Rakuten Group, Inc.

Rakuten Mobile faces price competition from established MNOs and MVNOs with strong customer bases, such as NTT DOCOMO, KDDI, and SoftBank, and service homogenization is also progressing. If competitors offer low-priced communication services, acquiring and retaining new users may become difficult, and the number of subscribers or ARPU may fail to reach planned levels. The company is pursuing differentiation measures through integration with the "Rakuten Ecosystem," but if these do not achieve the expected effect, the profitability of the Mobile segment could have a material impact on the consolidated business results and financial condition of the Group as a whole.

Loan agreements and corporate bonds entered into by the Group contain financial covenants, and if these are breached due to deterioration in business results or creditworthiness, the Group may be forced to repay existing loans and bonds in full or provide collateral. A downgrade of credit ratings by rating agencies or deterioration in financial markets could make it difficult to raise funds on favorable terms, constraining service development. In addition, if the Group forgoes early redemption of bonds at the first optional redemption date, this could adversely affect the terms of future securities issuances.

Financial group companies such as Rakuten Card, Rakuten Bank, Rakuten Securities, and Rakuten Life Insurance are subject to various industry laws, financial regulations, and supervisory authority guidelines, and if their licenses are revoked or business suspension orders are issued, this could have a material impact on the Group's business and results of operations as a whole. In particular, the Group is required to respond to strengthened international AML/CFT regulations, including the FATF's 5th round mutual evaluation of Japan, and if anti-money laundering measures are judged to be insufficient, there is a risk of administrative sanctions or business restrictions. The enactment or revision of related laws and regulations may also result in changes to the competitive environment and additional costs.

The Group holds more than 100 million member IDs and utilizes vast amounts of both online and offline data, resulting in a high risk of personal data breaches due to cyberattacks, unauthorized access, internal misconduct, and other causes. In the event of a data breach, the Group may face administrative sanctions from supervisory authorities, claims for damages, loss of users and business partners, and damage to its social credibility. The Group has established a risk management system based on the Three Lines of Defense model and an IT-BCP, but recognizes that complete elimination of such risk is difficult.

Rakuten Mobile holds large-scale property, plant and equipment necessary for building its communications network, and if future cash flows are expected to decline, it will be necessary to recognize impairment losses. If negotiations with landowners regarding base station installation or collaboration with other telecommunications carriers do not proceed as planned, additional costs may be incurred or sales of telecommunications equipment may decline. The Group is also proceeding with the rollout of the platinum band (700MHz band) and mobile communication trials utilizing low-earth-orbit satellites, but depending on the results of preliminary verification, it may not be possible to provide services as scheduled.

The Group is actively promoting the use of AI and generative AI across its services, which is increasing risk exposure related to personal data breaches, infringement of intellectual property rights, spread of misinformation, and unintended amplification of bias. As measures against cybersecurity threats posed by generative AI, the Group has implemented output filtering and management of the input and output of personal information, but if these measures are insufficient, the Group could suffer damage to its social credibility, claims for damages, or administrative sanctions from supervisory authorities. The AI & Data Committee formulates Group-wide AI governance and risk management strategies and has established a system for regular reporting to the Board of Directors.

The Group's core strategy is to maximize synergies across its businesses through the "Rakuten Ecosystem," centered on more than 100 million member IDs, but if efforts to promote cross-usage of multiple services fail to achieve the expected effect, it may become difficult to maximize profitability across the Group as a whole. If laws and regulations related to the use of digital platform and membership data or reward programs are revised in an unfavorable manner, this could affect the very foundation of the ecosystem strategy. In addition, if an incident that damages trust occurs with respect to one service brand, there is a risk that it could spread to the entire "Rakuten" brand.

The Group positions M&A, joint ventures, and venture investments both in Japan and overseas as important management strategies, but if sufficient due diligence cannot be conducted, contingent or unrecognized liabilities may come to light after an acquisition. If integration of information systems, unification of internal controls, or retention of personnel does not proceed as planned, or if changes in the business environment make it difficult to recover invested capital, impairment of goodwill and other assets may become necessary. There is also a risk that differences in management policy between parties to a joint venture may arise, preventing the expected synergy effects from being achieved.

The Group operates various services, including e-commerce, in the Americas, Europe, Asia, and other regions, and is exposed to risks arising from differences in language, laws, tax systems, and business customs, as well as political instability and unannounced changes to regulations by foreign governments. If regional conflicts or economic sanctions between nations result in import/export or foreign investment restrictions, or if global inflation, sharp changes in interest rates, or exchange rate instability materialize, continuing operations may become difficult, potentially forcing the Group to suspend services or withdraw from businesses. Rakuten Symphony's global Open RAN business will also take time to become profitable, and inherently carries the risk of delays in service rollout due to country risk.

The Company and certain consolidated subsidiaries recognize deferred tax assets in accordance with IFRS, but if estimates of future taxable income are revised downward, it may be determined that part or all of the deferred tax assets cannot be recovered. Changes in tax systems or accounting standards could also reduce deferred tax assets, affecting business results and financial condition. Amid continued losses from upfront investment in the Mobile business, the outlook for taxable income remains highly uncertain.