Rakuten : Earnings Release for Q1 of FY2024 Financial Results

The following information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Tokyo Stock Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with International Financial Reporting Standards ("IFRS").

Consolidated Financial Reports (IFRS)

for the three months ended March 31, 2024

					Rakuten Group, Inc.
					May 14, 2024
Company name	Rakuten Group, Inc.	Listed	Tokyo Stock Exchange
Code No	4755		URL	https://global.rakuten.com/corp/
Representative	(Title)	Chairman and CEO		(Name)	Hiroshi Mikitani
Contact person	(Title)	Director and Group Executive Vice President CFO	(Name)	Kenji Hirose

Supplementary materials for financial results: Yes

Financial results information meeting held: Yes (For institutional investors and analysts)

1. Consolidated Results for the three months ended March 31, 2024 (January 1 - March 31, 2024)

						(Yen amounts are rounded to the nearest million)
(1) Consolidated Operating Results
								(%, YoY)
	Revenue			Operating income	Income before	Net income
			income tax
	Millions of Yen		%	Millions of Yen	%	Millions of Yen	%	Millions of Yen	%
Three months ended	513,624	8.0	(33,272)	－	(28,469)	－	(35,841)	－
March 31, 2024
Three months ended	475,635	9.3	(76,194)	－	(79,403)	－	(82,620)	－
March 31, 2023
	Net income					Basic		Diluted
					earnings per	earnings per share
	attributable to		Comprehensive
		share attributable	attributable to
	owners of the		income
			to owners of the	owners of the
	Company
					Company		Company
	Millions of Yen		%	Millions of Yen	%		Yen	Yen
Three months ended	(42,394)		－	18,897	－	(19.78)	(19.78)
March 31, 2024
Three months ended	(82,567)		－	(66,234)	－	(51.88)	(52.08)
March 31, 2023
(Reference) Other important management indicators
	EBITDA *
	Millions of Yen		%
Three months ended	52,766		－
March 31, 2024
Three months ended	3,500		－
March 31, 2023

• Calculated by adding depreciation and amortization expenses, etc. to Non-GAAP operating income. We believe that EBITDA is a useful indicator for evaluating the cash flow generation ability of the Rakuten Group's business activities. For more information on Non-GAAP operating income, please see page 4, "1. Qualitative Information, Financial Statements, etc. (1) Qualitative Information Concerning Consolidated Business Results".

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(2) Consolidated Financial Position

					Ratio of
			Total equity		total equity
	Total assets	Total equity	attributable to	Consolidated	attributable to
	owners of the	equity ratio *	owners of the
			Company		Company to
					total assets
	Millions of Yen	Millions of Yen	Millions of Yen	%	%
As of March 31, 2024	23,851,066	1,111,833	852,580	4.7	3.6
As of December 31, 2023	22,625,576	1,087,723	836,572	4.8	3.7

• Calculated by dividing total equity by total assets. As the banking business and securities business account for a large proportion of the Rakuten Group's total assets, we believe that using total capital that incorporates non-controlling interests in these businesses is useful in understanding the Rakuten Group's financial position.

2. Dividends

		Dividend per Share
	1Q	2Q	3Q		4Q	Year
	Yen	Yen	Yen		Yen	Yen
FY2023	－	0.00	－		0.00	0.00
FY2024	－
FY2024 (Forecast)		－	－		－	－

Note: Dividend per share for the fiscal year ending December 31, 2024 has not been decided yet, and there are no changes to the previously disclosed dividend forecast.

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3. Estimate of Consolidated Operating Results for the fiscal year 2024 (January 1 to December 31, 2024)

For the estimate of consolidated operating results for the fiscal year 2024, double-digit growth on consolidated operating results for the fiscal year 2023 is estimated for the fiscal year 2024 consolidated revenue, excluding the securities business whose results are heavily impacted by stock market conditions. (For details, please see page 9, "1. Qualitative Information, Financial Statements, etc. (3) Qualitative Information about Consolidated Business Forecasts".)

Note: There are no changes to the previously disclosed consolidated forecasts for the year ending December 31, 2024.

