Rakuten's net profit soars 110%, aided by card memberships
But rewards program constrains earnings for sluggish e-commerce business
TOKYO -- Rakuten's group net profit skyrocketed 110% on the year to 25 billion yen ($220 million) in the January-March period -- the first growth for that quarter in three years -- though efforts to revive the company's mainstay e-commerce business have yet to bear fruit.
Sales rose 18% to 212 billion yen. Operating profit climbed 73% to 40.4 billion yen, thanks largely to the 16.1 billion yen in paper profit from Rakuten's acquisitions.
The Tokyo-based e-retailer currently offers customers up to seven times the typical rewards points, a bid to poach business from rivals Amazon.com and Yahoo. This incentive has increased membership in Rakuten-brand credit cards and the use of revolving balances, boosting the company's financial business.
The campaign also has aided Rakuten's domestic e-commerce business. Since December, the retailer has beaten Amazon for four straight months in the number of online shoppers, according to Nielsen Digital.
Sales on Rakuten's e-commerce platforms have surged since the latter half of 2016, and operating profit at domestic e-commerce operations likely will grow in the April-June quarter, CEO Hiroshi Mikitani said.
But the domestic e-commerce business still suffered a 5% decrease in operating profit to 17.9 billion yen in January-March, as it was unable to absorb the costs associated with the rewards campaign. The company also bore higher costs for rebuilding its flea market app, Rakuma, as well as the Fril platform run by Fablic, which Rakuten acquired last August.
Competition in the e-commerce sector is only growing. Rakuten projects double-digit growth in revenue for 2017, but if it cannot deliver, its expanded points program will only squeeze profits.