In the recent earnings call, Rakuten Group, Inc. (TSE: 4755) announced its 2024 third-quarter financial results, showcasing a significant revenue increase and profitability, especially within its mobile and fintech segments. The consolidated revenue reached JPY 566.7 billion, marking a 9.3% year-over-year growth.
Rakuten Mobile, a key growth driver, achieved its first quarterly profit and now has 8.12 million subscribers. The company's strategic initiatives, including a partnership with Mizuho (NYSE:MFG) Financial Group and advancements in artificial intelligence (AI), are set to further enhance performance and customer satisfaction.
Key Takeaways
- Consolidated revenue of JPY 566.7 billion, up 9.3% year-over-year.
- Rakuten Mobile contributes 40% to growth, reaching 8.12 million subscribers.
- Non-GAAP operating income shows a profit of JPY 12.3 billion.
- Shopping and travel segments revenue up by 4.4% to JPY 314.6 billion.
- Fintech segment revenue at JPY 208.2 billion, a 12.8% increase; operating income up 57.2% to JPY 40 billion.
- Strategic alliance with Mizuho Financial Group to enhance acquiring performance.
- Rakuten Symphony secured contracts with 45 customers in 2023, targeting over 100 in 2024.
- AI strategy ("AIization") to infuse AI across operations, enhancing customer experiences.
Company Outlook
- Rakuten anticipates strong profitability in Q4, supported by strategic alliances and customer base expansion.
- The company aims for 100% network coverage by March 2026 for Rakuten Mobile.
- Plans to integrate AI to enhance services and increase customer satisfaction.
Bearish Highlights
- The company is focused on improving operating income and reducing debt to maintain financial health.
Bullish Highlights
- Rakuten Mobile achieved its first quarterly profit with significant subscriber growth.
- The fintech segment shows robust revenue and operating income increases.
- Rakuten Card's GTV reached JPY 6 trillion, up 12.7% year-over-year.
- Rakuten Bank and Rakuten Securities both reported significant growth in accounts and general account value.
Misses
- There were no specific misses reported in the earnings call summary provided.
Q&A highlights
- During the Q&A, Rakuten outlined strategic initiatives to enhance services using AI, with the expectation to increase revenue.
- Further financial insights were deferred to the CFO for more detailed analysis.
Rakuten has demonstrated a strategic focus on leveraging AI for operational efficiency and customer experience improvement. The company's AI strategy, termed "AIization," involves deep learning and large language models to boost sales and enhance service offerings. With a successful JPY 170 billion sale-leaseback deal in August, Rakuten is also on track to improve its credit rating and financial stability. The upcoming Rakuten Technology conference is expected to reveal more developments in the company's AI initiatives.
InvestingPro Insights
To complement Rakuten Group, Inc.'s (RKUNY) recent earnings report, InvestingPro data provides additional context to the company's financial position and market performance.
Rakuten's market capitalization stands at $12.28 billion USD, reflecting its significant presence in the Broadline Retail industry. This aligns with the company's diverse portfolio of services, including e-commerce, fintech, and mobile communications, as highlighted in the earnings call.
The company's revenue growth of 6.97% over the last twelve months, and a more robust 9.31% growth in the most recent quarter, corroborates the positive trajectory reported in the earnings call. This growth is particularly evident in the mobile and fintech segments, which were key drivers of the company's performance.
An InvestingPro Tip notes that Rakuten holds more cash than debt on its balance sheet, which is a positive indicator of financial health. This strong liquidity position supports the company's ability to invest in strategic initiatives, such as AI integration and network expansion for Rakuten Mobile.
Another relevant InvestingPro Tip highlights Rakuten's high return over the last year, with the stock showing a remarkable 58.89% price total return. This performance likely reflects investor confidence in the company's growth strategy and improving profitability, particularly in the mobile segment which achieved its first quarterly profit.
It's worth noting that InvestingPro offers additional tips and insights for Rakuten Group, which could provide further valuable context for investors interested in a deeper analysis of the company's prospects.
