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Hiroshi Mikitani And Lionel Messi: A match made in Barcelona

Publication Date: 24 May 2019 - By Rowan Ewart-White By Rowan E.

Equity Fundamental Equity Global Technology Telecom & Media


Is the wheel of fortune starting to turn in favour of Japanese billionaire Hiroshi Mikitani and his burgeoning online empire - Rakuten (TYO:4755)?

While European glory eluded FC Barcelona at this year's Champion's League courtesy a dramatic second-leg collapse in the semi-final against Liverpool, domestic success thanks to striker Lionel Messi counts, and each time the Argentine wheels away in celebration, the cameras can’t help but pick out the footbal club's shirt sponsor writ large across his chest: Rakuten.

Mikitani should surely allowed himself a smile of contentment. When he signed the shirt sponsorship deal with FC Barcelona in July 2017 for €55m per year, it looked to be part of a wider narrative suggesting the billionaire had lost his touch and his way. Case in point: within three weeks of the deal Neymar had left for Paris St Germain and by May 2018 arch rivals Real had won their 13th European Cup.

It wasn’t just on the football pitch where things had started to go wrong. Having peaked in April 2015, Rakuten’s stock was under huge pressure as earnings stagnated. Where previously a premium had been given to plans to build an ecosystem centred around the core Rakuten Ichiba marketplace, a credit card based financial services business and a collection of haphazard looking overseas acquisitions, suddenly concerns started to mount. 

Specifically: cut-throat competition versus Amazon; the requirement for huge promotional spending to generate e-commerce growth; and the company’s propensity to splash cash on acquisitions where any sort of return on investment was difficult to envisage (Kobo & Viber spring readily to mind).

Into this festering uncertainty Mikitani dropped a bombshell in December 2017: Rakuten intended to become Japan’s 4th mobile network operator. Amidst predictable question marks over the likely cost and impact to earnings the stock price reaction was unequivocal, falling a further -38% before bottoming at JPY704 in June 2018. Since when it has not looked back.

In hindsight it is difficult to identify one specific catalyst for the stock’s recovery. No doubt it has been helped by logical announcements such as an alliance with Wal-Mart to sell e-books in the US & a deal signed with KDDI (TYO:9433) to tie up on payments. Undoubtedly a return to earnings growth, with 12/18 OP of JPY170.4bn +14%YoY a new record, has also been a factor.

The suspicion, though, is that the market has started to understand Mikitani’s bigger picture as opposed to simply discounting what it might cost. In essence, the addition of a next generation, legacy free, cloud infrastructure operated mobile network looks likely to allow Rakuten to provide consumers with an end-to-end user experience, including content, goods and financial services, at a very competitive price. If successful the potential to roll the model out globally becomes much clearer.

Much will depend on Rakuten’s mobile development team, which includes Cisco, Intel, Red Hat, Qualcomm, Altiostar, Ciena, Nokia and Tech Mahindra, and how and when the new network can be launched in concert with 5G. Progress to date has been encouraging and the growth opportunity is crystallising. A Messi-led European Cup triumph for Barcelona at some point would simply cement the impression that Rakuten is on the way back.


I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Rowan E.


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