Rakuten Group Inc
TSE:4755
Earnings Call Analysis
Q3-2023 Analysis
Rakuten Group Inc
Rakuten Group has demonstrated strong performance in the third quarter of 2023, with consolidated revenue increasing by 10.1% year-on-year due to steady growth across several sectors such as Ichiba Travel, overseas business, and Rakuten Payment. Indicative of its robust growth strategy, the company has managed to increase its revenue consistently for 26 consecutive years.
Focusing on long-term financial stability, Rakuten Group is expected to reach non-GAAP operating income profitability in December 2023. Additionally, efforts to revisit the company-wide cost structure have led to an anticipated consolidated EBITDA increase and Q4 profitability for non-FinTech business.
The FinTech segment, including Rakuten Card and Rakuten Bank, has experienced a significant profit contribution, with the revenue for FinTech growing by over 13% and a non-GAAP operating income increase of 35.8% year-on-year. Rakuten's core internet services have also seen an impressive revenue growth of 13.9% year-on-year.
Rakuten Mobile has reported a revenue growth of 21.6% and a substantial non-GAAP EBITDA increase. Important to this success is a user synergy effect, as Rakuten Mobile subscribers who start using Rakuten Card increase their spending by 10%.
Rakuten Group plans to significantly reduce CapEx in 2024, aiming for a 50% reduction compared to the 2023 plan of JPY 200 billion. This is aimed at developing a high-performance yet cost-effective network capable of supporting up to 13 million subscribers without the need for immediate major new investments.
Rakuten is focused on creating synergies within the group and is engaged in strategic partnerships, such as with Mizuho, to broaden financial options and enhance the customer base. They also intend to continue reducing costs, having already achieved a 7.8% reduction in cost of goods year-on-year.
To summarize, Rakuten Group is on a strong trajectory to expand its user base, reduce costs, and optimize capital expenditures, all while navigating towards profitability. By leveraging its ecosystem and innovative strategies, Rakuten is aiming to gain trust from customers and to ensure substantial growth in the coming future.
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[Interpreted] Good afternoon, and thank you for joining Rakuten Group's 2023 Third Quarter Financial Results Meeting. We have disclosed the latest consolidated financial report at 3:00 p.m. today. You can view this data on our corporate website page for investors along with the presentation document used in this meeting. Mr. Mikitani will give a presentation.
[Interpreted] Good afternoon, everyone. Mikitani from Rakuten Group is speaking. I think the microphone's audio echo is too high. So could you lower the volume? And then let me talk about the FY 2023 third quarter consolidated financial results.
Let me start my presentation and first of all, so the current status from the big point of view. And as you know, Rakuten Group, excluding overseas businesses, we have Internet business and FinTech business. And now what we've been working on the mobile business segments and our businesses. And looking at the overall thing, the Internet business and the FinTech business, both of them are keeping good momentum. And as for the mobile business, the number of subscribers started to pick up and then cost has been reducing largely. And then company-wide, we have revisited the cost structure. Without damaging the top line, we tried to reduce our cost. As a result of these efforts, first of all, so December 2023, non-GAAP operating income.
Finally, monthly profitability will be achieved. Now we see signs for that. And secondly, consolidated EBITDA, we can increase more profitability. And another point is non-FinTech business, EBITDA. And then we set to achieve profitability in Q4. So we have been working this on 10 years. And we are increasing our top line and also strengthen our profitable characteristic, and I think it's working well. And let me get into detail.
So first, starting with the Q3 consolidated performance. More details explained later, but for the sales and revenue year-on-year, it is up by 10.1%. We have Ichiba Travel as well as the overseas business and Rakuten Payment, Rakuten Bank, all these sectors are growing very steadily.
Regarding the FinTech segment, the revenue has gone up by 13% plus. In regards to Mobile segment, we have been able to make a JPY 36.4 billion improvement. So we're trying to make the other -- our initiatives more robust. We are able to grow our subscriber base very strongly.
In terms of consolidated revenue. This is what you can see here compared to previous year, the same quarter, it is up by 10.1%. So as you can see in the last 26 years, we have continuously marked an improvement in terms of the revenue growth, and we are expected to see this speed of growth. It is -- the growth pace is increasing rapidly, as you can see, and we want to keep accelerating this trend.
What other businesses are mainly focusing on are basically the bottom line. What we're doing at Rakuten is that we're looking at the growth, and we're also going to be aiming for a better operating income profit. And in December, we're going to be aiming for profitable in December 2023 for consolidated non-GAAP OI. In the first 3 quarters due to various factors, many improvements have taken place, but for the quarter -- fourth quarter that improvement is expected to be bigger. As mentioned earlier, the Internet Services segment, which is our core business, has seen a revenue growth of 13.9%. This is why year-on-year, and non-GAAP OI has also grown by 16.2% year-on-year. So you can see how robust this growth has been.
Now looking at each geo within Japan and also outside of Japan. These are the key topics. Yes, the Domestic EC is at plus 15.7%. Last year was not so bad, but we still saw another growth spurt this year year-on-year. The growth has been even stronger in Travel. And I think Amazon has been the main focus, but we have advertising sales that has gone up by 15.3%. With the overseas business, we have Rakuten TV subscript users at 84.4 million people, plus 42.1% year-on-year. We have Rakuten Kobo plus 6.6%, Rakuten Viber, plus 5.7% at 1.5 billion. And also Rakuten VIKI, this has already turned profitable. It's close to 80 million users -- registered users.
So Rakuten Rewards business in U.S. is going very strongly. And also, the Content business, as such, are also steadily becoming our sources of profit.
Moving on to the FinTech for Rakuten Card, Securities and Payments. These are strongly contributing to our profit. Rakuten Bank will be explained more in detail later. Looking at the non-GAAP OI, the other profit has grown much stronger compared to last year.
For the revenue is at JPY 184.6 billion, the revenue is at plus 13.6%. So year-on-year, non-GAAP OI growth has been 35.8%. Now looking at each -- the key KPIs for the FinTech segment, the cards issuance are growing. Our initial target has been 30 million cards, and we're very close to achieving this goal. We think that this might be achievable within this quarter. And also, Rakuten Card shopping GTV is at an astonishing JPY 5.3 trillion, which is going to easily excel JPY 20 trillion if you convert that to an annual GTV.