Full transcript - Rakuten Inc (TYO:4755) ADR (RKUNY) Q3 2024:
Unidentified Company Representative: Good afternoon, and thank you for joining Rakuten's 2024 Third Quarter Financial Results meeting. We have disclosed the latest consolidated financial report at 3:30 p.m. today. You can view this data on our corporate website page for investors, along with the presentation documents used in this meeting. If your audio or video is interrupted, you can use another streaming server from the bottom below the video. Mr. Mikitani will begin the presentation.
Hiroshi Mikitani: Good afternoon, everyone. So let me begin this presentation, Rakuten Group 2024 third quarter consolidated financial result announcement. So this is the agenda for today. We are going to explain the overall group strategy and the third quarter highlights and segment-based result and CFO, Kenji Hirose, will explain. And Chief AI Officer, Ting Cai, will also make the presentation. And first, about the group strategy. So this time, we will talk about the current status, but we also would like to talk about the future strategy just a little bit. So what you are very much concerned about, the Rakuten Mobile situation. Right now, the total number of mobile subscribers is 8.12 million lines. So it's growing steadily. And MNO, capital investment, after we have had the full-fledged investment, we have for the first time, a quarterly profit. For non-GAAP operating income, up JPY12.3 billion in profit and IFRS operating income, JPY538 million in profit and also achieved a quarterly self-funding. Let me explain what this is. Rakuten Group companies, there are multiple businesses in this group. We have different fintech companies. We receive dividends, as well as management fees and also other subsidiaries having cash, we do the cash management and investment is made. And also from the banks and capital markets, we have no loans coming from the financial market, meaning we are sustaining ourselves -- financially ourselves. So that is a major contribution to sound financial situation of our group. And Rakuten Mobile as well, we have good visibility as to the future vision and therefore, Rakuten Mobile leveraging the cost advantage, we would like to grow this business, Rakuten Mobile. And also derived from that, there is various kinds of data that we collect. I think we are one of the rare entities that have rich data that we have in our hands and more than 100 million members domestically and also more than 1 billion overall in the entire globe. And we have such membership, and we would like to have this growth. We have made English as an official language. And we are able to grow towards the international market. And the sourcing weighted average cost, the WAC and high growth and high returns should be monitored carefully for our future growth. For your information, Rakuten Mobile, this is our internal comparison against the globally successful use case. First, about within the Rakuten Group, we saw the Rakuten Cards grow rapidly, which is about 30 million customers at this moment. And initial phase of this Rakuten Card, if we compare the speed of the subscription, the Rakuten Mobile is 1.7 times faster than the Rakuten Card. And when we compare the speed of the increase against the T-Mobile, which is a global big player, they had introduced a program called Un-Carrier, and they started to grow very rapidly. And the growth speed, we had adjusted against the population level, but we are even faster than the T-Mobile growth rate. They had four competitors. And with the Un-Carrier concept, they were able to refresh this dominated telecommunications market in the States. So within the carrier, they have the largest market cap at this moment. So we would like to aim to be like them. Next (LON:NXT), Rakuten Mobile is not a stand-alone business, but rather it is one of the pillars for the whole ecosystem. And that is really the positioning of our mobile business. There is a large aspect like that. And so I've been explaining this in the past as well that once Rakuten Mobile subscribers joins the ecosystem, they will actually use other services by Rakuten. For example, when you compare the subscribers versus nonsubscribers, Rakuten Travel, there's this difference of 13.5% and Rakuten Card, 26.8%. In other words, that is how much more the subscribers actually use the Rakuten Group services, and this is quite interesting. The subscriber versus nonsubscriber comparison is shown here. And two years later after 0.75 services is used by these customers. On the other hand, the subscribers, of course, they are within the ecosystem. There are many Rakuten ecosystem levers, including Ichiba. 