Rakuten Earnings: Stronger Fintech Outlook Amid Shrinking Mobile Losses; Lifting FVE to JPY 990

We are raising our fair value estimate for Rakuten to JPY 990 from JPY 780, as we raise our fiscal-year 2024 and medium-term outlooks for the fintech segment, based on its robust top-line and profitability growth that has continuously exceeded our estimates in the past few quarters. Rakuten’s June-quarter revenue growth of 8.1% was higher than our expected 6.4%, mainly driven by the fintech business. Operating loss of JPY 18 billion was much better than our expected JPY 29 billion, attributable to higher fintech profit contribution and a smaller-than-expected mobile segment loss. We think that the stock is currently undervalued, as we believe that Rakuten’s strong ecosystem could withstand competition over the longer term, and its financial stability is improving as mobile losses shrink over time.