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Good afternoon, and thank you for joining Rakuten's 2018 First Quarter Financial Results Meeting for Investors and Analysts.
Before we begin, just a few announcements. Today's meeting will be held in Japanese language, but we have simultaneous interpretation service for you. Japanese will be provided on Channel 1, English on Channel 2. At the end of the meeting, please make sure that you leave the receivers on your tables. We request that you always wear your security pass in the building, which was distributed to you on the second floor. We will collect the security pass at the exit on the second floor. Also, please note that there is no smoking anywhere inside this building. Rakuten operates a paperless system for our results meetings.
No hard copies of the presentation materials will be distributed today. Only the A3 size sheet showing our quarterly financial results by major businesses is being distributed. The presentation slides will be shown on the screen in front of you.
In addition, on your PC tablet or smartphones, we encourage you to download our PowerPoint presentation, Kessan Tanshin financial results and the A4 size sheet that can also be downloaded in Excel format. Details of the Wi-Fi guest username and password are written on the additional sheet distributed as well as our website information. Finally, please remember to turn your mobile phones to manner mode or silent mode. Thank you. Please wait for a while until we begin the results meeting.
The meeting for the media is running a little late by about 5 minutes, so we will begin our Q1 financial results meeting for investors and analysts from 4:05 instead of 4.
Good afternoon, and thank you for waiting. Welcome to Rakuten's 2018 First Quarter Financial Results Meeting for Analysts and Investors.
Let me first introduce the Rakuten executives who are present here today. In the front row on your left is Masayuki Hosaka; Yoshihisa Yamada; Naho Kono; Kenji Hirose; and in the second row, from your left, Yasufumi Hirai; Kentaro Hyakuno; Makoto Arima; Kazunori Takeda; Yuzo Hashiya; Noriaki Komori. So we have 10 executives here present, who will be available for questions and answers at the end of the presentation. So let me introduce you to Mr. Hirose, who has been appointed as the new CFO from April. Mr. Hirose, please.
Now then, I'd like to explain about the results of the first quarter of 2018. First, let us once again refresh our memory a bit about our strategy centering around Rakuten Ecosystem.
As you know, Rakuten Group offers wide variety of services, through which we intend to acquire users to develop the infrastructure for the user membership, and the brand recognition would be important based upon brand strategy to acquire new users. And with the membership, various transactions will take place together with data that will be utilized to offer better service to users, and that's our intention behind the strategy.
And then comes SPU, to improve user loyalty and cross-use by way of Rakuten Super Points and SPU to make the platform even more solid. And for marketing activities, of course, the lifetime value maximization is the objective here. And the customer acquisition cost recently in terms of the profit and loss, in some cases, it could be in the negative value, but this is based upon the strategy to maximize lifetime value in order to further revitalize the membership foundation. And at the same time, as we intend to entering into MNO business as well as logistics, they are considered as the platform to support those activities centering around Rakuten Ecosystem.
Now I'd like to turn to the consolidated results. As a highlight, I would say that the consolidated revenue was up 14% year-on-year, driven by FinTech business. Non-GAAP operating income, excluding gains from investment, was almost flat, like minus 2.5% year-on-year. For Rakuten brand reinforcement and membership acquisition, we continued the upfront investment to conclude partnership contract and other activities. And as to FinTech, their operating -- or rather, the revenue was up 15.5% year-on-year. Operating income, 20.9% increase even with the impact of the new system of the card. And the domestic EC, GMS was up 11.4% year-on-year, as the operating income was down by 8.3% year-on-year, as we continue aggressive investment in to C2C and Rakuten Direct (First Party) and also some increase in delivery cost, resulting in decrease in operating income. Another topic I'd like to highlight, completion of acquisition of Asahi Fire & Marine in late March. And then in April, they became subsidiary of ours.
This is a summary of the consolidated results. As you see, the revenue was JPY 241.9 billion, up 14%; and non-GAAP operating income, JPY 31.8 billion. And we see some fluctuation in terms of the gains coming from investment, and therefore, when this is excluded, then it is JPY 27 billion with -- or minus 2.5%.