1.25 is the number of services used to be, but now 3.25. In other words, the difference, the additional new services that you sign up to is plus 2.45. In other words, the subscribers actually use more of our services. So the Rakuten Mobile subscribers will really become the driving force, for not just Rakuten Mobile business, but Rakuten Group businesses overall. And so we have changed somewhat the accounting policy, but the details will be explained by Mr. Hirose later. But -- so ecosystem contribution is what we are focused on. Of course, there are pluses and minuses. Therefore, we have to consider both aspects, plus and minus. But then Rakuten Mobile earnings will be considered after considering both positive and negative, and EBITDA will reflect those considerations. And also, I'd like to talk a little bit about AI. Now this is not related to AI alone. And just to give you an example, customer support for Rakuten Mobile customers. It used to be almost JPY200 per user. That was the cost to support the Rakuten Mobile users. However, we're shifting more to the Internet. Of course, they can call by phone. But since September this year, we have more leveraging of AI. And so what used to be JPY195 per month as customer support cost, it is now down to JPY37. Especially with the use of AI, we were able to reduce cost by 31%. And therefore, this is the kind of AI activities as part of what we call Triple 20 we are conducting. So marketing efficiency gains 20%, operational efficiency gains 20%, as well as client efficiency gains 20%. So these are what we're targeting. So this concludes our kind of overview of our performance. Now I would like to explain more details about the Q3 performance. First, about the consolidated revenue. The record high amount was recruited, which was JPY566.7 billion, which is a 9.3% increase from the previous year. And the growth of revenue, the 40% of that is coming from Rakuten Mobile. So Rakuten Mobile actually is boosting the growth of the entire group. That is what we believe. And as for Non-GAAP operating income, compared to the previous year, JPY53.4 billion improvement, which is JPY12.3 billion operating profit would be recorded. And IFRS also will record a JPY538 million OI will be recorded. And consolidated EBITDA, this is to view our cash flow basis, very important factors. It has increased from JPY35.6 billion to JPY92.2 billion, which is the increase of the 159.1%. This is a huge hike. And the consolidated EBITDA is 20 -- excuse me, JPY92.2 billion profit. So let's deep dive into the different segments. First, shopping travel at the center of the Internet Service segment that I would like to explain first. So for revenue, increase of 4.4% year-on-year at JPY314.6 billion. Last year, from September to October, we had this hometown tax donation system being changed, and there were some last-minute contribution there. So still compared against that, we still have this positive growth in percentage. And for non-GAAP operating income, it's JPY21.2 billion, which is 54.2% increase year-on-year. Let's go a little deeper on this. So starting with GMS. So hometown tax donation is one factor that impacted us in the past. And also focusing on larger purchasers, there was also national travel support last year. And so these were some of the elements that pushed up the GMS last year. However, if you eliminate these one-off items, still, we have GMS growth. Rakuten Travel, for example, compared to pre-pandemic, it has actually grown by 43.1% and, also the advertising revenue increased by 4.3% year-on-year. And IRR for investment business was up 17% and International business unit revenue was up by 9.4%, compared to last year. In other words, they are progressing very steadily. And let's look at Rakuten Mobile and Rakuten Ecosystem, especially the synergistic effect together with Ichiba. Now Rakuten Mobile users or subscribers, well, they become subscribers at Rakuten Mobile without being a member of Rakuten, for example. And let's say they become a subscriber. And one year later, 66% or 67% of these subscribers actually purchased items on the Ichiba. So -- especially young, new subscribers have been making tremendous contribution in this regard, and 47.9% increase was seen in GMS of Rakuten Mobile subscribers versus nonsubscribers. So they buy more. And also, how often do they do shopping in Ichiba? We have done the same kind of comparison between the subscribers versus nonsubscribers, and there's a gap of about 40%. In other words, the ecosystem effect is here. So Rakuten Mobile RateMobile subscribers is one of the driving forces there. And looking at the International business unit. Now in the past -- of course, we don't know about the future. But when we look at the past, of course, operating income suffered as a result of Ukrainian situation, for example. And -- however, we still -- we see this very strong recovery trend continuing now. And so basically, Q3 is profitable. We have realized that. And therefore, we're going to expect large profitability in Q4 as well. Moving on to the fintech. Allow me to explain. Rakuten Bank and Rakuten Securities is the center of the fintech segment, and each customer segments are expanding continuously and steadily bringing the profit. In addition to this, Rakuten Card, Rakuten Payment, Rakuten Banks are largely increasing their profits. Revenue-wise, we have reached up to JPY208.2 billion, which is a 12.8% increase from the previous year. And the operating income is JPY40 billion, which is increased from -- of 57.2% from the previous year. The highlight of each segment. For example, in case of the Rakuten Card Shopping GTV had reached out to JPY6 trillion, which is a 12.7% increase from the previous year. And Rakuten Securities general account is