Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

It was worth the wait. Rakuten Mobile announced new pricing plans that are by far the simplest and cheapest (for data users) in Japan: unlimited voice and data for ¥2,980/month... and the first year is free. The catch is that it is only available on network whilst roaming usage, which will be a very wide area to start, is limited to 2GB/month. That makes the plan less useful for the most intensive (and highest ARPU) users but should generate high subscriber numbers as users take advantage of low-upfront costs to check it out without leaving their existing carrier. The end result is a race between Rakuten (network expansion) and the incumbents (moderating price declines) to provide a platform that offers lots of data cheaply.  In the near-term, today's announcement is good news for roaming provider KDDI but less so for DoCoMo and Softbank. Meanwhile, Rakuten may benefit from headlines on subscriber additions going forward but giving away a year of mobile revenue and guidance of break-even for the consolidated business may spook some investors. An unlikely loser in today's announcement could be Apple as a trend away from very expensive high-end devices in Japan gathers steam.

It was worth the wait. Rakuten Mobile announced new pricing plans that are by far the simplest and cheapest (for data users) in Japan: unlimited voice and data for ¥2,980/month... and the first year is free. The catch is that it is only available on network whilst roaming usage, which will be a very wide area to start, is limited to 2GB/month. That makes the plan less useful for the most intensive (and highest ARPU) users but should generate high subscriber numbers as users take advantage of low-upfront costs to check it out without leaving their existing carrier. The end result is a race between Rakuten (network expansion) and the incumbents (moderating price declines) to provide a platform that offers lots of data cheaply.  In the near-term, today's announcement is good news for roaming provider KDDI but less so for DoCoMo and Softbank. Meanwhile, Rakuten may benefit from headlines on subscriber additions going forward but giving away a year of mobile revenue and guidance of break-even for the consolidated business may spook some investors. An unlikely loser in today's announcement could be Apple as a trend away from very expensive high-end devices in Japan gathers steam.

Rakuten: Mobile Pricing Disruptive with a Catch

Rakuten will unveil pricing plans for its facilities-based mobile service on 3 March, with reservations to start on 4 March and the actual service launch sometime in early April.  The current MVNO service offers a starting point on how to evaluate Rakuten's approach whilst incumbent promotional strategies also offer some ideas on what to expect. As we have discussed before, the company's relatively small coverage footprint will constrain discounting as it needs to balance market share expansion with operating losses.  We think Rakuten pricing will focus on simplicity and offer effective discounts of 20-30% over the incumbents today which should be manageable for the incumbents.

Rakuten will unveil pricing plans for its facilities-based mobile service on 3 March, with reservations to start on 4 March and the actual service launch sometime in early April.  The current MVNO service offers a starting point on how to evaluate Rakuten's approach whilst incumbent promotional strategies also offer some ideas on what to expect. As we have discussed before, the company's relatively small coverage footprint will constrain discounting as it needs to balance market share expansion with operating losses.  We think Rakuten pricing will focus on simplicity and offer effective discounts of 20-30% over the incumbents today which should be manageable for the incumbents. 

Japan Mobile: What We Expect when Rakuten Unveils Pricing Next Week

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul><li>
<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a>’s domestic e-commerce GMV growth fell at a much slower rate than <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>’ Shopping business GMV in 3Q FY03/20. This reaffirms our concerns that there could be more to Z’s Shopping business slowdown than just the consumption tax hike. </li></ul><ul><li>Z is also likely to fall short of its full-year Commerce business targets, although expectations look slightly better on paper due to the impact of ZOZO’s consolidation. </li></ul><ul><li>Z’s mobile payment platform, PayPay, is also likely to grow at a slower rate now that the total number of PayPay users are almost half of Z’s total e-commerce users. R-Pay’s growth started to slow down around the time when the number of R-Pay users reached around half of Rakuten’s total e-commerce users.</li></ul>


Rakuten Inc (4755 JP)’s domestic e-commerce GMV growth fell at a much slower rate than Z Holdings (4689 JP)’ Shopping business GMV in 3Q FY03/20. This reaffirms our concerns that there could be more to Z’s Shopping business slowdown than just the consumption tax hike. Z is also likely to fall short of its full-year Commerce business targets, although expectations look slightly better on paper due to the impact of ZOZO’s consolidation. Z’s mobile payment platform, PayPay, is also likely to grow at a slower rate now that the total number of PayPay users are almost half of Z’s total e-commerce users. R-Pay’s growth started to slow down around the time when the number of R-Pay users reached around half of Rakuten’s total e-commerce users.