Rakuten Securities General Accounts. We're going to be talking about the zero interest rate. But this is -- this business has also grown very steadily at plus 15.8%, 9.68 million users. Rakuten Securities Deposited Assets, not just trading, but we also want to look at the asset. This is another pillar of profit for us, and this has reached JPY 23.2 trillion, year-on-year, 34.1%, a very healthy growth.
This is Rakuten Bank. This is a separate listed company with announcements made so I will quickly go over this. The ordinary profit growth in the first half is at roughly JPY 66 billion year-on-year, plus 12.8%. The ordinary profit was at JPY 22.5 billion. And this is in midterm, not quarterly, so in 6 months, but still the numbers are very strong. So year-on-year, it is an improvement by 25.4%.
And ROE, very important for banking institutions, ROE is 13.7%. Number of bank accounts is 14.3 million. And of that, people using these Rakuten Bank accounts, as main account is at 31.4%, which is another improvement. Total deposit balance is close to JPY 10 trillion. And G&A expense ratio of 43.5%. Capital adequacy ratio was 11.3%. It's a very healthy and very profitable business we have been able to carry on.
Okay. Another thing that drawing attention in the market is a payment business, Rakuten Pay. And in the Japanese Customer Satisfaction Index Survey, any customer expectation, the perceived quality and the customer satisfaction, intention to recommend, loyalty perceived value, we have been ranked as #1. There might be some ups and downs. But as of October 25. So the -- as for the free application downloaded in ranking, Rakuten Pay has become #1. So this is in a good shape.
And then recap, the Rakuten FinTech, is not just supporting the members. So as for the [indiscernible] is circulated within our Ecosystem. So like self-funding, we are able to grow ourselves just like our self-funding. And then recently, Rakuten, we have the Rakuten Pay below the Rakuten Card. So the Payment business, not just for the QR, but also for the credit card in FeliCa, and Rakuten Pay, Rakuten Point -- Payment, including those payment methods, integrated way is something we would like to operate this. Therefore, we have been working on it online.
Now we are having a more impact even in the offline business by this payment scheme. And the cashless payment in Japan is accelerated. So 36%, it's about the JPY 100 billion, but still credit card percentage is very high, which is 85% and the e-money, such as the QR code payment, bar code payment, the similar, same and in China and in India, QR payment grew a lot. One of the reasons is because of the credit card or debit card penetration rate was low. That is one of the reasons here in Japan. So the sustainable growth perspective, this credit card portion and also money or debit card and QR code payment and also the point, we are the only one who are integrating those different payment methods. That's our strength.
So this is the -- drawing attention about the zero-commission trades for domestic stocks, and we have made this announcement with SBI and basically, for the domestic stocks, commission becomes 0 in exchange to enhance the loyalty so that we can increase the customer base. That is the basic strategy.
On top of that, so those users can purchase or use other products for this in the commission area. So in 2024, our revenue was JPY 95.4 billion, but in '28, we are targeting JPY 190 billion. So about the margin finance trade here in Japan, but we will have the NISA and then making an investment into Japanese industry would be very important. But personal asset or national asset. So the growing -- the assets such as the overseas the stocks or NISA, the way to make an investment for those areas, that is very important.
And with that, the number of accounts would be increasing, therefore, selling the mutual fund or delivery the trade to be increased -- included. And what is the most recent performance after this announcement? So the revenue. With this announcement, so we anticipate this is more than our expectation anticipated. What we didn't see the negative impact as we anticipated. So when we made the zero-commission rate and Y-o-Y basis, plus 3.4% and the number of accounts is increasing. So this is in line with our expectation. And then I think you are quite interested in this. The -- this was featured in the Nikkei newspaper and Mizuho Securities. More than Rakuten, the securities, their holdings and in Rakuten Securities is below that holdings. So Rakuten Securities stopped 29%, which is equivalent to JPY 87 billion, and they made announcement that they will make additional investment here. And then Rakuten is 100% subsidiary to Rakuten Securities Holdings. And so this is for mutual benefits.
So Mizuho have the 24 million retail accounts. And in personal shop or the bank, and they are able to do the consultation and consulting and a strong wholesale customer ship and the partnership, and they have the trust with the total financing -- finance function. And our strength is that we have more than 100 million accounts, and we are strong in digital and online. So we have a low-cost channel and the number of NISA accounts, we are #1 market share.
And then we also have the Rakuten Ecosystem. So digital is excellent UI-UX and then the Mizuho is strong in terms of in-person consultation. So Mizuho Group and the Rakuten would like to strengthen the partnership and that is included in this deal.
And the next is about the Rakuten Mobile. Rakuten Mobile, the revenue grew by 21.6% and then JPY 55.7 billion and non-GAAP operating income on a quarter basis, we improved by JPY 35.1 billion, and non-GAAP EBITDA is JPY 37.2 billion, which is a substantial increase. As you can see, this bar chart, this is the progress of the Rakuten Mobile.
So the Rakuten Mobile, which is expressed in the parenthesis Symphony. Symphony is on top of the Rakuten Mobile portion bar chart. So the -- we are making it stable, the profit improvement. Now September and October around this timing, we -- our number of subscribers have been increasing, and the October net increase of subscriber was the 192,000. So we are quite honest and open to say things of which this 192,000, about the 110,000 -- no, sorry, sorry, 110,000 out of 100 -- 5.42 million. So the BCP of that, which is a secondary thing, so this is another thing that you can use for additional purpose.
So this is -- the contribution to the revenue is quite limited. Although we exclude that portion, still, we see growth in the number of subscribers, and we target that 8 million to 10 million subscribers by the end of 2024 and the population coverage, including roaming, 99.9%.
