Rakuten: Moat Rating Downgraded to None; Mobile Uncertainties Overshadow Ecosystem Moat

We downgrade Rakuten’s moat rating to none from narrow previously as we believe the uncertainties in the mobile business overshadow the ecosystem’s moat. We previously assigned Rakuten a narrow moat rating, based on intangible assets and network effect for its internet services and fintech businesses. Throughout the years, Rakuten Ichiba has maintained top share alongside Amazon, and Rakuten card, bank, and securities have each grown to be one of the top players in their respective segments. While we believe Rakuten’s e-commerce and fintech segments are undoubtedly moatworthy businesses, the mobile business’s huge losses since 2020 have unfortunately eclipsed the success of the rest of Rakuten. We also downgrade our Capital Allocation Rating to Poor, as we deem the investments in mobile and recent mergers and acquisitions have been unfruitful. We maintain our JPY 780 fair value estimate for now and will revise our projections after the next earnings release. We believe shares are currently fairly valued.