Rakuten Group,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.79T
• Operating Income: ¥1.35B
• Net Income: ¥-113.45B
• EPS: ¥-70.01

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Rakuten Group (IFRS, consolidated) reported FY2025 Q3 revenue of 17,876.35 (100M JPY), up 10.5% YoY, signaling top-line resilience across its ecosystem despite ongoing restructuring in the mobile segment. Operating income was marginally positive at 13.46, but profit before tax swung to a loss of -575.37 and net income was -1,512.94, reflecting heavy below-operating line costs (financing, fair value movements, and other items). EBITDA reached 2,378.62 (13.3% margin), underpinned by sizable depreciation and amortization of 2,365.16, highlighting the capital intensity of the mobile network build-out and other long-lived assets. DuPont decomposition yields a net margin of -8.5%, asset turnover of 0.066x, and financial leverage of 23.26x, resulting in ROE of -13.1%, consistent with the reported figure. The balance sheet is large and highly leveraged: total assets are 269,727.15 and total equity is 11,594.73 (equity ratio disclosed at 3.0%; simple assets-to-equity implies ~4.3%), producing a debt-to-equity ratio of 21.80x. Operating cash flow was strong at 8,195.03, but this is influenced by the consolidation of financial services (banking/securities), making comparability with non-financial peers limited. Investing cash flow was an outflow of -7,669.53, and financing cash flow was an inflow of 7,015.28, suggesting continued reliance on external funding while maintaining growth and investment activities. Free cash flow, defined here as OCF + investing CF, was positive at 525.50, but quality is mixed given the financial subsidiaries’ cash flow dynamics and investment outlays beyond traditional capex. Capital expenditures of -687.73 indicate some moderation relative to historical mobile peak capex, though D&A remains elevated. EPS (basic) was -70.01 JPY on an average share count of 2.161 billion, consistent with the scale of net losses, and total comprehensive income improved to -782.25, helped by positive OCI. Retained earnings remain deeply negative at -8,247.00, constraining capital flexibility and dividend capacity. Liquidity appears ample at the consolidated level with cash and equivalents of 61,708.88, but cash is partly ring-fenced within regulated financial subsidiaries. The effective tax rate was -50.5%, indicating non-recurring tax effects and valuation allowance dynamics typical in loss periods. Many granular line items (gross profit, SG&A, interest expense, current ratios) are unreported, limiting precision on margin structure and liability tenor. Overall, Rakuten shows improving revenue and positive EBITDA/FCF, but profitability at the operating and net levels remains fragile amid heavy leverage and ongoing investment, keeping solvency and refinancing risk in focus.

Profitability Analysis

ROE is -13.1%, driven by a -8.5% net profit margin, low asset turnover of 0.066x, and very high financial leverage of 23.26x. The negative margin is the dominant driver, with operating income only 13.46 against revenue of 17,876.35, indicating extremely thin operating margins and material drag below EBIT (interest and other non-operating charges) pushing PBT to -575.37. EBITDA margin of 13.3% reflects underlying cash-generating capacity before D&A, yet the D&A burden (2,365.16) nearly fully offsets EBITDA at the EBIT level, consistent with a capital-intensive profile. With revenue up 10.5% YoY, operating leverage appears weak: growth is not translating to EBIT expansion this quarter, implying ongoing cost absorption (network costs, depreciation, and platform expenses). Margin quality is mixed; positive EBITDA indicates service-level unit economics in parts of the ecosystem, but consolidated EBIT is near breakeven and highly sensitive to incremental costs and pricing. The gap from EBIT (13.46) to PBT (-575.37) suggests substantial interest and other below-the-line items; interest coverage cannot be calculated from disclosed data, but qualitative coverage is likely strained given the small EBIT. Effective tax rate of -50.5% (tax expense despite losses) further depresses net profitability and signals deferred tax and jurisdictional mix effects. Overall, returns remain negative with leverage magnifying equity volatility.

Growth Assessment

Revenue grew 10.5% YoY to 17,876.35, indicating continued traction across e-commerce, fintech, and mobile. Sustainability hinges on mobile subscriber growth/ARPU recovery, cross-use synergies with fintech, and e-commerce take-rate stability. Profit growth quality is weak: EBITDA is solid but fails to convert to EBIT due to high D&A, and PBT is negative due to financing and other costs. The slight positive operating income suggests underlying operations may be stabilizing, but the scale is insufficient to overcome capital structure costs. Outlook near term: continued revenue growth is plausible given ecosystem expansion; profitability improvement will depend on mobile network utilization gains, roaming cost reduction, spectrum efficiency, and disciplined opex/capex. Medium term, as D&A plateaus and financing costs normalize or deleveraging progresses, EBIT conversion could improve; however, elevated leverage and funding costs keep downside risk to earnings high. Reported equity-method income is -69.75, a small drag; absent further disclosure, contribution from affiliates is not a growth lever this quarter. With limited line-item detail (gross profit, SG&A unreported), we assume the bulk of the delta to PBT reflects interest and valuation impacts, tempering confidence in near-term profit growth.