And the population coverage, 99.9%. And ARPU increasing. So on a Y-o-Y basis, plus JPY 590. The most important thing is the reduction of churn rate. So as of Q3 '23, 2.06% and the October, it's below 2%. So the person -- the churn within the months, excluding those people, so the current is 1.44% of the churn rate. It's quite a good situation. And then in Symphony. So the mobile phone players in the globe pay attention in this Rakuten Symphony. And so the virtualization and O-RAN, open radio access network, and would become a mainstream and then we have developed that and widen the door so that people can join it. And now the mega career players in the global market paying attention in this technology. And then we have been trying this kind of the new things. That is our past path, but we changed the management of Rakuten Symphony and the Sharad, newly become -- became the President of Rakuten Symphony and I became CEO of the Rakuten Symphony and roll this business out. Over to the mobile business, I would like to share some more details. And the Phase II is about lean and solid management. We've been very aggressive in building these base stations. And we have also worked on the virtualization. And now we are making us more robust, so we can run a marathon, if you will. But as I mentioned earlier, subscription increase is going well -- very well. And so this year so far, we're already in growth phase. So these are the key words that are going to be necessary for launching our Phase III quality and growth.
So first to talk about quality, network is going to be key. So talking about this, there are actually 3 pillars, but expanding the existing bandwidth. The second is network optimization under the new roaming agreement. There's a little -- slight delay, but we're expecting this to be completed by the end of this year. And the third point is a platinum band that we have been awarded. This is going to be available for us to implement in the coming spring. So we're talking about many -- so now there are many discussions about how viable our investment is. But basically, this is standing on top of our base platform technologies. Depending on the situation, other companies might -- when they build new to install this 7 million hertz band in the existing antenna. This is how the same antenna could be used to make available the platinum band. We're doing this 500 basis. But can we do this at JPY 5.44 million, but we can easily cover that with some change to go back into our pocket.
So what people do is that they would just go to these places and pop these in. And then the platinum band, the 700 megahertz is going to be made available. And this is exactly the personification of the virtualization technology. So with the existing network, there has been a study done by open network company, a very trusted third-party assessment company.
So video experience, live video experience, games experience were #1 in these. Voice App experience is pretty much at par at the top level at 81.55%, download speed experience. So this is improving rapidly, and we're catching up with our competitors. Upload speed experience, we're extremely fast. So YouTubers, Instagrams, influencers. They really like using this because they're using up their storage. So we're at an advantage. Availability has gone up from 98.4% to 99.12%. So this is another rapid growth factor for us.
So within the next 6 months to 12 months, we should be able to catch up, if not surpass them. Coverage experience. We're at par of our competitors. On the other hand, we talk about packet loss consistency. For Rakuten Mobile, we've been focusing on providing consistent quality. So we have been able to exceed the average of other MNOs at 83.4%.
Now over to the coverage within Japan. According to this open signal survey, you can see that these dark pink areas are the prefecture that have the best coverage, they're ranked #1. So out of 47 prefectures 21, Rakuten Mobile is #1. We're going to be working on how we can further improve this.
The next is about the most considered options for switching is Rakuten our Plan. And as I mentioned briefly before, there is a progress update on network optimization based on the new roaming agreement. Basically, in most areas, this service is going to be available and updated. There might be some spillovers, but those are going to be covered at earlier time next year. So that is a commitment that has been made.
With the revenue, how can we keep growing this? One thing we can say is to leverage the Rakuten Ecosystem from a customer perspective. So Rakuten customers are going to use Rakuten Mobile, if they're already using other Rakuten functions. And this is going to help increase how much and how frequently they use Rakuten. So ID and data are going to be at the core. And this has been the case previously, too. But now mobile is going to be added to the picture with AI as well. So this time, we make change to point system and many people. I think this is a kind of the upgrade of the point program. For example, Rakuten Mobile users. So the -- other than the diamond user, it was 3x, but everyone every day 5x. That is a change. And once you become a mobile subscriber, then you can enjoy more synergy. And then the Rakuten Ichiba purchase rate increased by 60%. As for Travel, it's almost double the growth. So when you become a subscriber of mobile and then Rakuten Group service per user per year, they're using the more than 2.57%. And on a monthly basis, it's about the JPY 721 per user Ecosystem ARPU. So the price end point cycle were strongest, and then we would like to provide the best content, strongest content. So we have the NBA games. And if you are Rakuten Mobile user, you'll be able to view this for free of charge. And Rakuten Music, Rakuten Magazine and YouTube, we have a various premium.
And Rakuten Card user, if the Rakuten Mobile subscriber just start using the Rakuten Card, and then they will gain double the point. So we have this leverage. So the switching and the 6,000 points will be granted. So basically, the more you use the services, for example, using the data 3 gig, and then we will revolve them the departments, the points so they can use the mobile for free -- virtually free of charge for 5 months. And then if you can purchase more, you can use the mobile phone, virtually free of charge.
And moreover, we would like to grow this much more. And the first 3 point SAIKYO Plan launch in one-stop MNP easy sign-up and activation and SPU growing. So there will be more benefit advantage for mobile users. We changed the program to that way. And the new roaming contract and the 700 megahertz introduction and then the existing software upgrade will be made.
Therefore, so the congestion, the base station problem would be resolved. So we are on par with other major carriers or more or maybe we would like to build a better network than them.
On top of that, the B2B business, which is growing today. And first of all, the Rakuten Group's partners, which is 900,000 and then also all companies and local governments, we have a strong partnership. So we would like to grow this business, not just selling the product, but mobile network solution to be provided to our customers, therefore, so the various services, including security and the AI and translation.
So using mobile, what can you do with mobile, and then we would like to provide the solution together with the mobile. In addition to that, the various ecosystem to be leveraged. It's something we would like to do. So net add growth in the last month, it's close to 200,000, and we would like to continue this pace. And then churn rate, and it has been declined drastically. And as for the ARPU, so it used to be JPY 837, it's now JPY 2,046, and our ultimate goal is to including the option addition of value app and base mobile phone services, base the 3,000 uplift and 1,000 in total, JPY 4,000 as Rakuten Group, the revenue up would be done with this ARPU improvement.
As a part of this journey, so RCS application. So I think we are the only one who is successful in this. So they're using -- so the Rakuten Link users, I think there are many of Rakuten Link users. And in this Rakuten Link application, we set up Home button. With that, 21 million, this is in a cumulative number, and they are using the Rakuten Group services through this home button, and that can be reached to JPY 100 million at the end.