JPY11.65 million, which is an increase of 20.3% Y-o-Y basis. And NISA around -- and other Rakuten Securities deposit asset is JPY32.2 trillion, which is a 39.1% increase Y-o-Y basis. And Rakuten Bank accounts number is increased -- exceeding JPY16.19 million, which is a 12.6% increase. And Rakuten Bank deposit balance is JPY11.1 trillion, which is an increase of 16.4% Y-o-Y basis. So fintech segment is quite -- working quite well. And Shopping GTV had already been explained earlier. But in addition to this, OI is 19.4%, which is largely improving. Non-GAAP OI is JPY16.5 billion, which is a 50.9% increase from the previous year. We are increasing the GTV, but also the cost would be managed well. Therefore, the profitability can be maintained. Also, we earlier made the press announcement about this -- our strategy for the further growth. We are making the Rakuten Card and Mizuho Financial Group's strategic capital and business alliance. So that was announced earlier. And in detail, we will have the press announcement tomorrow. So I would like to give you more explanation in that session, but we are going to integrate the acquiring performance. And also, we are going to have the holistic complementary relationship between Rakuten and Mizuho. And as for Rakuten payment, finally, we have reached up to the full JPY 1.4 billion profit, so -- or the improvement by JPY 3.3 billion from the previous year. Therefore, we are seeing the profitability improvement, but also GTV is also increasing. And various surveys are proving that we are good in customer satisfaction. And perceived value and intention to recommend, we are evaluated quite highly in those areas. And for Rakuten Securities, we are expanding the customer bases, and we have the 20.3% increase from the previous year, which is JPY11.65 billion. And also, we had a slight decrease from last year, but we are now recovering to the pre-drop period because of our various countermeasures. And as for the Rakuten Bank, we made the performance announcement yesterday, and we are progressing very steadily. And our operating income is increasing about 27% and operating profit is increasing approximately 40%. And for the balance sheet-wise, we have the capital adequacy ratio of 11.4%, and we see the increase of the balance -- deposit balance and the number of accounts. Mobile segment sales or revenue is up by 19.5%. So it's now beyond JPY100 billion. And non-GAAP operating income year-on-year growth of JPY26.5 billion. EBITDA, JPY30.5 billion plus. So we have come thus far to be able to see a positive number in the horizon. Now when you look at this chart here, this looks at the revenue, very steady, a 30.3% increase is seen there. And non-GAAP operating income, we have this new accounting standards. So I have been reporting that things have been adjusted accordingly. And for EBITDA, especially Q4, finally JPY10 billion or less than JPY10 billion there, minus number that is. And so EBITDA, positive number is in the near future possible. And the main KPIs, the MNO service revenue, plus 42.2%. Total (EPA:TTEF) subscriber, 8.12 million. And so there were some subscribers that are after the short-term gains of gaining points. However, if we exclude those people, the churn rate -- adjusted MNO churn is 1.09% and ARPU JPY2,801. Ecosystem contribution is reflected here. But our target is JPY3,000 and we're approaching that JPY 3,000 ARPU. And -- so when you look at the chart here, March to May, there is a lot of last-minute purchasing or demand. And also, there were large-scale corporate customers concluding contracts. But from August to October, this period is where companies or people do not conclude new contracts, rather slow period. However, still very steady, and October number shows a plus 46.5% growth. And major factor is ecosystem, Rakuten Ichiba, Rakuten Card, Rakuten Bank, all of these group companies are participating in the so-called campaigns. And we are expecting people -- the users there to come into this new program. And also, we have new programs, the family, the youth, the kids, the SAIKYO programs. And so the young people has been very successful. We have been successful with the youth. However, one of the challenges used to be our senior customers. We were rather a little bit weaker there. However, with the SAIKYO senior program, compared to the previous year, it is about 70% of what it was last year. So I think it is growing. And how many people are coming from other competitors to us? Again, a very steady, very positive trend is seen here. The quality of the communication -- telecommunication has been improved significantly, and I think we are able to satisfy our users. But we will continuously improve our network quality. As for the subway, 40% of the subway routes are covered with 20 megahertz. It is good enough. However, still, there are some areas, we only have 5 megahertz coverage. So by March, the year after, we will cover 20 megahertz and indoors and also lies between buildings and crowded areas. We will prepare with the 5G network so that we can offer faster communications to the customers. And this is the Tokyo Metro status. Right now, 40% of the stations are now under 20 megahertz bandwidth. But within 2025 