RACCOON HOLDINGS,Inc. Q3 FY2026 earnings call

• Consolidated Financial Results • Consolidated revenue reached 4.811 billion yen, growing 5.5% YoY (10.3% YoY after excluding the impact of the divestment of the rent guarantee business last year). Gross profit hit 3.987 billion yen, growing 7.7% YoY. Quarterly operating profit reached 399 million yen, growing 31.8% QoQ and marking a new all-time quarterly high that surpassed the temporary peak during the COVID-19 mask boom. Cumulative operating profit for the first three quarters reached 974 million yen, growing 2.3% YoY. • One-time cost impacts: 46 million yen of shareholder benefit cost was recorded in Q2, and a total 50 million yen of overseas shipping red ink was recorded in Q1 and Q2. The shipping cost issue was fully resolved in Q3, which turned a 4 million yen profit in the quarter. • Group adjusted GMV (excluding double-counting) exceeded 20 billion yen in the quarter, and URIHO guarantee total balance reached 71 billion yen at quarter-end.

• Strategic Shift in EC Customer Incentives • Management shifted coupon and point allocation from prioritizing new customer acquisition and reactivation to prioritizing AOV growth as a test in Q3. This strategy delivered strong results, driving a 10% YoY and 15.2% QoQ jump in domestic AOV, and the company will maintain this adjusted allocation going forward while rebalancing investment to restore customer acquisition growth. • New purchasing customer counts recovered to Q1 levels in Q3 after a Q2 dip, while repeat customer counts dipped slightly due to reduced incentive spend for reactivation; management expects customer counts to resume growth from Q4 after rebalancing investment.

• Advantage Partners Partnership • The partnership was formed to support execution of the Rakuen BtoB Network long-term vision, with Advantage Partners providing capital and operational support. Advantage Partners brings advanced expertise in data analysis, KPI management, M&A execution, talent acquisition, and external networks that Rakuen is currently integrating into its operations to improve management quality. • Key priorities: 1) Strengthen sales and marketing for existing businesses, including accelerating growth of the EC overseas segment and building out a large client sales team for Paid to address the current gap in large customer acquisition. 2) Pursue M&A and minority investment alongside Advantage Partners to expand service offerings for SMEs. Rakuen disclosed that its 2018 acquisition of the rent guarantee business was a failure due to insufficient due diligence and poor post-merger integration, and Advantage Partners' support will address these past weaknesses to improve future M&A success.

• Long-Term Vision: Rakuen BtoB Network • The vision is to build a comprehensive network of services for Japanese SMEs, which commonly face challenges including limited manpower, limited IT and financial expertise. The network will expand beyond existing services (Super Delivery EC, Paid, URIHO) via M&A and partnerships to add new relevant services, grow the client base from over 500,000 current accounts to millions, and drive cross-selling across services to grow group GMV.

• Dividend Policy Update • The existing core policy of maintaining a 45-50% consolidated payout ratio remains unchanged. Two new temporary provisions are added for the 2026/4 to 2029/4中期 period: 1) A progressive dividend floor of 22 yen per share annually (including the current fiscal year), 2) A profit-linked additional dividend: for any net profit above 1.2 billion yen, a 60% payout ratio applies to the portion between 1.2 billion yen and 1.5 billion yen, and a 70% payout ratio applies to any portion above 1.5 billion yen. Management noted that Rakuen has strong, front-loaded cash flow, so it can simultaneously support aggressive investment and enhanced shareholder returns with no tradeoff.

1. EC Business: Revenue of 2.838 billion yen, segment profit of 934 million yen. Total GMV reached 22.416 billion yen, growing 9.5% YoY. Domestic GMV slightly beat full-year targets, with 1.8% YoY growth in purchasing customers and 10% YoY growth in average order value (AOV). International GMV missed full-year targets, with 4.4% YoY decrease in purchasing customers (driven by declines in the US and Hong Kong) offset by 13.5% YoY growth in AOV, leading to near 7% YoY overall GMV growth. By region: Taiwan grew 6.9% YoY, South Korea grew 19.5% YoY, Europe grew over 50% YoY (France alone grew 81.9% YoY), Hong Kong declined 18.9% YoY, and the US was roughly flat. This segment recorded a quarter-over-quarter (QoQ) 31.8% growth in quarterly profit, hitting a new all-time quarterly high, driven by domestic GMV growth and resolved overseas shipping cost issues. EC segment revenue contributed 59% of total consolidated revenue.
2. Financial Business: Revenue of 1.973 billion yen, segment profit of 620 million yen. Paid service grew revenue 15.2% YoY, URIHO service grew revenue 14.2% YoY; overall segment revenue grew 14.6% YoY after excluding the former rent guarantee business. Paid transaction volume grew 11.3% YoY, URIHO guarantee balance grew 14% YoY, both missed internal targets but delivered solid double-digit growth. URIHO overall guarantee balance grew 18.9% YoY, with the subscription segment growing 24.2% YoY and the non-subscription segment growing 4.5% YoY. Cost of goods sold ratio returned to a normal 23.4% after an abnormally low level in Q2, which is still a relatively low level historically, indicating stable credit underwriting performance. Segment profit was roughly flat QoQ, remaining at an elevated level compared to historical ranges. Financial segment revenue contributed 41% of total consolidated revenue.