Notes

(1) Changes in Significant Subsidiaries for the Current Period

(Changes in Specified Subsidiaries resulting in Change in Scope of Consolidation): No

New: － (Company name: －)

Excluded: － (Company name: －)

1. Changes in Accounting Policies and Changes in Accounting Estimates
2. 1. Changes in accounting policies required by IFRS: Yes
   2. Changes in accounting policies due to other reasons: No
   3. Changes in accounting estimates: No

Note: For details, please see page 16, "2. Condensed Quarterly Consolidated Financial Statements and Notes,

1. 1. Notes to the Condensed Quarterly Consolidated Financial Statements (Material Accounting Policies)".
2. Number of Shares Issued (Common Stock)
   1. Total number of shares issued at the end of the period (including treasury stocks)

2,144,284,500 shares (As of March 31, 2024)

2,142,140,300 shares (As of December 31, 2023)

1. Number of treasury stocks at the end of the period 2,411 shares (As of March 31, 2024)
   384 shares (As of December 31, 2023)
2. Average number of shares for the period (cumulative from the beginning of the year) 2,143,163,360 shares (January 1 - March 31, 2024)
   1,591,350,897 shares (January 1 - March 31, 2023)

This financial report is not subject to an audit firm's quarterly review.

Explanation about the Appropriate Use of Earnings Forecasts, and Other Special Matters

Consolidated earnings forecasts for the year ending December 31, 2024 are based on information that is available at the time of writing, but a number of known and unknown factors could cause actual results to differ from projections.

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1. Qualitative Information, Financial Statements, etc.

(1) Qualitative Information Concerning Consolidated Business Results

The Rakuten Group discloses consolidated business results in terms of both its internal measures which management relies upon in making decisions (hereinafter the "Non-GAAP financial measures") and those under IFRS.

Non-GAAP operating income is operating income under IFRS (hereinafter "IFRS operating income") after deducting unusual items and other adjustments as prescribed by the Rakuten Group. Management believes that the disclosure of Non-GAAP financial measures facilitates comparison between the Rakuten Group and peer companies in the same industry or comparison of its business results with those of prior fiscal years by stakeholders, and can provide useful information in understanding the underlying business results of the Rakuten Group and its future outlook. Unusual items refer to one-off items that the Rakuten Group believes should be excluded for the purposes of preparing a future outlook based on certain rules. Other adjustment items are those that tend to differ depending on the standards applied, and are therefore less comparable between companies, such as share based compensation expenses and amortization of acquisition-related intangible assets.

Note: For disclosure of Non-GAAP financial measures, the Rakuten Group refers to the rules specified by the U.S. Securities and Exchange Commission but does not fully comply with such rules.

i) Business Results for the three months ended March 31, 2024 (Non-GAAP basis)

For the three months ended March 31, 2024, the global economy has been recovering, although weakness has been observed in some regions, and attention should be paid to the increased downside risks due to the impact of global financial tightening and other factors. For the Japanese economy, although there has been a stagnation in the recovery of personal consumption, a gradual economic recovery is expected.

According to the "White Paper on Information and Communications in Japan" (Note), data traffic on networks in Japan has been increasing dramatically along with the advancement and diversification of communication infrastructure and digital services. After the spread of the COVID-19 pandemic, the progress of digitalization enabling non-contact and remote living has led to a significant increase in data traffic, especially through mobile devices, and further growth is expected in the future.

Under such an environment, the Rakuten Group is actively developing and deploying services utilizing advanced technologies such as data from both online and offline sources based on membership and common point programs, improving network quality in mobile services, and acquiring users. Furthermore, by further evolving and expanding the Rakuten Ecosystem, we aim to enhance its competitiveness and develop and provide solution services that are uniquely possible due to the accumulation of unique data assets through various services such as internet services, FinTech, and mobile, thereby evolving into an "AI Empowerment Company" and aiming to make people's lives more convenient and prosperous.

In the Internet Services segment, we focused on developing services that aim for further growth in total distribution amount and revenue, acquiring new customers, promoting cross-use, and deepening collaboration with local governments and regional businesses to revitalize the regional economy. In FinTech segment, efforts to expand customer base and transaction value in each service resulted in further growth in sales and improvement in segment profit. In Mobile segment, in addition to the increase in revenue compared to the three months ended March 31, 2023, due to the improvement in network quality and the increase in the number of subscribers, segment losses have been steadily decreasing, supported by ongoing cost reduction efforts.

As a result, the Rakuten Group recorded revenue of ¥513,624 million, up 8.0% year-on-year for the three months ended March 31, 2024, and a Non-GAAP operating loss of ¥25,449 million, compared to a Non-GAAP operating loss of ¥68,968 million in the three months ended March 31, 2023.

Note: Source: "2023 White Paper on Information and Communications in Japan" (Ministry of Internal Affairs and Communications).