Financial Health

Total assets are 269,727.15 and total equity is 11,594.73, implying assets/equity of ~23.3x and a very low equity buffer (equity ratio disclosed at 3.0%; simple calculation suggests ~4.3%, likely due to definitional/reporting differences). Total liabilities are 252,762.14, underscoring a highly leveraged profile (debt-to-equity 21.80x). Liquidity at the consolidated level appears strong with cash and equivalents of 61,708.88, but a material portion is within consolidated financial institutions and may not be fully fungible for holding-company obligations. Current and quick ratios are unreported, limiting visibility into short-term liquidity outside the financial subsidiaries. The negative retained earnings balance of -8,247.00 constrains internal capital generation and highlights cumulative losses. Solvency is sensitive to financing market conditions; the gap between EBIT and PBT indicates significant interest and other financing burdens. While financing cash inflow of 7,015.28 suggests continued market access in the period, reliance on external funding remains a key feature of the capital structure. Noncurrent liability maturity profile is unreported; refinancing walls and interest rate resets are key watch points.

Cash Flow Quality

Operating cash flow was 8,195.03, far exceeding net income (-1,512.94), resulting in an OCF/NI ratio of -5.42x; this reflects both add-backs (notably D&A of 2,365.16) and the influence of financial services working capital and balance sheet flows consolidated into OCF. Free cash flow, defined as OCF + investing CF, was positive at 525.50, but investing outflows of -7,669.53 include more than core capex; reported capex was -687.73, implying substantial financial asset purchases or strategic investments in the investing line. Earnings quality is mixed: EBITDA is positive and cash conversion at the consolidated level is strong, but the quality is influenced by financial subsidiaries (loan/deposit movements) and may not translate to discretionary cash at the parent. Working capital specifics are unreported; we cannot parse receivables, payables, or inventory dynamics. The gap between EBIT (13.46) and PBT (-575.37) points to high cash interest and other non-cash valuation effects; without disclosed interest expense and cash interest paid, coverage cannot be assessed precisely. Overall, cash generation appears sufficient to cover reported capex, but structural cash needs for debt service and growth investments keep external financing important.

Dividend Sustainability

Dividend data are unreported for the period (DPS, payout, and total dividends not disclosed), and retained earnings are negative (-8,247.00), indicating limited distributable reserves under typical policy constraints. With net income at -1,512.94, any hypothetical payout would result in a non-meaningful payout ratio. Free cash flow is positive at 525.50 on a consolidated basis, but its quality and fungibility are constrained by the inclusion of financial subsidiaries and ongoing investment needs. Given high leverage (debt-to-equity 21.80x), low equity ratio (reported 3.0%), and negative retained earnings, capacity for sustainable cash dividends appears limited absent a sustained return to positive net income and deleveraging. Policy outlook is therefore likely conservative, prioritizing balance sheet stabilization and growth investments over shareholder distributions until profitability normalizes. No evidence of share repurchases in the period was reported.

Risk Assessment

Business Risks:

• Mobile segment profitability: high D&A and network operating costs suppress EBIT; ARPU and utilization risk remain elevated.
• Competitive intensity across telecom (vs. NTT, KDDI, SoftBank) and e-commerce/fintech verticals could pressure pricing and take rates.
• Execution risk in ecosystem cross-use to drive monetization and reduce churn.
• Regulatory and compliance exposure in banking/securities and telecom operations.
• Technology and capex cycle risk, including 5G rollout economics and potential spectrum-related investments.

Financial Risks:

• High leverage (assets/equity ~23x; debt-to-equity 21.80x) magnifies earnings volatility and solvency risk.
• Interest rate and refinancing risk given the large financing needs and small EBIT base.
• Liquidity fungibility: substantial cash held within regulated financial subsidiaries may be constrained for parent-level uses.
• Negative retained earnings (-8,247.00) limit capital flexibility and dividend capacity.
• Tax volatility (effective tax rate -50.5%) due to loss utilization limits and valuation allowance changes.

Key Concerns:

• Bridge from EBITDA to sustainable positive EBIT and PBT remains unproven this quarter.
• Magnitude of below-EBIT charges (interest and other) keeps net losses large despite revenue growth.
• Equity buffer remains thin (reported equity ratio 3.0%), increasing sensitivity to shocks.

Investment Implications

Key Takeaways:

• Top-line growth of 10.5% demonstrates ecosystem momentum despite macro and competitive headwinds.
• EBITDA is positive (13.3% margin), but heavy D&A and financing costs keep PBT and net income negative.
• Free cash flow is positive at 525.50, though quality is influenced by financial subsidiaries’ flows.
• Leverage is very high, with assets/equity ~23x and debt-to-equity 21.80x; equity ratio disclosed at 3.0%.
• Retained earnings remain deeply negative, constraining distributions and capital flexibility.

Metrics to Watch:

• Mobile segment ARPU, churn, and network cost per GB to gauge operating leverage.
• Consolidated EBIT and interest expense/coverage to assess progress toward break-even after financing costs.
• Capex trajectory vs. D&A to infer future depreciation pressure and cash needs.
• OCF and FCF excluding financial subsidiaries (if disclosed) to evaluate parent-level cash generation.
• Equity ratio, refinancing schedule, and average funding cost to monitor solvency risk.

Relative Positioning: Relative to domestic telecom peers (NTT, KDDI, SoftBank), Rakuten exhibits weaker profitability and a thinner equity buffer, offset by higher ecosystem growth potential across e-commerce and fintech; versus internet/platform peers, Rakuten’s capital intensity and leverage are materially higher due to the mobile network build-out.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis