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Rakuten Reports Consolidated Financial Results for the Nine Months Ended September 30, 2012

Rakuten, Inc. (JASDAQ:4755) today announced consolidated financial reports for the nine months ended September 30, 2012. The Rakuten Group for the first three quarters achieved solid growth with consolidated net sales of ¥309,625 million (up 14.5% year on year), operating profit of ¥53,819 million (up 11.4% year on year), and ordinary profit of ¥53,200 million (up 13.4% year on year). All three results are record highs for the first three quarters of a fiscal year. Net income for the period was ¥28,994 million, on the other hand the ¥19,201 million net loss from the same period of the previous fiscal year was recorded.

Qualitative Information, Financial Statements, etc.

1. Qualitative Information Concerning Consolidated Business Results

(1) Business Results for the Third Quarter of the Fiscal Year Ending December 31, 2012

In the world economy during the first three quarters of the current fiscal year (January 1, 2012 – September 30, 2012), the European debt crisis was prolonged and growth in newly developing regions tapered off, which have brought about a rise in uncertainty for the world outlook. In Japan, domestic demand showed resilience, driven by such forces as earthquake restoration demands, but a slowdown of the international economy loomed in the background, so conditions continue to deserve close watch.

Meanwhile, the worldwide spread of the Internet and the developing shift in social foundations across the world means that the Internet continues to be a major engine for worldwide economic growth, as documented in a recent white paper on information and communications.* In particular, the rapid diffusion of smartphones is contributing to the structural expansion of the Internet market. Boosted by the strong trends of these environmental changes, the Internet shopping market continues its steady growth in the future, both in Japan and overseas.

At Rakuten, we seek to leverage the growth potential of the Internet as a driving force for raising corporate value. We are doing this through vigorous steps to take Rakuten Ichiba's BtoBtoC marketplace model to the world and service enhancements for smartphone and tablet devices to spur further growth. We also aim to strengthen our competitiveness by improving delivery quality, from measures such as reinforcing our logistics infrastructure. In the Internet Finance business segment, we are aggressively promoting the business centering on Rakuten Card, which has notable synergies with Internet Services.

(2) Segment Information

Business results for each segment are as follows.

< Internet Services >

In the Internet Services segment during the first three quarters of the fiscal year, the customer shift to e-commerce for daily consumption continued to move forward owing to an enhanced product lineup, promotion of mobile Internet usage, expanded next-day deliveries, and other initiatives in our core Rakuten Ichiba service. Efforts to elevate Rakuten Ichiba's usability for both users and merchants contributed to firm growth in unique buyers and number of orders to sustain the segment's high performance with a 15.2% year-on-year rise in domestic e-commerce gross merchandise sales. In Travel services, we added a 13.5% year-on-year increase to gross transaction volume. Dynamic Package had solid sales and upgraded its single payment service for corporate hotel reservations in pursuit of a more diversified earnings base.

In its overseas ventures, the segment aided Rakuten's business expansion by focusing on marketplace-model businesses and rolling out initiatives including points programs that have proven successful in Japan. During the first quarter, we made Canadian-based Kobo Inc., a worldwide e-book operator, into a consolidated subsidiary. Kobo is spreading its e-book service throughout the world and opened its Japan service in July of this year.

As a result, net sales for the segment rose to ¥192,196 million, a 24.9% year-on-year increase, while segment operating income was down 0.8% year on year to ¥44,813 million due to our continued advance investments, mainly in overseas businesses.

< Internet Finance >

In credit card and related services, the Internet Finance segment increased its credit card membership during the first three quarters, which led to increased shopping transaction value and prompted a healthy rise in revolving shopping balances, resulting in higher commission income and a pronounced growth in its profit. Banking services benefited from its effective marketing programs to Rakuten members and solid growth in loan balances to achieve increased interest income from loans. In securities services, although stock trading volume decreased by the ongoing global depressed stock market, the number of new comprehensive accounts increased. In our aim to enrich our financial service offerings, we announced an agreement in the third quarter to include AIRIO Life Insurance Co., Ltd. ("AIRIO Life") as a consolidated subsidiary.

As a result of the above, the Internet Finance segment had ¥110,328 million in net sales, a 3.1% increase from the previous fiscal year. Segment operating profit was ¥15,546 million; a 94.2% year-on-year increase due in part to last year's recording of a ¥4,264 million allowance for loss on interest repayment taken in advance of the re-organization of the credit card business.

< Others >

During the first three quarters, operating profit in the Others segment firmed up, despite lower telecommunications sales stemming from the shift to a new business model emphasizing new, high-growth ventures such as cloud services while moving away from a traditional landline operator providing bypass services. The professional sports division lifted net sales through year-on-year revenue increases in both advertising and tickets.

As a result of the above, net sales for the segment were ¥25,817 million, a 3.0% year-on-year decrease, while segment operating profit grew 29.5% year on year to ¥1,787 million.

* Source:   Heisei 24 Nen Joho Tsushin ni Kansuru Genjo Hokoku [Fiscal 2012 Information and Communications Status Report] (published by the Ministry of Internal Affairs and Communications, July 17, 2012)

(3) Qualitative Information about Consolidated Business Forecasts

In the year ending December 31, 2012, we anticipate further expansion in the use of our services in Japan including e-commerce and travel, resulting in continued high growth. In financial services, we expect unsettled market conditions to persist, but nevertheless anticipate sustained earnings growth created from synergies within the Rakuten Group. We will also continue to make strategic allocations of corporate resources and active investments in high-growth areas such as e-books in order to open up more mid- and long-term income opportunities. While making these advance investments, Rakuten intends to surpass its current financial results in the fiscal year ending December 31, 2012.