(Non-GAAP)

				(Millions of Yen)
	Three months ended	Three months ended	Amount	% Change
	Change
	March 31, 2023	March 31, 2024	YoY
	YoY
Revenue	475,635	513,624	37,989	8.0%
Non-GAAP operating loss	(68,968)	(25,449)	43,519	－%

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1. Reconciliation of Non-GAAP Operating Income to IFRS Operating Income
   For the three months ended March 31, 2024, amortization of intangible assets of ¥1,833 million and share

based compensation expenses of ¥3,764 million were excluded from Non-GAAP operating income. One-off items listed for the three months ended March 31, 2023 include fees paid to external experts and others such as legal fees related to fraudulent acts committed in collusion by former employees of a subsidiary and suppliers, which came to light in the fiscal year ended December 31, 2022. One-off items listed for the three months ended March 31, 2024 include maintenance and repair costs for base stations related to the 2024 Noto Peninsula Earthquake of ¥1,154 million and a loss on disposal of intangible assets for a part of the life and general insurance integrated core system of ¥1,174 million, etc. Moreover, these expenses are mainly recorded in other expenses of the Condensed Quarterly Consolidated Statement of Income.

			(Millions of Yen)
	Three months ended	Three months ended	Amount Change
	March 31, 2023	March 31, 2024	YoY
Non-GAAP operating loss	(68,968)	(25,449)	43,519
Amortization of intangible assets	(2,099)	(1,833)	266
Share based compensation expenses	(4,115)	(3,764)	351
One-off items	(1,012)	(2,226)	(1,214)
IFRS operating loss	(76,194)	(33,272)	42,922

iii) Business Results for the three months ended March 31, 2024 (IFRS basis)

For the three months ended March 31, 2024, the Rakuten Group recorded revenue of ¥513,624 million, up 8.0% year-on-year, and an IFRS operating loss of ¥33,272 million, compared with an IFRS operating loss of ¥76,194 million in the three months ended March 31, 2023, and a net loss attributable to owners of the Company of ¥42,394 million, compared with a net loss of ¥82,567 million in the three months ended March 31, 2023.

(IFRS)

				(Millions of Yen)
	Three months ended	Three months ended	Amount	% Change
	Change
	March 31, 2023	March 31, 2024	YoY
	YoY
Revenue	475,635	513,624	37,989	8.0%
IFRS operating loss	(76,194)	(33,272)	42,922	－%
Net loss attributable	(82,567)	(42,394)	40,173	－%
to owners of the Company

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iv) Segment Information

Business results for each segment are as follows. In terms of the IFRS management approach, segment profit or loss is presented on a Non-GAAP operating income basis.

Internet Services

In domestic e-commerce services, the mainstay of Internet services, the growth rate of total transaction value slowed down compared to the three months ended March 31, 2023, due to the impact of changes in marketing strategies aimed at improving profitability. However, operating profit increased. In the internet shopping mall "Rakuten Ichiba" and the travel reservation service "Rakuten Travel", customer retention continued due to various measures aimed at improving customer convenience and satisfaction.

In other Internet Services including overseas internet services, strong sales growth continued in the US cashback service "Rakuten Rewards". In the mobile messaging and VoIP services "Viber", the e-book service "Kobo", and the video streaming service "Viki" within the overseas content business, the number of users increased, resulting in steady performance improvement and contributing to the expansion of segment profit.

As a result, revenue for the Internet Services segment rose to ¥285,703 million, a 5.4% year-on-year increase, while segment profit stood at ¥13,600 million, a 14.8% year-on-year increase.

				(Millions of Yen)
	Three months ended	Three months ended	Amount	% Change
	Change
	March 31, 2023	March 31, 2024	YoY
	YoY
Segment revenue	271,138	285,703	14,565	5.4%
Segment profit	11,851	13,600	1,749	14.8%

FinTech

In FinTech, we achieved increased revenue and profit in credit card-related services, banking services, and securities services etc. In credit card-related services, the cumulative issuance of "Rakuten Card" reached 30 million cards in December 2023, demonstrating strong growth. In cashless payment services, transaction value significantly expanded through efforts to increase the number of users by enhancing the availability of payment at various locations and scenes. In banking services, deposit balances reached 10 trillion yen at the end of December 2023, and the number of deposit accounts reached 15 million in February 2024. In securities services, the total number of general accounts reached 11 million in April 2024, further expanding the customer base.

As a result, the FinTech segment recorded ¥193,458 million in revenue, a 15.1% year-on-year increase, while segment profit stood at ¥39,278 million, a 47.4% year-on-year increase.

