Rakuten Group Inc S/Adr

Hello everyone. Thank you very much for taking the time out of your busy schedules to join us today. I will be explaining the results of Rakten Group for the fourth quarter and fiscal year of 2025. Here is today's agenda. First, I will explain the business performance. Then, our CFO, Hirose, will explain the financial results, followed by our Chief AI and Data Officer, Ting, who will provide an update regarding our AI initiatives. First, I will provide a summary of the performance and KPIs of fiscal year 2025. First of all, as we announced at the end of last year, Rakten Mobile's total number of subscribers surpassed our target of 10 million subscribers. I would like to once again express my gratitude to not only our users, but also our partner companies and everyone who has supported us. At the same time, Rakuten Mobile also achieved full-year profitability at the EBITDA level of 12.9 billion yen, a significant year-on-year improvement of 66.7 billion yen. Next, I would like to report on our consolidated financial results for fiscal year 2025. Consolidated revenue increased 9.5% year-on-year to 2.5 trillion yen, marking the 29th consecutive year of revenue growth. In particular, the fintech segment contributed significantly to this growth, which was up 19% year-on-year. Consolidated non-GAAP operating income increased significantly by 99.2 billion yen year-on-year to 106.3 billion yen, thanks to the significant contributions of the fintech segment and improved losses in the mobile segment. Consolidated EBITDA grew 33.7% year-on-year to 435.9 billion yen, a new record high. To reiterate, we achieved two earnings targets we set at the beginning of 2025, demonstrating strong growth and solid profit improvement. In fiscal year 2025, Nongap Operating Income and IFRS Operating Income were both positive. For fiscal year 2026, we aim to achieve significant growth in both profit metrics. With this in mind, Rakten Group will focus on three areas. The first is expanding synergies with Rakten Mobile and the ecosystem. We have previously stated that customers who sign up with Rakten Mobile contribute to increased usage of group services, and we will continue to improve and expand the benefits of cross-usage to make them even more appealing. We will also promote group services and provide new value by leveraging Rakten Mobile's unique assets, such as data and shops. The second is accelerating the use of AI. In fiscal 2025, we continue to introduce AI in various areas both inside and outside the company. And from fiscal 2026, we are appointing chief AI officers to all businesses and divisions to quickly promote the wider and more specialized uses of AI. Finally, we will strengthen human resource development. We strongly recognize that people are the most important driving force behind the company's growth. In fiscal 2026, we will review our recruitment and training strategies, foster entrepreneurship and improve skills, and focus on building an organization that will enable us to make sustainable strides towards becoming a company that will last for 100 years. Next, I will explain the business performance by segment.

First, a review of the internet services segment. In the internet services segment, fiscal 2025 revenue increased 6.8% year-on-year to 1.4 trillion yen and non-GAAP operating income increased 4.5% year-on-year to 88.9 billion yen. However, excluding the valuation gains and losses of minority investments, operating income increased 15.2% year-on-year to 100.3 billion yen. Within the segment, Rakuten Ichiba and Travel drove revenue growth in the domestic EC business. In addition, progress was made in reducing losses in growth investment businesses such as the logistics business, contributing to the profit increase. In the international business unit, Rakten Kobo and Rakten Viber were the main drivers of the increased revenue and profit. Next, let's look at our main KPIs. Domestic ECGMS was 6.3 trillion yen, up 3.9% year-on-year. However, taking into account the impact of 2024 being a leap year, the increase was 4.2% year-on-year. Travel business GTV increased 7.6% year-on-year, driven by inbound and other global GTV. In addition, advertising revenue for the entire group increased 8.3% year-on-year to 239.2 billion yen, achieving solid growth. I would like to explain the fiscal year 2025 results for domestic EC once again. On the back of GMS growth explained on the previous slide, revenue increased 5.8% year-on-year to surpass the ¥1 trillion mark and non-GAAP operating income also increased 12.6% year-on-year to ¥122.4 billion. Solid revenue growth in core businesses and improved losses in growth