Therefore, the Rakuten Link application will become a super application at the end of the day.
CapEx. This year's plan is JPY 200 billion. That is a target, but we are much lower than that. And in 2024, we would like to make this half. So please be seated -- so with the Rakuten Group power with the wisdom and knowledge and then high performance, but the less expensive network to be developed. So the current network, 13 million subscribers can be supported with the current network structure.
So if it goes beyond that, and that will be a good timing. Do you think of new investment in the future. But for the time being, it is not necessary to make additional investment to strengthen the capacity.
Last but not least. SoftBank and KDDI, I think they make some announcement about this NTT Law abolition and also NTT in various contexts in integration are being progressed. So I would like to make one comment about this stuff. So the basic is may get that wireless would be advanced in the backbone, all of them are using the fiber optics. And then the 5G and 6G, when those era comes. And then the listings become much closer when that time comes.
Therefore, the fiber optics would become more important in such situation. So this is used from the tax paid by the citizens and other public collaboration, and they have been developing this asset based on the people, the tax and other efforts. Therefore, under the special regulation law, this needs to be managed appropriately. And then what's been insisted by NTT in terms of technology development, they said they cannot make announcement. However, NTT Law, the holdings. And the NTT East and West, these are the subject for that law. And outside of that is not subject for the low. So the development doesn't have to be done there.
As long as they are group companies of NTT, they can do the same development things. Therefore -- so I think they can do some technological development, but I think they are using that as they are executed or maybe the vertical dominant.
They have an asset for vertically dominant. In other words, let's say or the petro station are monopolized and then only the car manufactured by themselves are subject for the petro provision or maybe they can raise the price of oil. And then that can be managed or supported by the telecommunication law, but the NTT DoCoMo is 100% subsidiary to NTT. So there is totally relevant to the consolidated revenue. So if I am the NTT CEO, I will raise the price.
So -- it's not the matter based on the verbal commitment and NTT Group, it shouldn't be integrated, but they broke that promise. So their verbal commitment or declination cannot be trusted at all. Therefore, as for the NTT Law, I think you should leave it as is. That is our Rakuten's comment. And then that is all from the business side update by the financial results. And now moving to the financial strategy that will be covered by Hiroshi-san.
[Interpreted] We have noticed that there's been some technical issues. The live streaming showing some delays. Line 1 seems to be experiencing this. So for those who are on line 1, can you please switch to Server 2 to continue watching this live broadcast. Also, today's sessions are going to be archived. We'll be following up with an announcement of how to access them. Next will be the financial strategy. Mr. Hirose will do the presentation.
[Interpreted] I'd like to speak a little about the financial strategy. First this is our commitment. We have made an announcement on the early redemption of JPY 68 billion subordinated bonds at the first call date, December this year. There's a remainder of JPY 8.6 billion. We're going to be making a redemption at the first call. And our announcement is to do that this year in December. So to explain the situation right now is EBITDA is, as Mr. Mikitani already explained, it continues to improve.
Also mentioned previously, the consolidated EBITDA has turned profitable. And as you can see, it has been growing steadily. And in terms of the financial businesses, rather, we're going to be aiming to turn profitable with a non-FinTech during this quarter.
Moving on to the capital and business alliance with Mizuho Securities. Once again, the Rakuten FinTech structure is shown here. We're looking into maximizing the synergy of FinTech and also further enhancing the management base.
The investment from Mizuho Securities in the amount of JPY 87 billion or additional 29% of Rakuten Securities. You can see how the -- the system -- the organization has been organized. As was explained -- announced today, we have enhanced the existing partnerships we have had with Mizuho Securities.
We remain positive on the potential listing of the company. Now I'd like to talk about the path to self-funding. First, we want to make drastic increase with the cash flow through mobile business. And we want to grow the Internet services FCF and grow CF from FinTech. EBITDA has to be grown in a robust manner. And throughout organization-wide effort is going to be made for overall cash flow improvement. As mentioned, there's going to be -- FinTech performance is going to be pushed forward and will be followed up. This is how we're going to become self-funded.
Proactive management of bond maturity, which might be one of your concerns as we see it. By using equity-related financing to reduce gross debt. That is our main focus. And also, we're proactively managing the debt maturity under -- and we're looking at the best timing for maturity. We continue to work on the matter as shown here. So that was very brief, that concludes the presentation on our financial strategy. Thank you.
[Interpreted] Good afternoon, everyone. In the last earnings call, we announced our AI strategy and road map. Today, I'm very excited to share with you we're off to a great start. We are integrating AI into everything we do in an initiative called AI-nization. Rakuten is in a unique position to realize this vision for 3 reasons. First, we have a unique data asset. We have domain knowledge across multiple industries, combined with the customer contacts over 25 years. And we have the world knowledge and the best technology through the collaboration with Open AI. Second, Rakuten has the reach to millions of consumers online and offline through Rakuten Credit Card, Rakuten Pay and Rakuten Points network.
And lastly, Rakuten is known for good execution with the discipline and determination, we can build a flywheel to reach consumers and continue to build a better model to serve our customers with better and faster services. The core to our strategy is generative AI. Generative AI works like a human brain, and human brain sometimes could use some external tools like a whiteboard for brainstorming, a notepad for capturing the ideas. And generative AI like can use some external tools and we use a technique called retrieval augmented generation to connect the generative AI with external tools.
And one of the most important tools is semantic search. We have been in semantic search on top of deep learning foundation for over a year. The sense of deep learning foundation is to capture everything in a concept, in a technology called embedding. Embedding can be used to represent any item, a query, a product in efficient mathematical form. We are starting with Rakuten Fashion and here is an example. Last summer, I want to go to a fireworks festival in Endogawa. And before I went to the festival, I went to Rakuten Fashion for what clothes I should wear. And it's such a long query, and normally, you won't get any result, but Rakuten Fashion gave me plenty of results.
As we can deliver more relevant results to our user, users are searching more and as they are happy with our results, they are coming back more often. As a result, they are purchasing more from record in fashion.