In addition to our activities in the rapidly changing environment of Internet-related business in Japan and overseas, Rakuten, Inc. and its group companies are also involved in the securities business and other finance-related business activities, with the result that our business performance is affected by financial market trends and other factors. For these reasons, it is impossible to predict financial results, and no forecasts are included in this report.

(4) Other Information

(a) Changes in Recognition Timing of the Reserve for Points

The former accounting procedure for the Rakuten Super Points program treated regular points by recognizing a reserve for points at an amount corresponding to the balance of points available for customer use at the end of the period and treated limited-time points as an expense in the period used. Under the new policy, the projected value of points granted for both regular and limited-time points will be recognized in the reserve for points at the time of transaction.

Points granted and used have both grown recently as point programs play an increasingly important role each year as marketing tools. In response to these conditions, the Rakuten Group has constructed a point campaign management system and developed an internal management structure in order to gain timely understanding of campaign effects. In the first quarter accounting period, we have been able to promptly calculate the estimated value of granted points from campaigns at the time of generation for both regular and limited-time points. We are thus able to gauge and to manage the point balances in the important Rakuten Super Points marketing tool. At the same time, we have adopted a uniform accounting procedure for the Rakuten Super Points program. This method accounts for points in the reserve for points by using the projected value of point grants, and recognition timing will be based on the transaction that caused the points to be generated.

The change in accounting policy is applied retroactively, and quarterly and annual financial statements for the previous year are presented after retrospective application.

As a result, the amounts for operating profit and ordinary profit for the first three quarters of the previous fiscal year are each ¥130 million higher and loss before income taxes and minority interests for it is ¥130 million smaller than before retrospective application, and the reserve for points at the end of the previous fiscal year is ¥5,290 million higher. In addition, reflecting the cumulative effect in net assets at the beginning of the previous fiscal year reduces retained earnings at that time by ¥2,812 million.

(b) Application of the Accounting Standard for Net Income per Share

Starting in the first quarter of the current fiscal year, we are applying the Accounting Standard for Earnings per Share (Accounting Standards Board of Japan [ASBJ], Statement No. 2, revised June 30, 2010) and the Guidance on Accounting Standard for Earnings per Share (ASBJ Guidance No. 4, revised June 30, 2010).

According to this change, the calculation of diluted net income per share for stock options whose right to exercise is established after a fixed period of work service sets the value of receipts on the assumption that funds are paid in when rights are exercised and has changed to a method that includes the future service-related portion furnished by the company.

For the stock split conducted during the three months ended September 30, 2012, net income per share and net income per diluted share were calculated under the assumption that the stock split took effect at the start of the previous fiscal year.

(c) Application of the Accounting Standards for Accounting Changes and Error Corrections

As a result of accounting changes and corrections to prior period errors after the beginning of the first quarter financial reporting period, we have applied the Accounting Standards for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and the Guidance on Accounting Standards for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009).

(d) Other

(1) Significant changes in the scope of consolidation: Yes
Increase: Kobo Inc.
(2) Adoption of simplified or specific accounting treatments: No
(3) Changes in accounting policies and presentation of the financial statements
(major items that provide the basis for preparing financial statements)
Changes due to amendment of accounting standards: Yes
Other changes: Yes
Changes in the accounting estimate: No
Modified re-disclosure: No
(4) Number of shares issued (Common stock)
1.Common stock (including treasury stock)
1,320,332,500 shares (As of September 30, 2012)
1,319,457,800 shares (As of December 31, 2011)
2.Treasury stock
6,007,996 shares (As of September 30, 2012)
6,007,900 shares (As of December 31, 2011)
3.Average number of shares issued for the nine months ended September 30
1,313,854,321 shares (January 1 – September 30, 2012)
1,312,691,247 shares (January 1 – September 30, 2011)
(Note)   Rakuten, Inc. made a 100-for-1 stock split regarding shares of its common stock on July 1, 2012. Total shares issued and treasury stock as of December 31, 2011 and September 30, 2012, and average number of shares during the nine months ended September 30, 2011 and 2012 are calculated under the assumption that the stock split took effect at the start of the previous fiscal year.

The above information was originally prepared and published by the Company in Japanese as it contains timely disclosure materials to be submitted to the Osaka Securities Exchange. This English summary translation is for your convenience only. To the extent there is any discrepancy between this English translation and the original Japanese version, please refer to the Japanese version. The following financial information was prepared in accordance with generally accepted accounting principles in Japan.

*The full report is available at:

About Rakuten
Rakuten, Inc. (JASDAQ:4755), is one of the world's leading Internet service companies, providing a variety of consumer- and business-focused services including e-commerce, e-reading, travel, banking, securities, credit card, e-money, portal and media, online marketing and professional sports. Selected by Forbes as the World's 7th Most Innovative Companies of 2012, Rakuten is expanding globally and currently has operations throughout the Americas, Europe, Asia and Oceania. Founded in 1997, Rakuten is headquartered in Tokyo, with over 10,000 staff worldwide. For more information, visit http://global.rakuten.com/group.

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