investment businesses contributed to the increase in profits. Going forward, we aim to achieve sustained revenue growth in core businesses by expanding synergies with mobile and utilizing AI and to quickly achieve profitability in each of growth investment businesses. Rakuten Ichiba continues to reform its website and functions, logistics, and other areas. It is also promoting growth through the use of mobile and AI expanding its customer base and improving the loyalty of existing users by enhancing its services, including new services. Rakten mobile subscribers accounted for 16.4% of Rakten Ichiba's monthly active users, up 1.4 points from the same period last year. Going forward, we will drive this rate up by increasing awareness of and enhancing the benefits for mobile subscribers. Regarding the use of AI in fiscal 2025, we promoted the introduction of AI in various areas, including search, recommendations, and ads. In fiscal 2026, we will aim to maximize the effects of these efforts. In terms of enhancing services, in December 2025, we launched Rakten Ichiba's first private brand, Rakten Original, and Rakten 24 Express, which offers same-day delivery of daily necessities, and small appliances. We plan to launch several additional new services this year. In the travel business, global travel GTV achieved a high growth rate of 58% year-on-year on successful measures aimed at capturing inbound demand. Domestic travel GTV also increased 1.8% year-on-year. Furthermore, although the Chinese government's call for people to refrain from traveling to Japan in November last year resulted in a decrease in the number of visitors to Japan, domestic demand expanded, resulting in positive growth in GTV. Next, I'd like to talk about growth investment businesses. Various initiatives aimed at reducing losses have been successful, resulting in continuous reductions in losses across multiple businesses. Specifically, in the logistics business, we revised prices and promoted operational efficiency, resulting in a ¥7 billion year-on-year improvement in fiscal 2025. In the online grocery business, we decided to withdraw from Kansai area in the third quarter and reviewed our asset size, resulting in a ¥730 million quarter-on-quarter improvement in losses. The NBA streaming business also saw a ¥1.46 billion year-on-year improvement in losses in fiscal 2025 due to the termination of the service in July last year. Lastly, turning to the international business unit, revenue increased 2.4% year-on-year to $2.1 billion, and non-GAAP operating income increased 35.3% year-on-year to $51.8 million. Within this, open commerce, centered on Rakten rewards, faced headwinds due to the impact of the U.S. macro environment. On the other hand, in other categories, strong device and content sales at Rakten Kobo and solid growth in communications and marketing services at Rakten Viber contributed significantly to the division's overall revenue and profit growth. Next, I will explain the fintech segment. Segment revenue increased by 19.0% year-on-year to 975.9 billion yen and non-GAAP operating income increased by 30.3% to 199.9 billion yen as a result of the customer base expanding across all services throughout the year. Next, regarding the key KPIs for each business. Rakuten Card's shopping GTV increased by 10.3% year-on-year to 26.5 trillion yen. Rakuten Bank's accounts increased by 7% year-on-year to 17.63 million accounts, and deposits increased by 10% to 13.2 trillion yen. Furthermore, Rakuten Securities' general accounts increased by 11.1% year-on-year to 13.26 million accounts, and Nisa accounts surpassed 7 million in January, maintaining its industry-leading position. Deposit assets also significantly increased, reaching 48.7 trillion yen. Let me dive into each business performance. Raktencard saw an increase in GTV due to an expanding customer base and higher average spending per customer. Additionally, the revision of revolving payment fees in August led to a significant increase in revenue. And despite a substantial rise in interest expenses, the company achieved increased profits. Rakten Payment achieved increased revenue and continued operating income for fiscal year 2025, driven by GTV expansion due to the continuous growth in Rakten Pay app users, as well as an increase in advertising revenue. In December, we launched Rakten ID integration with Uber, enabling users to earn Rakten points based on their spending with Uber and Uber Eats, regardless of payment method. Combined with points previously awarded for Rakten pay transactions, this offers a maximum points accrual rate of 2%. Moving forward, we will strengthen our integration with Rakten AI and