Rakuten Group,Inc. FY2026 Q2 Earnings Report

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Executive Summary

Rakuten Group’s current period was characterized primarily by revenue growth and a return to operating profitability, indicating progress in cost efficiencies. Revenue was ¥13,090.5B (¥11,590.7B in the same period last year, +12.9%), while Operating Income returned to profitability at ¥504.4B (¥-66.1B in the same period last year). Profit Before Tax improved to ¥178.8B (¥-662.5B in the same period last year). Consolidated Net Income was ¥254.3B (¥-1,019.6B in the same period last year); however, Net Income attributable to owners of the parent remained negative at ¥-109.4B, due to the significant allocation of profit to non-controlling interests. The primary drivers of revenue growth were the expansion of FinTech and Mobile. Expenses increased by approximately +7.2%, below the pace of revenue growth, resulting in an improvement in the Operating Margin to 3.9% from -0.6% in the same period last year.

Factors Affecting Results

【Revenue】Revenue increased +12.9% year on year to ¥13,090.5B. By segment, FinTech recorded the highest growth at ¥5,707.5B (43.6% of total revenue, +25.1%), followed by Mobile at ¥2,525.4B (19.3% of total revenue, +13.3%) and Internet Services at ¥6,557.6B (50.1% of total revenue, +4.1%). The structure in which strong growth in FinTech is driving company-wide growth is clear.

【Profit and Loss】Operating expenses increased approximately +7.2% year on year to ¥12,296.8B, below the revenue growth rate of +12.9%, resulting in a return to Operating Income of ¥504.4B. Meanwhile, Finance Costs of ¥515.7B weighed heavily on results. Although income taxes and other taxes were ¥-75.5B (effective tax rate of -42.2%), providing a tax benefit and resulting in Net Income of ¥254.3B against Profit Before Tax of ¥178.8B, Net Income attributable to owners of the parent remained negative at ¥-109.4B after excluding the portion attributable to non-controlling interests. While the company achieved revenue and operating profit growth, the continued net loss at the bottom-line level makes this a set of results subject to differing interpretations.

Segment Analysis

FinTech recorded the highest segment revenue growth at ¥5,707.5B (+25.1%), making it the primary driver of company-wide growth. Mobile generated ¥2,525.4B (+13.3%), and efficiency improvements appear to be progressing alongside scale expansion. Internet Services had the largest revenue base at ¥6,557.6B (+4.1%), but its growth rate was the slowest among the three segments, indicating differences in business maturity. As segment profit data has not been disclosed, the extent of each segment’s contribution to earnings can only be inferred from its revenue composition.

Key Financial Indicators

【Profitability】The Operating Margin improved significantly to 3.9% from -0.6% in the same period last year, while the Net Profit Margin turned positive at 1.9% from -8.8% in the same period last year. ROE remained low at 1.9%, reflecting the low Net Profit Margin and extremely high financial leverage, with total assets to net assets at approximately 23.6x. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-3,016.7B and did not provide cash-based support for Net Income. The principal factor weighing on OCF was a decrease in trade payables of ¥-1,487.4B. 【Investment Efficiency】The total asset turnover ratio was low at approximately 0.042, reflecting a structure in which revenue is relatively small compared with total assets of ¥31,135.9B. 【Financial Soundness】The Equity Ratio declined further to 2.9% from 3.4% in the same period last year, indicating that the thin capital base remains an issue.

Cash Flow Analysis

Operating Cash Flow deteriorated to ¥-3,016.7B from ¥-1,339.6B in the same period last year. A decrease in trade payables of ¥-1,487.4B, income taxes and other taxes paid of ¥-471.3B, and lease payments of ¥-355.9B placed pressure on cash flow. Investing Cash Flow was ¥-828.2B, including capital expenditures of ¥-598.7B and acquisitions of intangible assets, indicating that investment in the business foundation is continuing. Free Cash Flow was significantly negative at ¥-3,845.0B. Financing Cash Flow was ¥-9,674.2B, primarily reflecting bond redemptions of ¥-1,391.3B and debt repayments. As these outflows accumulated, cash and cash equivalents declined from ¥5,837.6B in the same period last year to ¥4,490.5B. Although cash on hand remains substantial, the company’s ability to generate cash through operating activities is weak, and redemption and repayment obligations are placing downward pressure on its cash balance.

Earnings Quality

Operating Income, which represents the earning power of the core business, was secured at ¥504.4B, indicating progress in recurring earnings improvement. However, outside operating activities, Finance Costs of ¥515.7B exceeded Finance Income of ¥200.5B, while Other Expenses of ¥321.0B also weighed on Profit Before Tax, demonstrating that non-operating factors are having a significant impact on earnings. Income taxes and other taxes were ¥-75.5B, and the tax effect increased profit against Profit Before Tax of ¥178.8B. The effective tax rate was -42.2%, suggesting reliance on a non-recurring tax benefit. The significant gap between consolidated Net Income of ¥254.3B and Net Income attributable to owners of the parent of ¥-109.4B was primarily due to the allocation of profit to non-controlling interests. The fact that OCF was substantially negative relative to Net Income indicates a gap between reported earnings and cash-generating capacity, which warrants attention when assessing earnings quality.

Shareholder Returns

The dividend for Q2 was zero (¥0), and the Payout Ratio was not calculable. Share repurchases were also effectively zero, leaving the Total Return Ratio at an extremely low level. Given Free Cash Flow of ¥-3,845.0B, this is consistent with a policy of prioritizing the retention of internal funds. The dividend for the fiscal year ending December 2026 remains undecided, and the recovery of full-year cash-generating capacity will be a factor influencing the company’s future shareholder return policy.

Risk Factors

1. High financial leverage: The Equity Ratio was low at 2.9% (3.4% in the same period last year), while net assets stood at only ¥13,182.2B against total assets of ¥31,135.9B. This represents a structure with relatively low resilience to changes in the interest-rate environment.

2. Cash flow vulnerability: OCF of ¥-3,016.7B and Free Cash Flow of ¥-3,845.0B remained significantly negative. Along with outflows in Financing Cash Flow, including bond redemptions of ¥-1,391.3B, cash and cash equivalents declined by ¥1,347.1B from the same period last year.

3. Finance cost burden: Finance Costs of ¥515.7B exceeded Finance Income of ¥200.5B and pressured Profit Before Tax of ¥178.8B. Unless this burden is reduced, the company is likely to remain in a structure where improvements at the operating level are not easily reflected in Net Income.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (it_telecom)

Profitability and Return

Both the Operating Margin and Net Profit Margin were significantly below the industry median, placing the company toward the lower end of the IT and telecommunications industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, indicating more moderate growth than that of peer companies in terms of revenue expansion.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The return to Operating Income of ¥504.4B from a loss in the same period last year, together with the improvement in the Operating Margin to 3.9%, resulted from the simultaneous progress in expense control and top-line expansion. However, Net Income attributable to owners of the parent remained negative at ¥-109.4B, confirming a structure in which operating-level improvements have not yet flowed through to the bottom line.

2. The continued negative OCF and Free Cash Flow, and the resulting gap between reported earnings and cash-generating capacity, require monitoring. The thin capital structure, reflected in an Equity Ratio of 2.9%, also increases sensitivity to future changes in the interest-rate environment and financing conditions.

3. Growth in FinTech (+25.1%) and Mobile (+13.3%) drove company-wide revenue growth. How changes in the business mix will affect the earnings structure going forward is a key point of focus.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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