And here is the operating income, JPY 43.9 billion in the same quarter last year, and there are some impact coming from the gains of the investment. And when this is excluded, then the JPY 27.7 billion, that is considered as the basis. The JPY 9 billion increase, thanks to growth in business. But for future business growth, we made upfront investment for partnership and others, spending about JPY 4.9 billion. As a result, non-GAAP operating income came to JPY 31.8 billion. However, this includes gains from investment for apple-to-apple comparison. When this is considered then, it comes to JPY 27 billion, which is almost flat year-on-year or minus 2.5%. As to upfront investment, when this is added, and then the operating income comes to JPY 31.9 billion, which is up 15.2% year-on-year.
This is a breakdown by segments for revenue and operating income. Other Internet Services, there is a major decrease there, which includes investment gains or loss, and therefore, about 11.4% -- JPY 11.4 billion difference that is reflected in here. And therefore, when this is excluded, then Other Internet Services also shows improvement, when such investment-related adjustment is made. And the global -- a JPY 3.4 trillion, that was the Global GTV. And in terms of the Domestic GMS, that was up 11.4%, and it ended JPY 57.6 billion.
Now I'd like to turn to FinTech.
Good afternoon. I will explain the FinTech. My name is Hosaka. So about FinTech, I think we saw the other results. It is going very smoothly. Especially this membership, data and brand is reflecting Internet insurance as well as the acquisition of the Asahi Fire & Marine insurance, so FinTech is now become -- now is becoming a major pillar for our business. And in a very rapid speed, the company is driving the growth of our company. That is our expectation.
If you have any questions on acquisition or strategy, Mr. Hashiya, who is seated on this third row, can answer your questions.
As for the results summary, as we heard earlier, the revenue was plus 15.9% year-on-year. Card, of course, is the major business, but compared to last year, it was 16%. And the profits -- the system burden is there, but is up 6.4% year-on-year. Bank business is a 2-digit income -- revenue, excuse me, and it has grown. It's up by 20% year-on-year. The economy of scale is working for the banking business, especially during the past 1 or 2 years.
Securities, the market is doing very well, not just equities, but FX is also. Transaction is increasing, and we -- it's up by 62.5% year-on-year.
Life insurance, I think this will be explained in more detail later, but marketing costs has made the year-on-year results to go down by 28.7%.
The card business results. It has to -- we have the mission to grow this business every year. And this went to -- we had a result of JPY 83.32 million in operating income and JPY 430. And so as for the Rakuten Card KPI, it was up by 21.8% year-on-year as a result of the SPU contribution. But of course, because of the results of the card, it was JPY 169 billion. The shopping revolving balance went up by 16.7% year-on-year.
And for the cashing business, the cash advance balance, it went up by 18.3% year-on-year this year, and the total was JPY 54.91 billion (sic) JPY 549.1 billion.
As a new topic, the release of the new card design, with the collaboration of the Disney, the Walt Disney Company, has been launched. And we don't have the other numbers yet, but they're very popular. In addition to the popularity of the conventional Rakuten cards, well, this card is -- both of the cards, including this Pink card, is receiving a lot of applications. Now coming to the bank results. Operating revenue was JPY 197.37 million, and operating income was up 20.2% year-on-year. And the expense has gone down by 50%. The question is, who do you compare to? But the Internet banks, many of the banks have like 80% expense. Or even in normal banks, it's about 60%, especially if they have physical stores. But as Internet bank, Rakuten Bank is the kind of business which can generate a lot of revenue and operating income. So as an ecosystem, this card and the bank business, the shares and also the -- what is guaranteed with a card, of course, the market is not -- is in a very difficult situation, but the housing loans and other types of business is also growing their business.
So the deposits, it's JPY 2 trillion. So the ordinary deposits are growing, and also, the housing loan has grown by 45.5%.
