Rakuten Global E-commerce Expansion Weighs Down Q2 Profits

The aggressive international expansion of Japanese e-commerce giant Rakuten has continued to put pressure on the firm’s bottom line but it is confident the “super sales” and B2B2C business model, popular in its homeland, will help it steal Amazon’s mantle as the world’s No. 1 e-commerce firm.

On Friday it announced second quarter earnings for the six months ending June 30, 2013, when revenue increased to $2.4 billion, up 32 percent compared to the previous year; Operating income rose to $475 million, while net income in this period was $256 million, up 18.9 percent year-on-year.

In Q2 2013, Rakuten’s internet services group, which includes leisure travel services, did most of the heavy lifting ringing in profits of $275.5 million on revenues of $1.4 billion over the period. However, the profit result was actually down by 4.8 percent on the corresponding period in the previous year, the legacy of large acquisitions in 2012 as well as moving away from the inventory sales model.

The marketplace move appears to be paying off as its overseas properties, such as Buy.com and Play.com as well as Rakuten’s international properties, recorded gross merchandising revenue of $141 million, up 37.3 percent year-on-year. Over the same period “other sales,” including white label and direct sales, were down 12.2 percent, to $1.3 billion.

Beyond the marketplace, it will take a personal approach to “organically” expand into new markets.

On the supply side, it allows merchants to design their own sites and use e-mail and social networks to engage directly with customers, which is akin to shopping in a mall. It’s also banking on the “super sales” promotion, which reaches over a billion impressions and promises triple digit growth in sales and web traffic. To participate, merchants must aggressively discount their products, including one product at 20 to 50 percent off RRP.

For customers, it will replicate the Rakuten ecosystem, popular in Japan, which engages customers via multiple channels, including ebooks, media, and travel, and uses a rewards points system to circulate these buyers amongst its various products, such as credit cards, securities, and life insurance.

Specifically, it will leverage its foreign properties, acquired last year: Canadian e-reader Kobo, which boasts 15 million and saw content sales rise 40.5 percent year-on-year in the latest results; as well Spanish video streaming service Wuaki, which was recently launched in the UK.

“Our Group, using this advanced business model, plans to fuse global e-commerce services, and aims to offer a borderless digital content platform across various devices,” Rakuten said on its website.

“The Rakuten Group will promote a horizontal penetration of our unique business model started from Japan as well as the know-how for success in each country and region. Also, we will develop a highly synergetic global management platform and will enlarge the Rakuten Ecosystem globally, striving to become the world’s No. 1 Internet services company.”