Rakten Gurunavi to realize a smarter, more convenient future. Rakuten Bank has already released its financial results, but the bank continued to see an increase in the number of accounts and the trend toward them becoming main accounts, resulting in an expansion in deposit balances and an increase in assets under management. Coupled with the Bank of Japan's hike in policy interest rates, interest income increased significantly. with ordinary income increasing 39.1% year-on-year to 183.2 billion yen, operating profit increasing 51.7% year-on-year to 75.1 billion yen, and ROE of 21.5%. Racton Securities achieved record high revenue thanks to steady customer acquisition via new NISA, as well as increased trading activities and a growing investment trust balance amid a favorable market environment and expansion in financial income. Going forward, Racton Securities will continue to work to acquire new accounts and promote various types of transaction. Regarding the insurance business, both life and general insurance saw revenue growth. with strong sales continuing particularly in medical insurance for life insurance and internet automobile insurance for general insurance. Moreover, profitability for both services is steadily improving. Going forward, we will continue to select and concentrate our product lineup and work towards further business efficiency. Racton General Insurance has been working to improve its product portfolio through 2025. It has focused on selling profitable online automobile insurance and home contents insurance for rental properties, while gradually discontinuing sales of less profitable products. As a result, premium income from its focused products has grown to account for 77% of total income. Insurance income particularly from online automobile insurance and home contents insurance for rental properties grew by more than 50% year-on-year in 2025. It plans to expand further and to continue improving the profitability in 2026. Finally, I will explain the mobile segment. Revenue increased 9.6% year-on-year to ¥482.8 billion and non-GAAP operating loss improved by ¥47.1 billion year-on-year. In addition to revenue growth in the mobile business, improved profitability at Rakuten Symphony helped the mobile segment achieve its first-ever full-year EBITDA profit. Next, let's look at the main KPIs. As of the end of December, Rakuten Mobile had a total of 10.01 million subscribers. An adjusted MNO churn rate that excludes contracts canceled in the same month of signing was 1.46% and an APU 2,860 yen. Rakuten Symphony, as of the end of December, had 74 customers and 17 sales partners for RAN as well as others. I will now explain the business performance of Rakuten Mobile. Fourth quarter revenue increased 24.9% year-on-year to 101.8 billion yen, driven by higher service revenue on the back of growth in subscribers, APU, and increased device sales. While the non-GAAP operating loss improved by 5.4 billion yen year-on-year, it widened quarter-on-quarter to 40.8 billion yen due to upfront investments to strengthen revenue going forward. We expect the loss will resume its improving trend from the first quarter of 2026 onwards. As I mentioned at the beginning, Rakten Mobile achieved full-year EBITDA profit in fiscal year 2025. Like operating income, fourth-quarter EBITDA decreased quarter-on-quarter to 5.9 billion yen due to the recording of upfront investments to strengthen our future revenue. But on a year-on-year basis, EBITDA improved from loss to profit. On the other hand, pre-marketing cash flow, excluding these customer acquisition-related expenses, amounted to 26 billion yen, demonstrating solid growth. The number of MNO subscribers in the fourth quarter increased by a net 594,000 due to strong B2C acquisitions resulting from growing awareness of various synergies with Rakuten ecosystem, as well as progress in turning the B2B pipeline into contracts by the end of 2025. As for B2C subscribers, when comparing population penetration in each demographic at the end of 2024 and 2025, we saw strong acquisition of users with high data usage, particularly among young people, thanks to strong acquisition from Rakten ecosystem, growth in device sales, and promotion of content such as Rakten's Psycheo Unix plan. Adjusted M&O churn rate for the fourth quarter was 1.46%, excluding cancellations in the same month the contract was made. This was an increase of 13 basis points quarter-on-quarter, partly due to seasonal factors. However, as a measure to curb short-term users with no intention of using from the start, we introduced a contract administration fee from November 2025 for contracts with a total of five or more lines. and