May 10, 2019 / 8:25 AM / 6 months ago

Japan's Rakuten profit jumps fourfold on $1 billion Lyft stake gain

TOKYO (Reuters) - Japanese e-commerce firm Rakuten Inc’s first-quarter operating profit jumped fourfold as it booked a $1 billion gain on its stake in U.S. ride-hailing company Lyft Inc.

FILE PHOTO: Hiroshi Mikitani, Chairman and CEO of Rakuten Inc, applauds in front of network severs at a network facility for its under-construction mobile network in Tokyo, Japan, February 20, 2019. REUTERS/Kim Kyung-hoon/File Photo

Rakuten has grabbed investor attention with its overseas tech bets, despite modest means compared with bigger Japanese rival SoftBank Group Corp, whose founder and CEO Masayoshi Son has tapped Saudi Arabian oil money and abundant cash from SoftBank’s telco business to fund his tech investments.

Rakuten’s investments include Lyft, which listed in March, and online scrapbook company Pinterest Inc, which listed last month. It also took a stake in Dubai-based ride-hailing firm Careem, which Uber Technologies said in March it would acquire for $3.1 billion.

The tech bets have helped drive Rakuten’s shares up 56% this year, making it one of the top performers in the Nikkei 225 index.

Its operating profit rose to 113.7 billion yen ($1.04 billion) in the three months ended March from 28.1 billion yen a year earlier, Rakuten said on Friday. Without the Lyft investment gain, profit was just 3.2 bln yen. 

Rakuten is under pressure on multiple fronts as it invests in areas such as logistics to bolster its core online mall business amid competition from rivals like Inc and SoftBank-backed Yahoo Japan Corp, while also spending on areas like financial services and telecoms.

Rakuten’s billionaire founder and CEO Hiroshi Mikitani is making a big bet on becoming Japan’s fourth major mobile carrier, as it looks to break into an industry where the last successful entrant was Son’s SoftBank, which acquired Vodafone Group’s Japanese mobile business in 2006.

Mikitani, who founded Rakuten in 1997, hopes carrier services will help drive traffic to Rakuten’s other businesses including the online mall and financial services, such as credit cards, securities trading and life insurance.

The efforts are an industry talking point, with Rakuten saying it has cut the cost of building a network by using cloud-based software and commoditized hardware instead of proprietary wireless radios.

Its outlay is dwarfed by ongoing investment by the incumbent telcos.

Operating loss at Rakuten’s mobile business, set to begin carrier services later this year, swelled tenfold from a year earlier to 6.4 billion yen.

Rakuten shares closed up 2.2% ahead of the earnings release.

Reporting by Sam Nussey; Editing by Himani Sarkar and Sonali Paul

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