Securities. The operating income went up by 62.5% year-on-year. In Malaysia, there is a company called Malaysia FinTech, or rather -- that awards, the Malaysia FinTech Award, and Rakuten Trade was able to win the FinTech Company of the Year.
So an investment by point, we have seen increasing number of first-comer investors, and the investors by point now represent 40.1%, and this is the area that we'd like to focus on. So that within our ecosystem, security trading business would be incorporated and the lifetime insurance -- or rather the Rakuten insurance, it is up by 2.5%. And operating income, although it is down year-over-year, we believe that is because of the various cost investment that was required. In terms of ANP, it is growing by 17.8%. And in the case of direct marketing, the growth rate is 117.8%. This is quite Rakuten-like, in terms of Rakuten Life Insurance, I would say. That's all for me.
Now I'd like to move on to Internet Service. Now Kono is going to explain about Internet Service. Media and communication would be explained by Mr. Yamada.
So first, Ms. Kono, please.
Good afternoon. Thank you for your interest. My name is Kono, and I'd like to explain about EC.
If I may repeat, for the current -- the quarter, in Q1, JPY 857.6 billion was the GMS, which was up by 11.4% year-on-year. Double-digit growth is still maintained.
Next, in terms of the revenue and operating income. Revenue, which came to JPY 97.261 billion, which was up by 8.8% year-on-year. And in terms of the operating income, it was JPY 16.4 billion, or the negative growth year-on-year, that is because of the investment that was required in the focal area. And there were 2 points. First, C2C business, and as to C2C business, we are seeing remarkable growth there, and therefore, at present, commission is free for users and that is reflected in here. Yet looking at the market, I'd like to make the decision on the right timing. And also about the Rakuten direct, this is the First Party business that we're making the increase in investment. But for other businesses, other segments, they are about the same level as last year, and therefore, we're currently making the quite disciplined investment, I would say.
And Rakuten Ichiba Mobile ratio, this is always reported in this kind of meeting, and this is where our strength lies. And for the current fiscal -- or the quarter, it was again growing by 3.7 percentage point, or 66.5%, represent the mobile ratio of the total GMS in Rakuten Ichiba.
Another indicator is about Rakuten Ichiba and Rakuten Card, that is how much payment was made by Rakuten Card and Rakuten Ichiba. It is growing as well, 55.8% being the payment made by Rakuten Card. And this is backed by SPU program, that is Rakuten Ichiba and other businesses are to be promoted through cross-use, which was started since 2016. And not only Rakuten Mobile and Rakuten Card, now Rakuten Books is added. This was reported last time. And we're also increasing other range of services. For instance, in March, in order to place more focus on the fashion or clothing, the Brand Avenue was included together with the Rakuten TV. And starting April, Rakuten Travel is now added. And today, we also opened the new site, Rakuten Beauty, and this is also part of the Rakuten SPU. This is not included in Q1. Rakuten Travel, it is supported by the certain size of users. But now with SPU, right after introduction of SPU, we are seeing the traffic inflow into Rakuten Travel from Rakuten Ichiba reflected in increasing number of reservations. And also Rakuten Ichiba users are now coming into Rakuten Travel. So during the Golden Week, for instance, more than ever, the couple or family travelers are showing an increase, reflecting the improved cross-use.
And as the Rakuten Brand Avenue, which was launched in March, this is about the clothing, and the GMS was up 37% year-on-year. In terms of the number in the fashion clothing industry, I would say that this is a rather remarkable growth rate. Therefore, in this particular category, I'd like to increase the awareness of the brand of Rakuten leading to further growth.
Another important area for us is about the First Party business. And from some time ago, Rakuten, the Kenko.com and the Soukai Drug acquisition were announced, and now came the alliance with BIC CAMERA and the Walmart / Seiyu. And now from April 11, Rakuten Bic was launched under alliance with the BIC CAMERA, and it has been growing quite successfully, and we expect further growth of this.