as a result, the churn rate for the month of December 2025 improved compared to October and November. While closely monitoring market conditions, we will continue to strive to improve network quality and aim to reduce the churn rate. APU increased ¥3 year-on-year to ¥2,860. During the fourth quarter, we made progress in acquiring B2B subscribers, raising its mix and lowering APU as its APU is lower than that of B2C. However, year on year, we saw higher APU, primarily in data APU and option APU, and we believe this upward trend will continue going forward. Regarding APU, we will continue to implement various measures to improve it in multiple areas, including data, options, and advertising. Starting from March, we will be running a campaign that will allow users to take advantage of Rakten Psycheo UNEXT at a great price to coincide with the start of a new school year. Additionally, starting this month, Rakten Mobile subscribers can get a bonus interest rate on top of their Rakten bank deposits. An even higher interest rate will be offered to Rakten Psycheo UNEXT subscribers. This way, we will strive to increase APU by leveraging the synergies between content and group services. Next, I would like to talk about network quality. As a mobile network operator, we naturally believe that providing a stable, high-quality network is essential. As I mentioned earlier, the number of young users who use a lot of data is increasing significantly, so we would like to once again focus on measures to strengthen our network in 2026. Improving network quality naturally leads directly to an increase in the number of subscribers. Until now, we have built our own network nationwide at an unprecedented speed and have also been operating it while using KDDI's network. However, since we are experiencing a rapid increase in subscribers, particularly in urban areas, we would like to further strengthen our infrastructure so that our own network can fully handle the resulting increase in traffic. Therefore, we are planning CAPEX of over 200 billion yen in fiscal year 2026. Last year, we fell short of the initially planned investment of 150 billion yen, but in 2026 we are not only building closer cooperation with construction companies, but also concentrating on our in-house human resources to accelerate base station construction. Specifically, we will focus on measures for downtown areas and subways, where we have received many requests from customers to make improvements. In downtown areas, we are installing 5G base stations to distribute traffic and in subways, we are continuing to expand bandwidth. Regarding the development of 5G base stations, new base stations are being constructed in Tokyo, as shown in the image. We are also working to strengthen our 5G network at stations on the Yamanote line. As of December 2025, 5G was available at the 18 major stations listed on this slide, and we expect to complete the remaining stations in the first half of this year. For subways, we are continuing to work on expanding bandwidth from 5 MHz to 20 MHz, and are prioritizing measures using 5G sub-6 in MIMO. This slide shows the status of Tokyo Metro's network as of January 2026. As you can see here, we plan to complete significant network enhancements at most subway stations and transit sections by July 2026. We are also promoting similar initiatives on Toa Subway. We also plan to complete significant network enhancements at all stations and transit sections by July 2026, making it even easier to use Rakten Mobile. In addition to these efforts, Rakten Mobile has been continuously promoting initiatives to improve network quality based on reports received from customers. Our surveys of Rakten Mobile customers found that over 80% of users have experienced noticeable improvements in network quality. In 2026, we will undertake company-wide efforts to strengthen our network, enabling even more customers to experience improved network quality. Simultaneously, we plan to accelerate the pace of subscriber growth by rolling out various initiatives that allow mobile subscribers to enjoy greater value from our group services. Lastly, on Rakten Symphony, Rakten Symphony achieved profitability at the non-GAAP operating income level for fiscal year 2025. In RAN, we have steadily shifted our revenue structure from delivery of low-margin hardware to a major customer to high-margin software and its customization and maintenance. In the cloud segment, we are expanding our sales channels through Google Cloud Marketplace and will continue to expand our revenue base for various services. That's all from me. Next, Hirose will explain our financial situation. Thank you very much.