Z Holdings: Rakuten’s Results Make Us Worry More About Z Holdings

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/963/original/2020-02-15_09-46-55.png?1581796265" class="editor-image img-responsive" data-smartkarma-image-id="117963"></figure><div class="content-caption">Source • Japan Analytics</div>A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/966/original/2020-02-16_05-32-51.png?1581798783" class="editor-image img-responsive" data-smartkarma-image-id="117966"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/967/original/2020-02-16_05-28-20.png?1581798803" class="editor-image img-responsive" data-smartkarma-image-id="117967"></figure><div class="content-caption">Source • Japan Analytics</div>ACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.<div class="content-highlight">In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.</div>

Source • Japan AnalyticsA YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.Source • Japan AnalyticsACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own Merpay service, it was a sign of the growing necessity for scale in what is the fastest consolidating sector in Japan today.
Origami had scored a couple of major successes since launching in 2016 but, after the recent consolidation among the biggest players, it realised it just didn't have the budget to scale fast enough on its own. Mercari is in a similar situation but, even with Origami, Merpay remains one of the smaller players in the market.
Origami, Merpay and LINE are all too small to be able to afford the kind of aggressive incentives that PayPay has been offering and is a key reason why LINE agreed to a takeover by Z Holdings and Origami's merger with Merpay. Even then, this is not enough to take on the digital zaibatsu, Softbank/Z and Rakuten.
Last week's announcement of a tie-up between Mercari and NTT Docomo and the latter's determination not to lose out to Rakuten and Softbank/Z – it even tied with Amazon to avoid this – and the impossibility of Merpay being able to scale alone, suggests a full takeover of Merpay by NTT Docomo is on the cards.
If so, NTT Docomo has a chance to be one of the big 3 in cashless payments in Japan, alongside PayPay and Rakuten Pay (in the long-term).
The trouble is no one is going to be making money out of payments for a long time – unless PayPay stops offering all those juicy incentives.

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own Merpay service, it was a sign of the growing necessity for scale in what is the fastest consolidating sector in Japan today.
Origami had scored a couple of major successes since launching in 2016 but, after the recent consolidation among the biggest players, it realised it just didn't have the budget to scale fast enough on its own. Mercari is in a similar situation but, even with Origami, Merpay remains one of the smaller players in the market.
Origami, Merpay and LINE are all too small to be able to afford the kind of aggressive incentives that PayPay has been offering and is a key reason why LINE agreed to a takeover by Z Holdings and Origami's merger with Merpay. Even then, this is not enough to take on the digital zaibatsu, Softbank/Z and Rakuten.
Last week's announcement of a tie-up between Mercari and NTT Docomo and the latter's determination not to lose out to Rakuten and Softbank/Z – it even tied with Amazon to avoid this – and the impossibility of Merpay being able to scale alone, suggests a full takeover of Merpay by NTT Docomo is on the cards.
If so, NTT Docomo has a chance to be one of the big 3 in cashless payments in Japan, alongside PayPay and Rakuten Pay (in the long-term).
The trouble is no one is going to be making money out of payments for a long time – unless PayPay stops offering all those juicy incentives.

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten

Japan

Rakuten Group, Inc. provides Internet services. The Company offers Internet finance services which including "Rakuten Card" and "Rakuten Bank". Rakuten Group also provides digital content services including electronic book services.

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Rakuten (4755 JP)

Rakuten: Mobile Pricing Disruptive with a Catch

It was worth the wait. Rakuten Mobile announced new pricing plans that are by far the simplest and cheapest (for data users) in Japan: unlimited...

Kirk Boodry

Japan Mobile: What We Expect when Rakuten Unveils Pricing Next Week

Rakuten will unveil pricing plans for its facilities-based mobile service on 3 March, with reservations to start on 4 March and the actual service...

Kirk Boodry

Z Holdings: Rakuten’s Results Make Us Worry More About Z Holdings

Rakuten Inc (4755 JP)’s domestic e-commerce GMV growth fell at a much slower rate than Z Holdings (4689 JP)’ Shopping business GMV in 3Q FY03/20....

Supun Walpola

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined...

Campbell Gunn

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten

When Origami, the only independent mobile payments provider, last month agreed to be bought by Mercari and merge its systems with Mercari’s own...

Michael Causton

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