And Rakuten Bic site, what kind of activities we are undertaking? 95 million is the number of pay data that we have. And over 40 physical stores are owned by BIC CAMERA, so they also have, of course, the production part, but distribution network. So by collaborating together with BIC CAMERA, we can grow our business. So at the physical stores of BIC CAMERA, Rakuten Super Points can be accumulated. So not only are we going to grow the individual business, but the O2O business can be grown. And Rakuten Bic, after this was launched, is showing substantial growth on a daily basis, even though it has only been a month since this service was launched.
That was on e-Commerce from me. Thank you.
Our next is Mr. Yamada.
On media and communications, as you already know, the 1.7-gigahertz frequency band allocation has been acquired so that we can start -- launch our service in October 2019. So the service will start in October 2019, and we plan to cover 96% of the population by 2025 and to reach the number of subscribers 10 million by end of fiscal year 2028. This is what we said in our application to the Ministry of Internal Affairs and Communications. As for the number of subscribers, it may be more than 10 million.
CapEx. Capital investment is JPY 526.3 billion for 10 years. We are getting estimates from our vendors, and we believe that we can stick to this figure. So we're trying to build an efficient network. One example is to collaborate with the various electric power companies to rent their utility poles and telecommunication towers such as from TEPCO and other electric companies.
As for Rakuten Mobile, after this introduction or announcement of MNO business, the number of stores or shops has, as of April 20, was 218, covering 46 prefectures out of 47 prefectures.
Speaking about Viber, the number of unique IDs has gone beyond 1 billion -- excuse me, 1 billion, and the revenue is also growing significantly. Total revenue grew by 75.8% year-on-year in terms of revenue.
Next, on ad business, Mr. Arima.
Good afternoon. So I think we said that we are going to aim at JPY 200 billion by 2021. This is what we announced in our last presentation, so I would like to give you the update.
On the right-hand side, please look at this chart. The JPY 79-plus billion is the revenue. And recall, the business that is targeted at the external businesses, and that is going to cover a major part of our revenue. So strategically, this is going to be very important. But as a second step, Rakuten's data will be utilized for external inventory. But whether it's external or internal, we'd like to use our inventory, and that's JPY 20 million; the plan is JPY 20 million for that.
The first step as -- we have a joint venture with Dentsu, the external advertiser. As an external advertiser, Dentsu is the strongest. So last November, we formed this joint venture, and we're doing very good business.
In terms of orders and in terms of the volume, of course, we didn't have the Rakuten Marketing last year, so this is all generated by external business. And I think we can double this number quite soon. So towards JPY 200 billion, I think we can see that this business is developing very well.
About the product called Brand Gateway, in Rakuten Ichiba, this is a solution for the clients to set up their own brand page within the Rakuten Ichiba. It's like having your own website in Rakuten Ichiba. There are 2 purposes. Those people who come to buy at the Rakuten Ichiba will be exposed to this brand page by the clients. It's one way to promote the business. And the other one is that when customers come to Rakuten Ichiba, they can enjoy different types of services and that data that we have in the Ichiba business. So the Rakuten users' data who come through this type of business will enable us to know what type of people are buying what types of products and what types of competitors' products they are interested in or how frequently they are purchasing their product. So based on the brands, you can discover such information through this data. Over 15 brands are already using the Brand Gateway. This is a regular menu, so several million yen of revenue can be expected from this setup. Now regardless whether it's internal or external, Rakuten Marketing Platform, RMP service brand was introduced the day before yesterday. Data that -- the purchase data that is owned only by Rakuten will be utilized for the marketing. Looking at the global market, the goal of advertising is, of course, to have clients -- customers buy purchased products and be it an online data. It says there are 700,000 stores online/offline. This is the data that we can by, we can get from both online and offline transaction. So this data can be utilized for us to come up with a strategy for the advertisement to know how these customers bought -- purchase their -- purchased products based on what reasons. So this is how we plan to grow our advertising revenue. That's all from me. Thank you.
This concludes presentation.