fiscal year or by March 2026, we will try to reach up to 100% coverage. So with this, Rakuten Mobile, this has a strong tie with our ecosystem. The heavy users are moving into Rakuten Mobile. When -- data usage on a daily basis is 0.33. So it used to be 8 giga, but now it is about 30 giga right now. So the heavy users are increasing, and people are moving into the heavy user range and enjoying the convenient Internet environment. Various surveys are proving this like Opensignal survey says that the approved speed and 5G availability are top-class in the world we are and the carrier who had moved or improved the 5G availability on a yearly basis, we are number one. So this is a network. Not only expanding our network coverage. But in Japan, we have natural disasters quite often because of this location uniqueness. But in order to respond to those elements, we are leveraging the technology, which cannot be materialized by the other operators, and we will continue to offer the telecommunications capabilities to our users. For example, if a blackout happens, normally, it has been covered by the batteries, cell batteries. But we will control remotely. So as for the upload, we will have to ask for the slower communications or upload capability, but with this, we will be able to extend battery life to -- maybe to four to five hours instead of three hours. And also, we will introduce some creativities to software side as well. So this is something that Rakuten Group can leverage because we have the virtualization capability. And one other big strategy is what I would like to share with you. Towards next year, we are going to introduce various creativities. So -- and we will leverage AI in full, so that we'll be able to save the energy usage by 20%. The base station operation will be monitored, so that we are able to adjust the power accordingly and cloud data center energy savings methodology will be introduced and also network equipment’s, which are not really used, will be switched to the low-power mode and AI-embedded intelligent controller for the wireless communications, we will reduce the power level or areas were not used and we will condense the power utilization to the highly used areas. And AST is often asked by you. I do understand that you are quite interested in this AST. And 2024, September 12, the BlueBird, the 16 meter times -- 16 meter, the very gigantic satellite has been launched. And it has unfolded the wings successfully. And we have already confirmed that the communications are now successfully done in the United States, and we are going to cover throughout Japan through AST and we will continue to have the communication under the disaster areas as well. So this is a great opportunity. So I would like to share some case for the United States so that you can imagine what will be brought into Japanese environment. Please take a look at this video. [Video Presentation] So Rakuten Mobile will receive directly from space, the signal covering the entire land of Japan almost in 2026, which is very soon. And that is what we're aiming to realize. And so we're making our utmost effort. And as a result, ARPU is JPY2,801 right now. Now for the new users, it's increasing. And that portion is related to ecosystem contribution. You might think that, that is diminishing. However, when they become loyal customers, about JPY900 worth can be expected from there. Therefore -- of course, we will increase the data portion. I hope you will have a better understanding as to how we approach data, and so this will be reflected. And also, more than that, the sales from Rakuten ecosystem, as well as the profit. So we like to increase it up to -- gradually to JPY1,500, for example. And so one of the things that we have been doing is generative AI is attached to Rakuten Link, chats and calls were what was covered in Rakuten Link. However, more advanced communication will be possible. Simultaneous interpretation will be realized using this function. And in addition to that, Rakuten Group, well, point data and integrated common brand used to be what we used to create this ecosystem by Rakuten Group Services, including Ichiba, Travel, Books and so forth. There are many other services that can be integrated, and AI can provide a concierge service across the board. And so we would like to realize that and will be integrated under or within Rakuten Link. And so that's what we envisioned. So JPY900 will go beyond JPY1,000 and go further up. That's what we are considering. And that is done, we believe, through this type of strategy that we have in mind. And finally, I'd like to talk about Rakuten Symphony. Now, of course, Rakuten Mobile made dramatic progress, thanks to the technology offered by Rakuten Symphony. Now other companies may spend 20, 30 years to build their network. We appreciate their effort. They have made tremendous efforts to develop the network. However, there are cases where old equipments are used, that is also a fact. But we are really using technology of the future to develop our network. And broadly speaking, Internet services is at the top here, but there are many different kinds of applications in OSS. Site management, for example, is done here. And services