By the numbers, we have seen the searches possession increased by 3% and sessions per user increased by 4%, and sales from search on Rakuten Fashion increased 5%. But that's just the beginning.
Embedding is such a fundamental technology, it captured essence characteristics of any item. You can represent an item, a person, a product in so many dimensions efficiently. By analyzing what people purchase online, what store they visit offline, we can compute embedding in probably the world's most efficient way through Rakuten data.
We are looking at leverage this embedding technology to help to find anything on Rakuten Services through search, ads and recommendation. I want to end with what I begin, we are on a mission to augment human creativity with the power of AI. We are combining human expertise across multiple industry with the latest cutting-edge technologies through tools such as semantic search and which through retrieval augmented generation.
So we are combining -- we were delivering this technology together with all the experts in multiple areas. We want to create value for our consumers and merchants and bring value to our society. This is just the beginning. We are very excited about the future. We are so happy to be on this journey with you. Thank you very much.
[Interpreted] That concludes the financial results report. Thank you for joining us at Rakuten's 2023 Third Quarter Financial Results Meeting. From here, we're going to be taking questions from members of the media. These are the speakers attending from Rakuten side. [Operator Instructions] From Sankei Newspaper, Mr. [indiscernible].
[Interpreted] I'm [indiscernible] from Sankei. Yesterday, at the other financial results announcement yesterday, Hiroyuki-san has mentioned that the platinum band. There's going to be backhaul line, and they would like to extend their support on this. So it looks like there's a stronger bond given the announcement. Mikitani-san, can you please share your thoughts on this?
[Interpreted] Well, you have to choose between SoftBank or NTT, no. Well, that is that. It's not just Softbank. How many companies, it's not just 3, it was over 400. We have local cable companies, many local companies, too. So other than non-NTT Group, all the other companies are against the idea. So the network that was built using taxpayers' money, their aim is to do vertical integration. I thought they really -- I'm surprised at how they came out of that. But I think from a communications situation, I think this is a very risky move and that's why that for -- we're aligned with the direction that these 3 companies are working towards. And in a general sense it's important to talk about having a competitive landscape rather than just one company monopolizing. So again, this is another common concept.
[Interpreted] Again, I've only heard of this through what has been reported in the media. So what possibilities are there?
[Interpreted] I'd like to talk not just with SoftBank but KDDI and NTT, DOCOMO. There should be -- there should be cooperation as well as competition. But I don't think that there needs to be unnecessary competition. So in many ways, I look forward to having a good communication with the other players.
[Interpreted] Next question is from Yomiuri Newspaper, [indiscernible].
[Interpreted] [indiscernible] from Yomiuri Newspaper is speaking. So I think I may repeat some questions because my network is unstable. And your mobile subscribers increased. So as for the first report as of October, it is about 198,000 net increase. So it's accelerated. How do you analyze the factor of this acceleration? Is there any major driver to push this up? And if any, I would like to know that. So is this a kind of a tentative factor? So the reaching 8 million to 10 million in the future, you need to sustain this momentum and accelerate. So the sustained momentum and accelerate, is it visible today? Or in order to accelerate, there is growth, what will be the most important factor? And how do you view this? That's my question.
[Interpreted] So there are 3 factors for this acceleration. The first one is the churn rate reduction and the network quality improvement is one of the reasons to lower this churn rate. So the number of churn in reality, 1.3%, but when it was high at 1.8% -- 8%. So it's improving now. So now we see we have a net increase, but many people were staying and using our services a low churn rate in October, our churn rate was 1.72%.
So comparing us to 3 other major players, we are on par with them, that is one of the factors. And the second factor is the SAIKYO plan and the contents bundling, we started these initiatives and the number of subscribers has been increasing. That is the second factor. And another factor is -- so the smartphone is a product available in nationwide, but it's sometimes specific to a certain region. For example, in your living area, that is very important if the coverage is okay with your region. So the region based sales, the structures are established -- and is established. So the marketing level has improved. Those are another reason. So every day, so the hurdle is there. So I'm working on that. And also the how to sell products. Well, this is -- we are mainly selling it online, but now we started using the real shop as well. And then we have a various unique channel to sell. Well, usually, they have an agency and sell-through there, but we are trying many new things.
And the third one is about B2B contract increase. And B2B business, and if the ARPU goes down, it doesn't make sense. Therefore, we are selling this to the B2B. So the people working in Rakuten Group, and also the merchant of Rakuten and those who are engaged in the Rakuten, I think is about 1 million people are engaged in our business. So we should leverage this kind of relationship with Rakuten have the meaningful B2B track so that we can recognize revenue.
So that is the third factor. So the most recent performance, maybe there are some fluctuations, but it's not slowing down, but accelerating. I think we are gaining that momentum today.
[Interpreted] Our freelance, Mr. Ishino.
[Interpreted] I'm Ishino. First question. With the revision of SPU you're going to be -- this is going to be a big advantage for people who have Rakuten Mobile. So how effective is this going to be in for you to gain more user for Rakuten itself? And the second part of my question is the platinum band. You have mentioned earlier in your presentation that you'll be using existing antennas and you're simply attaching these units that will enable that connectivity at 7 million bps. So is it entirely going to be done that way? I'm asking this question because the major 3 carriers when it comes to the 7 million, 8 million, 9 million, they're using much bigger antennas units. So -- but yours -- your antenna are relatively small. So just a simple question. Is that going to suffice? So these are the 2 questions for me.
[Interpreted] What other companies are doing is something I cannot really comment. So I'll refrain from saying anything about it. So the radio head, the antenna. The power of these that we have is really at the top level within the industry.
Hello. Yes. So the existing antenna, what we are doing is we'll be using 2 RRH on the same antenna. Of course, there -- for 700 megahertz, there will be new radio head, and a new antenna, but the location, the pole, the DU, the CEO will be same. So from a CapEx perspective, it's very minimal and very easy to deploy. And plus also we are -- from an acquisition perspective, it will be much easier because we plan to use same pool and same height of antenna.
The quality of radio head.
Yes.