				(Millions of Yen)
	Three months ended	Three months ended	Amount Change	% Change
	March 31, 2023	March 31, 2024	YoY	YoY
Segment revenue	168,025	193,458	25,433	15.1%
Segment profit	26,640	39,278	12,638	47.4%

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Mobile

In Mobile, we continue to make efforts to improve network quality while promoting the convenience and benefits of Rakuten Mobile users within the Rakuten Ecosystem. In addition to surpassing 6.5 million contract lines (combined B2C and B2B for MNO) in April 2024, both B2C and B2B ARPU also increased, resulting in a steady increase in communication revenue. Since spring 2024, we have also been working to expand programs such as the "SAIKYO FAMILY Program" and the "SAIKYO YOUTH Program" in order to provide convenient and cost-effective services to customers of various attributes and maximize customer satisfaction. Furthermore, we are progressing with preparations for the gradual deployment of the "Platinum Band" through our own base stations, including starting the emission of test waves in the 700MHz band (Platinum Band) certified by the Ministry of Internal Affairs and Communications on April 30, 2024.

As a result, the Mobile segment recorded ¥99,840 million in revenue, a 3.6% year-on-year increase, while segment loss stood at ¥71,928 million compared to a loss of ¥102,662 in the three months ended March 31, 2023.

In the future, we will aim for early profitability in the mobile standalone business by working towards further revenue growth while maintaining optimized operating expenses (excluding depreciation and amortization expenses) due to the completion of network infrastructure investments.

				(Millions of Yen)
	Three months ended	Three months ended	Amount Change	% Change
	March 31, 2023	March 31, 2024	YoY	YoY
Segment revenue	96,333	99,840	3,507	3.6%
Segment loss	(102,662)	(71,928)	30,734	－%

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1. Analysis Concerning Financial Position i) Assets, Liabilities, and Equity
   Assets
   Total assets as of March 31, 2024 amounted to ¥23,851,066 million, an increase of ¥1,225,490 million from ¥22,625,576 million at the end of the previous fiscal year. The primary factors were an increase of ¥781,959 million in financial assets for securities business, and an increase of ¥241,459 million in cash and cash equivalents.

Liabilities

Total liabilities as of March 31, 2024 amounted to ¥22,739,233 million, an increase of ¥1,201,380 million from ¥21,537,853 million at the end of the previous fiscal year. The primary factors were an increase of ¥720,060 million in financial liabilities for securities business, an increase of ¥219,872 million in deposits for banking business, and an increase of ¥133,437 million in borrowings for banking business.

Equity

Total equity as of March 31, 2024 was ¥1,111,833 million, an increase of ¥24,110 million from ¥1,087,723 million at the end of the previous fiscal year. The primary factors were a decrease of ¥41,345 million in retained earnings due mainly to the recording of ¥42,394 million in net loss attributable to owners of the Company for the three months ended March 31, 2024, offset by an increase of ¥53,570 million in other components of equity due to changes in foreign currency translation adjustments affected by yen depreciation, and an increase of ¥8,102 million in non-controlling interests.

1. Cash Flows
   Cash and cash equivalents as of March 31, 2024 stood at ¥5,369,133 million, an increase of ¥241,459 million

from the end of the previous fiscal year. Cash flow conditions and their main factors for the three months ended March 31, 2024 are as follows.

Cash Flows from Operating Activities

Cash flows from operating activities for the three months ended March 31, 2024 resulted in a cash inflow of ¥148,871 million (compared with a cash outflow of ¥122,561 million for the same period of the previous fiscal year). Main factors included a cash outflow of ¥92,892 million due to an increase in loans for banking business, offset by a cash inflow of ¥217,130 million due to an increase in deposits for banking business.

Cash Flows from Investing Activities

Cash flows from investing activities for the three months ended March 31, 2024 resulted in a cash outflow of ¥185,974 million (compared with a cash outflow of ¥109,862 million for the same period of the previous fiscal year). Main factors included a net cash outflow of ¥110,231 million due to purchases and sales, etc. of investment securities for banking business (a cash outflow of ¥347,749 million due to purchases and a cash inflow of ¥237,518 million from sales and redemption), and a cash outflow of ¥48,906 million due to purchases of intangible assets.

Cash Flows from Financing Activities

Cash flows from financing activities for the three months ended March 31, 2024 resulted in a cash inflow of ¥268,826 million (compared with a cash inflow of ¥39,243 million for the same period of the previous fiscal year). Main factors included a cash outflow of ¥122,607 million due to redemption of bonds, offset by a cash inflow of ¥255,366 million due to proceeds from issuance of bonds, and a cash inflow of ¥132,200 million due to proceeds from long-term borrowings for banking business.