quality management is done as well in this segment of OSS. In other words, software that is serving as sort of a pilot. And also, there is a lot of computational capacity needed. So this is really RAN. That is a very key technology and cloud. Rakuten platform and also 4G people are -- or companies are moving to their respective own cloud. And so we have a lot of actions going on in cloud. Not just telecommunications companies, but many different companies are approaching us with regard to cloud. Let me explain a little more about Rakuten Cloud. What we're doing is Azure, AWS, Google (NASDAQ:GOOGL). These players are running public clouds. However, not like them, we are focusing on private clouds by different companies to be developed. In other words, we provide software to enable these companies to do so. And therefore, our cloud license will be purchased by these companies, including AI services, so that we can provide them with our services in the cloud area. Our strategy is that we will attach various functionalities and features to sell the whole service. And in the mobile area, we have Rakuten and 101. There is a steady track record already. And compared to others, I think, economically speaking, we will be able to offer something that is more advantageous for our customers. And also a strategic partnership with a large cloud vendor is likely, and I think there is a huge potential. For Symphony overall, last year, we consider 2023 as a foundation year contracts secured with 31 customers. These are global companies. Now this year, that is 45 customers. And next year, 100-plus is what we are targeting for. And the regional split is -- we have Americas, South America included 12 companies and EMEA 19 companies or customers and Asia or APAC, 14. So to summarize, our performance has been quite steady. And thanks to your loyalty, Rakuten Mobile has reached 8 million subscribers, and we are now starting to reach up to 10 million subscribers. And fintech, we are doing quite well. E-commerce and others, we had some onetime factor last year, but we have been able to overcome that situation and starting to see very steady growth. And we would like to respond to your expectance and do further effort. So now moving on to finance. So I would like to hand over to Mr. Hirose, CFO; and Chief Data and AI Officer, Ting Cai, will explain our AI strategy. Thank you for listening.
Kenji Hirose: Good afternoon, everyone. I would like to explain the finance. So this third quarter, we reviewed -- we have reviewed the segment non-GAAP AI, starting from this quarter. So ex Systems segment's interactive contribution effect is expanding. So for the contribution effect and the referral effect should be accurately assessed. So we are going to reflect the non-GAAP operating income, EBITDA and Rakuten Mobile operating profit and EBITDA are reflecting to this mobile ecosystem contributions. So as we make decision, the ecosystem contribution should be considered. So from the management approach standpoint, we believe it is important for us to explain this. And in order to keep the continuity from the previous quarter, so on the sheet, we are parallelly showing the pre and past, the consideration of the ecosystem contribution. And as explained, we have three pillars to keep the financial health. The first is the profitability improvement. As for the core business, we will continue to increase the profit. And in 2024 fiscal year, the non-GAAP OI should reach out to profitability. And as for Rakuten Mobile, by 2024, and the monthly EBITDA should be -- become profitable. As for the fiscal year basis, we are trying to reach out to the profit in 2025. And efficiency improvement, we are doing further cost reduction effort. And also, we have seen the improvement of the SBU. And working capital improvement, we are trying various efforts in this area as well. And Ting Cai will explain later, but we are leveraging AI throughout the company, and the effectivity is starting to show. And for the financial soundness, the gross debt is reducing and the refinance for this year and next year, the financial risk has been removed. Going forward, we are going to improve the credit rating. As explained, towards 2025, we have removed the refinancing risk. The hybrid notes for the domestic one, we will reach out to the first call in the November and December 2025, and we are going to address this and also all the -- and self-funding, Mr. Mikitani has already explained, but the sales and leaseback in Rakuten Mobile, this was announced in August and JPY170 billion, the large amount of funding was successfully done. And Rakuten Mobile have enough capital in hand at this moment. So fintech and the -- we are able to utilize this for the reduction of the net debt. And we will continue to do the fundings continuously for Rakuten Mobile. And secondly, CV price is increasing, and we are going to see the business improvement steadily, and also the fintech and business portfolio is increasing and the balance sheet proactive management has been evaluated positively from the market. And we will do some refinancing from the market, but the cost will be reduced. That is what we are expecting. So this concludes my financial explanation.