So good is it a little small, but it's powerful enough.
Yes. So by physics, 700 megahertz antennas are larger slightly. But what we are -- for 1.7, what we are using is -- has good enough antenna gain, 17 BBI. Plus also it supports 4x4, which is also kind of unique for Japan because all of our sites are 4x4. So what it means, it has much better sensitivity.
I would like to paraphrase that. He's saying it's compact, but it's very powerful. So that is what we have. So it's not larger the better, I think.
[Interpreted] And about my question on SPU?
[Interpreted] Yes, we just have to do this and see what happens. But we're giving 5x the points every day to everybody. I think this is quite attractive. So unlike other programs, what other programs do is that there's no monthly fee. But for the mobile users, they get JPY 980 per month. So considering that, compared to the other programs, this program is quite attractive. So in the future, we can reach 15 million people -- 20 million people using Rakuten Mobile. If that can be achieved, then Rakuten Ichiba, the distribution scale is going to go up by that much as well, 30%, 50%. So we think that there is going to be a big synergy potential. Also, another advantage of this is Rakuten SAIKYO plan is quite cheap, right? So compared to what other vendors are doing, they have giga hold plans. That's monthly price is JPY 7,000, JPY 8,000, but if they switch to Rakuten SAIKYO, it's maybe JPY 3,000 per month, and you get lots of points. So it's -- you gain a lot from just simply switching.
[Interpreted] Then next, from News Speaks, Hatani-san.
[Interpreted] Hatani from News Speaks speaking. So [indiscernible] question. And I have a question about SPU initiative. And 80% will gain some advantage or no change? I think that was what you presented. But after you make announcement from November first, and there are some people saying that this is the largest churn taking place. And how do you view about this kind of reaction?
[Interpreted] Takeda is speaking. Well, some people say there's negative voices immediately after the announcement was made. But as I have been monitoring that after 1 week, I think we haven't heard that kind of a voice anymore. And from the user point of view, they are very smart. And they keep purchasing items from our service. And as for the other merchants and then partners and we made pre-explanation about this SPU program, and we haven't heard that kind of negative reaction of most and then increasing the mobile subscribers, and then we will like to increase the more distribution on the GMS throughout these efforts.
[Interpreted] So that is the current situation. So what we hear from the field. So I think the people are taking this in a positive way. But when you make a change, whenever you make a change, there are some pros and cons you made after the change. Therefore, the negative comment from there's negative mindset in people, and we have to capture them.
And then with other services, for example, using AI and then we're going to improve the quality of the services so that we will be able to satisfy those people as well.
[Interpreted] We have limited time. So we would like to take 2 more questions from the members of the media. [indiscernible] a Freelancer.
[Interpreted] Thank you, I'm [indiscernible]. So about the NTT Law. All these government -- local government buildings are using NTT antenna. If those can be leveraged, I think the overall Internet connection is going to be better in Japan. Do you have any thoughts on that?
True. Basically, is ATT base station -- regional stations excuse me. We're borrowing their communication service what NTT has. Now we have to move on to edge computing. So using of edge and how you use it is going to be essential. So AI contents, maybe we can implement these into those. Right now, the latency is at 40 millisecs, 30 millisecs, but we want to be able to reduce that to just a few millisecs. By the way, what Rakuten simply is doing, which is a Germany -- German one-on-one is at 3 millisecs, which previously was considered unthinkable or unachievable, but it has been achieved there. And therefore, in that regard, we can deregulate more, and so we can use these existing functions to our advantage. If we can do that, then the Japanese wireless connection is going to be the fastest -- one of the fastest and the most useful systems in the whole world. So computer console games, even without these hardware, you will be able to do more with mobile devices. So for edges, I think there's going to be a great benefit and there's going to be a huge occurrence if those could be made available.
[Interpreted] Okay. From NHK [indiscernible], over to you.
[Interpreted] [indiscernible] from NHK is speaking. And I have a question to Mikitani-san. So the mobile subscribers are increasing. And also the value is increasing, but the bond redemptions will start from the next year. And the core of your ecosystem would be placed onto the mobile businesses, and now you started some structural change. And I would like to hear about your commitment or determination in this change.
[Interpreted] So as Hirose-san explained earlier, so in a various format, thanks to the support or the commitment from the other banks and this bond redemption, there is no problem at all. That's how our view. In addition to that, in various format, Rakuten Group ecosystem to be leveraged. And so far, we have been just watching closely on the P&L. But with wisdom and noted, we would like to improve our cash flow. And that's what we have started. So that is a big portion. So 900,000 business partners to -- corporation, we have a partner and most of the people live in Japan has Rakuten ID. So we should leverage this mechanism more established for this -- even in this refinance. And then Mobile investment, it has been reducing drastically. So as mentioned before, so the cooperation with other companies and then what we need to borrow is something we need to borrow. And then we will have to reduce the amount of CapEx. On the other hand, well, looking at the globe, it was not covered in today's presentation. So the players in the global market paying attention in this Rakuten Symphony. I think it was covered in editorial in Nikkei newspaper and Symphony service in December, and that will be starting in Germany in December. So the industrial structure so far, the phone operator is oligopoly and then other operator oligopoly as well. So these are 2 by 2 oligopoly, and we have made a big challenge trying to open the door to that environment. So the world mega carrier paying attention on our Symphony. So if we make this and then looking at the industry here in Japan, and that will become a big positive factor. And also even in Japan brand, I think this will serve as a positive factor. So we need to make Rakuten Mobile successful. And also our technology to be sold in the global market and also the world mobile or the network will be running on Rakuten platform is something we will like to achieve in the future.
[Interpreted] This concludes the media Q&A session for the financial results meeting. Thank you to everyone for joining.
Thank you for joining us for Rakuten Group's FY 2023 Q3 financial results announcement. From here, we would like to hold a Q&A session to take questions from members of our analysts and investors. These are the speakers. [Operator Instructions] Now we would like to open the floor to the analysts and investors with questions. Mr. [indiscernible] from DNA Securities.