This is Hirose and I will explain our financial strategy. Non-GAAP operating income for fiscal year 2025 rose significantly by ¥99.2 billion year-on-year to ¥106.3 billion thanks to improved profitability in each business. IFAR's operating income also recorded a profit of 14.4 billion yen, marking the second consecutive year of profitability, despite the absence of the 106.9 billion yen unrealized gain on AST shares recorded in fiscal year 2024. For one-off items, we recorded impairment losses on fixed assets in the online grocery business in the third quarter and in Rakuten Symphony and logistics businesses in the fourth quarter. going forward we will continue to optimize our business portfolio to mitigate the impact of these one-off items on our net profit and loss financial income and expenses increased by 3.4 billion yen year-on-year to a loss of 36.0 billion yen due in part to a year-on-year decrease in hedge valuation gains from currency swaps related to foreign currency denominated perpetual subordinated bonds Having said that, this valuation gain or loss is due to impact of exchange rate fluctuations and other factors, and it does not have an impact on cash flow. Therefore, it has no effective impact on our financials. As a result, pre-tax profit or loss decreased by 45.8 billion yen year on year to a loss of 29.5 billion yen. However, excluding the one-off gain in fiscal year 2024 that I mentioned earlier, this represents a significant reduction in losses and we believe we have been able to demonstrate a strong improvement in our business performance. In the fourth quarter, we recorded impairment losses of 20.5 billion yen for Rakuten Symphony and 10 billion yen for the logistics business. As a result of these impairment losses, along with the impairment loss for the online grocery business recorded in the third quarter, we believe that the risk of future impairment losses across the group has been reduced. Allow me to explain the reasons why tax expense in fiscal year 2025 was significant, similar to fiscal year 2024. When we transferred a portion of our shares in Raktencard, the corresponding tax expense was eliminated because the gain on transfer was not recognized on a consolidated basis. This lowered the tax level in 2024. However, a one-off tax expense was incurred due to a reversal of deferred tax assets. In fiscal year 2025, while there was no such one-off impact, corporate income tax increased due to high growth of fintech companies that are not subject to the group tax consolidation system. We believe that the amount of tax expenses for fiscal year 2025 represents a somewhat normalised level. In 2025, we further diversified our fundraising methods. In July, we issued our first sustainability bonds, and in August, we accessed the domestic retail bond market for the first time since 2023. In October, we issued perpetual subordinated bond domestically. We believe that being the first non-financial company domestically to issue yen-denominated perpetual subordinated bond of size with capital recognition from rating agencies was not only significant for the diversification of our fundraising methods, but also important for the domestic bond issuance market. In addition, we continue to make progress in our cash conversion cycle, achieving significant improvement year on year. We believe that these consistent, proactive initiatives are continually being recognized by the market. The prices of our bonds issued in previous years and five-year CDS spreads both reflect an improvement in our credit standing. We will continue to work consistently to improve our financial position. From 2026 onwards, we will continue to aim for self-funding to meet capital needs of the mobile business. In addition, we have diverse funding options available for capital needs related to corporate bond redemptions including domestic and overseas markets, wholesale and retail bonds. We will closely monitor trends in exchange rates, interest rates and other factors and consider the most appropriate option depending on timing. Finally, I would like to explain our financial targets for fiscal year 2026. As Mikitani mentioned at the beginning, we are aiming for significant increases in both non-GAAP operating income and IFAS operating income. We have long set a goal of achieving the ratio of non-Fintech net interest bearing debt to EBITDA to less than 5 times, And by the end of fiscal year 2025, we had reached 6.5 times, making a steady progress toward that goal. In fiscal year 2026, we aim to achieve a ratio of around 6 times and will work to reduce interest-bearing debt, increase profitability in each business, and further improve our ability to generate cash flow. That concludes my presentation on finance. Next, Ting Tsai, Chief AI and Data Officer, will explain our AI initiatives.

