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Is the wheel of fortune starting to turn in favour of Japanese billionaire Hiroshi Mikitani & his burgeoning online empire, Rakuten (4755)?

It was a question that seemed relevant again at 21.37 GMT on Weds 1st May when Lionel Messi arrowed a 35 yard missile into the top left hand corner of Liverpool’s goal (here, in case you missed it), making passage to the final & a 6th European Cup – notwithstanding the best efforts of Ajax & Spurs – seem inevitable.

As Messi wheeled away in celebration the camera couldn’t help but pick out the Barcelona shirt sponsor writ large across his chest: Rakuten.

If he was watching Mikitani would surely have allowed himself a wry smile. When he signed the shirt sponsorship deal with FC Barcelona in July 2017 for EUR55m per year it looked to be part of a wider narrative suggesting Mikitani had lost his touch & his way. Case in point: within 3 weeks of the deal Neymar had left for Paris St Germain & by May 2018 arch rivals Real had won their 13th European Cup.

It wasn’t just on the football pitch where things had started to go wrong. Having peaked in April 2015 Rakuten’s stock was under huge pressure as earnings stagnated. Where previously a premium had been given to plans to build an ecosystem centred around the core Rakuten Ichiba marketplace, a credit card based financial services business & a collection of haphazard looking overseas acquisitions, suddenly concerns started to mount.

Specifically: cut-throat competition versus Amazon; the requirement for huge promotional spending to generate ecommerce growth; & the company’s propensity to splash cash on acquisitions where any sort of return on investment was difficult to envisage (Kobo & Viber spring readily to mind).

Into this festering uncertainty Mikitani dropped a bombshell in December 2017: Rakuten intended to become Japan’s 4th mobile network operator. Amidst predictable question marks over the likely cost & impact to earnings the stock price reaction was unequivocal, falling a further -38% before bottoming at Y704 in June 2018. Since when it has not looked back.

In hindsight it is difficult to identify one specific catalyst for the stock’s recovery. No doubt it has been helped by logical announcements such as an alliance with Wal-Mart to sell e-books in the US & a deal signed with KDDI (9433) to tie up on payments. Undoubtedly a return to earnings growth, with 12/18 OP of Y170.4bn +14%YoY a new record, has also been a factor.

The suspicion, though, is that the market has started to understand Mikitani’s bigger picture as opposed to simply discounting what it might cost. In essence the addition of a next generation, legacy free, cloud infrastructure operated mobile network looks likely to allow Rakuten to provide consumers with an end-to-end UX, including content, goods & financial services, at a very competitive price. If successful the potential to roll the model out globally becomes much clearer.

Much will depend on Rakuten’s mobile development team, which includes Cisco, Intel, Red Hat, Qualcomm, Altiostar, Ciena, Nokia & Tech Mahindra, & how & when the new network can be launched in concert with 5G. Progress to date has been encouraging & the growth opportunity is crystallising. A Messi-led European Cup triumph for Barcelona in May would simply cement the impression that Rakuten is on the way back.