[Interpreted] I'm [indiscernible]. I have 2 questions. I think this is the first time you clarified the timing to talk about JPY 8 million to JPY 10 million target. So you have -- this is the first time you've included that number in your deck. So from JPY 10 million to JPY 12, probably because of KDDI relations, I think that makes sense. And January to March is going to be a very strong business period. So I think that there's going to be some business performance improvement. We're working towards a JPY 8 million target. It might be too early, but I was wondering how you plan on running the other promotions. How you intend to promote that measure? Should break at that. I have another question.
[Interpreted] Go ahead and ask your second question.
[Interpreted] Related to my first question. I have a question about SPU. So you are giving much benefits to the Rakuten Mobile. Now you have about -- you have over 40 million users of the system. You'll have local marketing initiatives, but you will also say if you can bring in 10% of -- if you can gain on 10%, that's going to help grow your ecosystem that much. So I was wondering if this is your future direction for how you want to grow the Rakuten Ecosystem.
[Interpreted] Yes. Basically speaking, we want to enhance the other sales channels that we already have. It's not just about increasing the number of storefronts, but it's more about welcoming more people to sell Rakuten Mobile and reaching out to more users, too. So marketing is all about people, promotion place price. So these are the 4 Ps that you learn in business school. So it's about enhancing the place for us. Rakuten Ichiba and other Rakuten family components are being used, so we can enhance the Rakuten mobile outside of these major city centers. So we're doing more in the Western region within Japan, we're also looking into growing these number at local community levels as well, whereas previously, we used to focus more on the metropolitan areas, such as Tokyo.
So we're now entering the phase of focusing more on micro strategy, more smaller-scale communities. Network quality is getting better and better as we go. And I think you're using our mobile phone as well. But basically, you have good coverage, no matter where you go, compared to that. And then we have 8 KDDI roaming enhancement. And I think this is going to be launched in April. But we'll have the platinum band available and software, generally speaking, will be improved. And this will mean less packet loss is going to be a very stable communication we can provide to our end users. We have SPU that's going to be a big promotional initiative. So this is the direction. We also have some other ideas, which I'm not sharing right now, but say that those are going to be rolled out at a later time. But this is our strategy to enhance our sales channel and to grow our customer base and also be creative in our promotions. We're making micro improvements every day to reach that goal. About your question on SPU. So don't think this is really good? It's a very attractive offer. At the very beginning after our initial announcement, there were some SPU situations where you were not reaping the benefit under people who were reselling what they have already purchased. Or this was actually putting us into red.
So there are many people who had that view on this initiative. But this is an initiative that will be effective in reaching the mass, and we want to increase -- improve the cost/benefit. So again, these people, if they join the Rakuten Mobile, their usage -- the cost is going to be low, and they will be reaping the benefit from the points. So I think it's going to be a gradual change, but it will be an improvement.
[Interpreted] Okay. Then move on to the next one from JPMorgan Securities. Fujimoto-san.
[Interpreted] Thank you very much from JPMorgan Credit Research, Fujimoto speaking. I have 2 questions. The first question is about next year, the bond redemption and about the financing situation. And with major banks, what kind of discussion have you conducted so far? If you can tell any, please share that with us.
And then your finance activities this year, looking at the cash flow of your finance and the non-finance and the recent borrowing and repayment, it's about JPY 200 billion above, and CP repayment is JPY 140 billion. So in total, JPY 360 billion repayment is done. That's how I read your financial situation. So if you repay this amount of the borrowing to the banks, maybe your relationship to them may have changed. That's my assumption. And the next year, when you redeem your bond, is there any possibility that you will be having additional borrowing from the bank? That is my concern. And that is the first question.
And the second one is commitment. You mentioned that there is a commitment from the bank in your presentation. So are you talking about the commitment line? And the commitment line today, how much is it? And then what will be the contract duration? It's something I would like to know. Those are the 2 questions.
[Interpreted] So Hirose from finance will be speaking about the relationship with major banks. We have a good relationship, and they are quite supportive to our businesses. And as for next year's bond redemption, as mentioned before, so no finance -- the debt to be financed, and we have various project, and we will be progressing that on the other hand.
So the finance -- necessarily, the financing will be planned. So including bank loan. So the diversified -- the financing approach will be considered. So bank loan repayment, maybe some of them are misled. So the bridge loan that we used to borrow, and then from the last December Q2, we have already repaid. So maybe this part is kind of noisy. So as for the ordinary and the borrowing from the bank in terms of long-term loan, so we are repaying them based on the contract terms. And the other bond financing and equity financing, combining them, the short term is the return. And the bank commitment line, JPY 150 billion is the commitment line, and there is no change. So we have not used this, so this is vacant. And then the detail, the portion cannot be disclosed because of the contract.
[Interpreted] Sorry, commitment line contract duration, if possible, could you tell?
[Interpreted] Commitment line. So it is annually renewed, and that will be renewed in this coming summer. So basically, as for financing, what I can say for one is Rakuten Mobile investment amount with the power of technology, we are going to control the investment amount for Rakuten Mobile. With that, EBITDA of Rakuten Mobile would become the -- we want to make it to breakeven as early as possible, and then we can generate profit after that.
Another point is -- so other than that, the cash flow improvement other than that is something we need to do as a business operation. So maybe this is a kind of a creative idea. So in that part, JPY 700 billion of cash flow improvement can be done. So if we achieve that, that will be used as a source for repayment. And other equity will be accepted in a subsidiary level including that, so I think we have various options for financing measures.
However, the most important point is to improve the cash flow at mobile business. That's all. So we have other mechanisms established or developed in the Rakuten Card business. So if we have an opportunity, I would like to explain that. Thank you very much.
[Interpreted] Next from Citigroup Securities. Tsuruo-san.
[Interpreted] This is Tsuruo. I have 2 questions. There were some technical issues with the communication. So I have missed some of the presentations. So maybe I'll be asking questions that has been answered about the mobile, the net increase. You have said that the recent results were very strong. So can you maintain this growth momentum in the next couple of months in November and December? And what do you expect for the January? Please let me know [ your ] thoughts. And also, I was wondering how many -- of this total number, how many are the contracts for the corporations?