Hello, everyone. I'm Ting Cai, the Chief AI and Data Officer for Rakten Group. Today, I would like to use my AI voice to speak to you in your local language to better connect with you all. At Rakuten, we drive AI transformation through an initiative called AI-nization, where we systematically infuse AI into everything we do. Our vision is to augment human creativity with the power of AI. With our growth flywheel and real user feedback, we are building the durable power of differentiation by accumulating our unique data assets. In 2025, we demonstrated continued strong momentum towards this vision, delivering tangible and measurable results across the organization. I'd like to share some highlights with you today. Our strategy and strong commitment to execution is paying off. In 2025, AI contributed an impressive 25.5 billion yen in profit to the group, beating our fiscal year target of 21 billion yen and more than doubling our 2024 impact. This strong result was driven by increased sales through better user experiences, as well as cost reductions through increased operational efficiency. For example, Rakuten Ichiba increased the sales growth by running ads automatically selected by AI, while Rakuten General Insurance implemented AI analysis tools to quickly provide insurance quotes, improving customer satisfaction and boosting sales. 2026 is looking to be even stronger. We're aiming for three times the impact we delivered in 2024. These results were made possible by our relentless focus on execution, shipping products and services that solve real user problems. Deep learning, large language and visual models are far better at capturing user intent and understanding the context than traditional machine learning methods. They provide more relevant results that users want to engage and spend more time with. For example, in 2025, we launched a personalized search and popularity search. They remember user preferences such as brand affinity and capture trending products that are relevant to the individual. We estimate these new features will contribute to an additional 25.5 billion yen GMS on an annual basis to Rakuten Ichiba. Beyond Ichiba, we are now expanding the features to even more businesses. Another example is our discovery recommendations launched on Ichiba. By deeply understanding the customer's past transactions and current context, we can provide a nearly infinite scroll feed with attractive content that spans products, videos, and helpful articles. As a result, Users spent 41% more time than before on the recommendation experience, opening the door for new sales and advertising opportunities. Speaking of ads, we launched Rakuten Promotion Platform that automatically optimizes where and when ads are delivered to maximize returns for advertisers. This resulted in significant return on sales for merchants and ad revenue uplift for Rakuten Group. Another great example is our new category word ad functionality. It automatically matches search terms to brands and categories, eliminating manual work by advertisers and making ads more helpful for users to find the product they're looking for. Early results are strong. We launched the service on October 1st and saw ad sales spike to 152 million yen in December, six times growth versus September before the launch. 2025 was the year we launched the Rakuten agentic ecosystem, with the full-scale launch of Rakuten AI, our agentic AI platform, in July. Since then, we have sustained momentum by shipping more AI agents across the ecosystem, including experiences for Rakuten Link, Rakuten Ichiba, Rakuten Travel, and Rakuten Beauty. In December 2025, Rakuten Ichiba launched Rakuten AI to 100% of the traffic on the Ichiba app. Customers loved the new experiences. Early data shows that users who experienced Rakuten AI come back seven times more frequently than users who have not experienced Rakuten AI on Ichiba. Rakuten AI isn't just helping customers before and during their purchase. It's helping them get better customer service after a sale, too. Our new Gen AI-powered customer service agent, which we call Raptor, is being deployed across the ecosystem. Unlike previous generation chatbots that rely on rigid dialogue flows, our GenAI-based solution is far more flexible and understands nearly every user question. It not only offers a chat experience, but also voice interaction, augmenting human operators to better serve our customers. It's already improving auto-resolution rate and customer satisfaction, and we expect it to drive a significant contribution to Rakuten's bottom line as well, with a projected profit uplift of 4.3 billion yen in 2026. On December 18th, we announced Rakuten AI 3.0, which delivers a dramatic leap in performance and world-class Japanese language capabilities. And critically, from an efficiency perspective, it operates at one-tenth of the cost compared to popular frontier models such as GPT-4.0 when powering Rakuten ecosystem services. Rakuten AI 3.0 is the foundation on which we are building our language model strategy. Build the best, partner with the best, and create models that efficiently solve real user problems at scale. This point is key. We see a tremendous market opportunity in optimizing the models for domain-specific tasks with real-world data to improve the profit margin for businesses. Looking forward, Rakuten AI is becoming an intelligent fabric that connects Rakuten services and grows ecosystem users and usage. Users are increasingly coming to AI Agents for their needs from inspiration to actions. Agents can plan, execute, and iterate, completing tasks on users' behalf. Agents are also becoming more intelligent by remembering context and getting to know you. We see the capability of AI models continuing to increase and the cost of intelligence continuing to decrease as we deploy better hardware, algorithms, and data, and shift more compute from the cloud to desktop and mobile devices. Rakuten is uniquely positioned to execute this vision because of our unique ecosystem and growth flywheel powered by our applications, models, and data. 2026 is a pivotal year for AI in Rakuten and for the entire technology industry, and we will continue to lead the way on high impact, high efficiency, high ROI AI. Thank you for your time.