to shop more, 55% in the Rakuten Ichiba. Therefore, we're looking at the entire capacity or capabilities or power, you know, providing stable services so that people can feel this peace of mind in doing, you know, making purchases, among others. It's not just about top-line growth that we're after, but rather we're after quality. I think we have entered that phase of going and pursuing quality. Okay, thank you very much. This concludes our Q&A session with the investors and analysts. Finally, Mr. Mikitani will say a few words in closing. I didn't have anything prepared.

So once again, due to your cooperation and support, Rakuten Mobile is now on an upstream wave and trajectory. And this is a good experience on our part. So the superficial GMS and superficial sales, we're not going to go after those numbers alone. But mid to long term, more sustainable technologies journey or trajectory needs to be created. And that, I think, is an important aspect of our business. So financially speaking, of course, refinancing is now succeeding at the moment. And the internal cash flow improvement is, again, since the foundation It has been a strong momentum. We have been able to respond to that quite effectively. So the financial sort of concerns, so to speak, is now gone. And therefore, in the future, we would like to accelerate our speed for growth. and that is, of course, our ambition. But in terms of the quality, we'd like to put more emphasis in the quality of our offering. And the strategy regarding open RAN, we hope that you will take a close look and be tuned in terms of what we are trying to do. The red hat sales a few years ago, it was 2.5 billion yen, but the market cap is 3 trillion, close to as of now. So therefore, operating system and RAM, the software. It's a different world, but in various devices, it's going to be connected to the network. So the most important area, of course, is the RAM. So private 5G is coming, and within that, the open licensing strategy that we have, is indeed, if it does succeed, it is going to be a big turning point, an inflection point for our business. In a way, Nakuten Mobile have two roles to play. One is a business. We need to run a sound and smooth business. The other is software technology. is a test case of our software. It's a place to showcase the effectiveness of this capability. So by succeeding, our software business also would grow in the future. In Japan, it's a very unique positioning that we do have in the Japanese marketplace. So I hope that you will be tuned and take a close look in terms of activities. So thank you very much for joining us today. Thank you. That concludes Dagoten Group Inc. 2024, the first quarter financial result presentation. Thank you.