[Interpreted] Individual or corporate, we don't really disclose that information. So my apologies. However, there's no point in doing cheap corporate deal. So 111,000 people, these are basically the BCP SIM. So we have to exclude that. So please look at the figure in that way. But -- so with corporate membership growing, they can experience the network we have. And also, we want to see a trickle effect of individuals also joining the network. Our service is low cost to start with. So that's why with the corporate, we want to keep pushing for the growth of the corporate users. Recently, the growth has been very steady. So we expect for the November and December, we expect the pace, the growth pace to be the same.
And also for the next 3 months in the early year, of course, we want to keep growing these figures, too. But that will depend largely on the competitive environment, too. But rather than seeing this as a one-off or temporary momentum, believe it or not, there's -- this has been very well planned. So we're reaching our estimated, planned figures.
[Interpreted] That's amazing to hear. My second question is about capital investment. Again, I might have missed some of the information because of the poor connectivity. So the corporate investment has been decreased, as you can see here. So what is the background of this? And also what is expected for next year and the following year? Are you saying that big investments are not going to be necessary for facilities?
[Interpreted] We're still in the process of building the final budget, but I think it's going to be greatly reduced. That is our expectation. I can't say by how much or how many percentage, but there is going to be a great reduction that will come largely from KDDI collaboration and also with the Platinum Band rollout at JPY 54.4 billion. Unlike our competitors, I don't know, maybe I should say this, but you simply attach this. It is an attachment to an existing facilities, and we can cover both bandwidths without having an impact on capacity. This is our approach. So if we're doing 10,000 stations -- but again, we already have the base equipment. It's simply attaching these units. And this is the beauty of using mobile technologies, I think. But in some cases, say, maybe we'll use 5G. There are more that could be brought on by using these technologies. So yes, the capital investment is going to go down greatly. But we're still in the process of making that plan. Our target is to -- I can't say bring -- reduce by 50%, but we would like to get close to that number.
[Interpreted] Due to time constraint from investors or analysts, the next question is the last question. So the -- from HSBC. Neale-san.
Two questions, please. The first is on the mobile monthly cost. I understand you're aiming at an average of JPY 24 billion next year. My question is, how do you fund the increase in customer acquisition costs? So I think next year, that should increase. So is that to be funded by the decline in roaming costs? Or are there any other costs you can take out of the mobile operation? The second question relates to Symphony. Could you give us an update on where you see the most near-term opportunity for contract wins in Symphony?
Well, we have no plan to do a massive marketing, but we would like to redefine how we sell the mobile contracts. We are the only company like 67% of our contract is coming from web, which is like, I think, very small for other companies. So channel innovation is a key. And we would like to pass to various different options in order to do it. Mobile business is going there. It's not easy product to sell.
So of course, we're going to enhance our web capability, but we would like to be very innovative and without increasing our customer acquisition cost. It's going down, as a matter of fact. It's going per sub significantly. And also our corporate phone business is a very profitable business. So we would like to grow our mobile business significantly. And second question -- what was the second question? Symphony. So I think Symphony has basically 3 components. One is radio. The second is cloud. And third is operating software -- operating, support software. And for the radio, on top of Rakuten, we are going to launch 101 [British] service in December, which is going to be a significant milestone, not only Rakuten Mobile in Japan but Rakuten -- the very big MVNO is going to start using our radio service and migrate all of the MVNO user to MNO. So it's a very, very big business, and then it's going to be a very good proof of our technology.
And cloud is -- we have 2 cloud strategy. One is cloud for telecom. And the second is independent cloud. Independent cloud, now old Google Cloud Platform, GCP, [ H ] cloud is Rakuten Robin.io cloud. So it is accelerating, and we are seeing enterprise cloud users growing significantly on top of our telecom. And operating support software. The fact that we have OSS and the radio company under the same umbrella is very, very important because whatever people say, what is very important for all telecom companies is how to bring down total cost of operation, TCO. So just changing the legacy hardware to software is not enough. Of course, you can substantially reduce CapEx. But more important thing is how you can automate all these operations, commissioning and scaling and basically rebooting and everything. We are automating everything.
And that's the combination. AT&T is significantly using our OSS software, so is Nokia and other companies. And this is a big sales opportunity for us. But I think one of the big tipping point, but Symphony is coming in 1 month, which is announced of 101 MNO service in Germany.
[Interpreted] Thank you. That concludes the Q&A session for analysts and investors. I'd like to ask Mr. Mikitani to provide closing remarks.
[Interpreted] Sorry, I'm having -- been having coughing fit. I'm hanging on to -- I'm hanging on. So with the balance sheet, Rakuten Securities included 1 plus 1 is going to be made 3. That is what we're doing with the securities matter and also with the working capital improvement. How we do that? Maybe say JPY 30 trillion is moving around within our ecosystem from left to right, right to left.
So there are many ways of moving the working capital in a positive direction, also in regards to marketing costs. In order to grow our businesses, in some cases, we were really forcing ourselves to give away more points. So the amendment or changing the SPU system is simply just rationalizing it, which makes more financial sense. And also AI is going to be key from now on. It was mentioned in the presentation that in semantic search, the semantic search helps the other sales of 5% increase. So this 5% increase, if you want to actually have that kind of financial results, it usually incurs a lot of cost. So ecosystem enhancement is going to be key in achieving that success in sales without having to spend so much more investment.
And same with Rakuten Ichiba. AI is going to be used more aggressively. And that's going to be a profitable scenario for us as Rakuten Group but also for our partners, too. They will be able to leverage the AI technologies. So with the OpenAI collaboration, AI is going to be leveraged within our system. From financial to distribution, we cover the vast business areas, and AI is going to give us a potential upside of 20%.
There are 2 targets for AI. Using AI, we streamlined the marketing. The target is 20%. And also another thing is to use AI, we're going to improve the work efficiency by 20%. These are our pillars, and we have been devising some. We have launched some projects to work on this, which means a total of 40% streamlining. So as you can imagine, this is going to help us with our profitability as well.
I hope I will be coughing less next time. Thank you. That concludes the FY 2023 Q3 financial results announcement for Rakuten Group. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]