Hiroshi Mikitani: Ting Cai, please talk about AI.
Ting Cai: Thank you, Hiroshi. Good afternoon, everyone. I'm very excited to be here with you, to share an update on Rakuten's AI strategy and execution. At Rakuten, we have a vision to augment human creativity with the power of AI. Rakuten has a long tradition of leveraging cutting-edge technology and creates more value for the society. Back in 1997, we rolled the wave of Internet and created Rakuten Ichiba, connecting merchants with shopper and deliver more value to business and customers. And most recently, we created Rakuten Mobile by leveraging virtualization, cloud and open RAN, to deliver high-quality and lower-cost services to consumers. And now we started the initiative called AIization to infuse AI into everything we do. And let me share a little bit on how we approach this. We build AI technology from ground up. And Mickey talked about the data assets we have and we leverage deep learning to create embedding, for example, for every product in Ichiba. So we can deeply capture the user preferences and deliver the most relevant product to what they need. And on top of that, we recently built a large language model, so we can further understand the user intent and matching the user interest with the best product and services we have. And next, we leverage our expertise in almost every category from mobile, fintech and commerce. So we can build the flywheel between human intelligence and artificial intelligence, so we can continuously improve and deliver the best services to our customers. And lastly, we have a large portfolio of tools and technologies from traditional machine learning and deep learning and latest large language model, so we can deliver the best performance by cost to our customers. So we continue to demonstrate strong execution momentum in three waves. Wave one, apply deep learning and scale across semantic search, recommendation and most recently, in ads. And next, Rakuten AI for businesses for our merchants, for our hotels, for our business partners; and lastly, Rakuten AI for consumers at the most largest scale. So just to share with you a couple of examples, how we apply deep learning at scale. Last time, we talked about rolling out semantic search to Fashion and Ichiba. Now this quarter, we have six additional services apply the latest semantic search technology. And the pattern is very consistent. So with semantic search, we understand what you mean, not just what you type. With that, we can reduce the zero hit ratio on search result page, and therefore, provide more relevant results to our users and user engage more, they come back more and they click more and purchase more. That brings more sales to the business and more benefit to merchants. And next is semantic search recommendation. Last time, I talked about how we leverage real-time recommendation and semantic matching to help users to discover what they want. Even though they may not know it, we can recommend things they love. And now we have six services in production that leverage the latest semantic recommendation technology. And one example is on the Ichiba. Rakuten Ichiba Top Page, through recommendation widget, helped increase the sales by 59%. And most recently, we are applying the deep learning technology to ads. With that, we can show less number of ads, but deliver more conversions. Our ad sale on the Rakuten Ichiba top search ads increased 4% by leveraging the latest deep learning technology. The next wave is Rakuten AI for business. And we launched Rakuten AI analytics, so we can help our business partner to understand their customer better through customer profile data, through our user behavioral data, so they can have a deep understanding of their customer and therefore, offer the best services to them. Another example is Rakuten Insights, when we can combine the Rakuten service data with our Rakuten analytical data and help our business partner to understand the customer more. We can leverage AI to generate images to visualize the profile of their customers. And lastly is Rakuten AI for consumers. As Mickey mentioned, we launched Rakuten Link AI. So millions of Rakuten Mobile users can leverage the cutting-edge AI technology without downloading another software, without creating another account, without additional subscription fee, they can leverage the latest GenAI technology, right, on their mobile devices. And we also going to open up universal concierge through invitation only. Please join the Rakuten Technology conference this weekend to hear more about that. I'm very proud of the progress that we have made. I look forward to share with you more results in the future. Thank you very much.
Unidentified Company Representative: So this concludes our explanation. Thank you very much.
Q -:
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