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(3) Qualitative Information about Consolidated Business Forecasts

At present, in the forecast for the consolidated performance of the current fiscal year, we aim for double-digit growth in consolidated revenue, excluding the impact of the stock market on securities services, compared to the previous fiscal year.

The outlook for each segment in the current fiscal year is as follows:

(Internet Services)

In domestic internet services such as "Rakuten Ichiba", we will continue to focus on acquiring new customers, promoting cross-usage, deepening collaboration with local governments and regional businesses, and developing services to revitalize the local economy. Through the creation of new markets utilizing data and AI, we aim to achieve growth in total transaction value and revenue. In "Rakuten Travel", although there is a possibility that the growth rate hurdle will be higher compared to the previous fiscal year, which had a strong performance due to government support measures for travel, we will continue to expand inbound demand to increase revenue. In overseas internet services centered around "Rakuten Rewards", we will aim to expand our business while working on further management efficiency.

(Fintech)

In credit card-related services, we aim for further growth in shopping transaction value and strive for business expansion and further improvement in profit margin through group synergy and strengthening marketing measures. In banking services, in addition to expanding interest income through diversification of personal loan products and promotion of securitization businesses such as monetizing monetary claims and real estate held by companies, we aim for further growth through the expansion of non-interest income by acquiring customers' salary transfer and direct debit accounts and promoting their use as daily accounts. In insurance services, we aim for further growth through an increase in the number of new contracts and the expansion of products with high compatibility with internet services. In securities services, it is difficult to forecast due to the significant impact of the stock market. However, we intend to absorb the impact of the abolition of domestic stock trading fees by further diversifying and expanding revenue sources such as acquiring new accounts and expanding activities in US stock trading and margin trading.

(Mobile)

In addition to improving the customer experience through the expansion of our own network coverage area and partner networks, we will promote further subscriber acquisition through competitive pricing plans and attractive marketing utilizing the Rakuten Ecosystem. We will also continue to pursue contract acquisition by making proposals to nationwide corporate and municipal customers with whom our group has transactions. Furthermore, Rakuten Mobile, Inc. has received certification from the Ministry of Internal Affairs and Communications for the establishment of specific base stations in the 700MHz band in October 2023, and at this stage, we plan to start commercial services during the current fiscal year. By providing a higher quality network environment, we aim to accelerate the pace of subscriber acquisition and achieve early profitability.

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2. Condensed Quarterly Consolidated Financial Statements and Notes

(1) Condensed Quarterly Consolidated Statement of Financial Position

			(Millions of Yen)
		As of	As of
		December 31, 2023	March 31, 2024
Assets
Cash and cash equivalents	5,127,674	5,369,133
Accounts receivable - trade	377,992	337,974
Financial assets for securities business	4,128,245	4,910,204
Loans for credit card business	3,019,261	2,957,608
Investment securities for banking business	1,208,527	1,332,219
Loans for banking business	3,886,888	3,980,575
Investment securities for insurance business	259,139	245,317
Derivative assets	233,110	244,643
Investment securities	182,207	217,382
Other financial assets	1,239,004	1,214,191
Investments in associates and joint ventures	42,100	42,854
Property, plant and equipment	1,267,837	1,257,027
Intangible assets	1,024,201	1,073,871
Deferred tax assets	214,777	219,248
Other assets	414,614	448,820
Total assets	22,625,576	23,851,066
Liabilities
Accounts payable - trade	419,880	425,700
Deposits for banking business	9,732,828	9,952,700
Financial liabilities for securities business	4,236,517	4,956,577
Derivative liabilities	27,263	37,103
Bonds and borrowings	1,637,980	1,764,668
Borrowings for securities business	106,578	154,588
Bonds and borrowings for credit card business	603,869	598,298
Borrowings for banking business	2,446,746	2,580,183
Other financial liabilities	1,646,559	1,580,658
Income taxes payable	30,144	18,982
Provisions	263,886	267,990
Insurance contract liabilities	164,205	158,094
Employee retirement benefit liabilities	41,049	42,237
Deferred tax liabilities	3,602	3,713
Other liabilities	176,747	197,742
Total liabilities	21,537,853	22,739,233
Equity
Equity attributable to owners of the Company
Common stock	446,769	447,838
Capital surplus	541,520	544,236
Other equity instruments	317,316	317,316
Retained earnings	(643,991)	(685,336)
Treasury stock	(0)	(2)
Other components of equity	174,958	228,528
Total equity attributable to owners of the Company	836,572	852,580
Non-controlling interests	251,151	259,253
Total equity	1,087,723	1,111,833
Total liabilities and equity	22,625,576	23,851,066

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