• The current in-progress medium-term management plan will be discarded following the Advantage Partners partnership, which has fundamentally changed the company's operating environment and strategy. A new 3-year medium-term plan covering the 2027/4 to 2029/4 period will be published alongside full-year results in June 2026.
• Long-term quantitative targets for the 2031/4 fiscal year (the end of Advantage Partners' investment period) have been published: 13.5 billion yen in total revenue, 15% CAGR from current levels, 4.3 billion yen in EBITDA, and 4.0 billion yen in operating profit. These targets conservatively incorporate expected M&A activity, with additional upside possible if M&A progresses well and cross-selling delivers incremental growth.
• A target share price of 1,800 yen and market capitalization of 50 billion yen by 2031/4 has been set, based on an assumed 20x PER after all Advantage Partners warrants and convertible bonds are exercised.
• Starting from the next fiscal year, EBITDA will be added as a disclosed performance metric alongside operating profit, to support transparency as the company pursues M&A.
• Management reaffirms that the full-year 2026/4 earnings target remains achievable, despite being slightly behind schedule through the first three quarters, as the Q1/Q2 overseas shipping headwind has been fully resolved in Q3.

• Trump tariffs continue to negatively impact the EC international business, driving gradual customer count declines in the US market.
• Large customer acquisition for the Paid service has underperformed relative to internal expectations, which is a key priority for improvement going forward.
• The shift in coupon allocation to prioritize AOV growth temporarily slowed the growth of purchasing customer counts in Q3, requiring rebalancing of investment to restore growth.
• Aggressive M&A carries inherent execution risk, based on the company's past experience with the failed rent guarantee business acquisition, though the partnership with Advantage Partners is expected to mitigate this risk.

Q: Is it correct to expect that shareholder benefit cost will not see irregular increases going forward?

A: Shareholder benefit cost depends on the number of shareholders, as benefits are only provided to shareholders holding for over 1 year. There could be some moderate increase going forward depending on share price levels, but we do not expect extreme irregular increases after the step-up we already recorded in the first half of this fiscal year.

Q: Paid's growth rate appears lower than competitors, which have grown via large client acquisition. What specific initiatives will you pursue to improve large client acquisition?

A: We recognize that large client acquisition is a gap we need to address, similar to the growth path competitors have taken. We will strengthen our sales organization, utilize partner agencies, improve promotional outreach, and shift from our current inbound-focused acquisition model to more proactive outbound outreach. There are no material differences between Paid and competing services in core functionality, so improving outreach will allow us to close the gap.

Q: For Super Delivery, is the AOV increase driven more by price inflation or your own strategic initiatives?

A: The AOV increase is driven overwhelmingly by our strategic shift in coupon and point allocation, as we explained earlier. While price inflation has some marginal impact, the primary driver is our change in incentive strategy.

Q: AOV increased while customer counts declined this quarter. What is your outlook for sustained AOV growth and a recovery in customer count growth?

A: We have now identified a repeatable method to lift AOV, and the coupon/point strategy we implemented can be maintained long-term. We do not expect AOV to rise perpetually, but we are confident we can maintain the current higher AOV level going forward. The temporary decline in customer counts was a deliberate choice to reallocate investment to test AOV growth, so we can easily restore customer growth by rebalancing investment back to customer acquisition, which we plan to do going forward.

Q: Do you still maintain a strategic commitment to growing customer counts for the EC business over the medium term, even after the Q3 shift to prioritize AOV?

A: We have not stopped prioritizing customer count growth. The Q3 shift was only a temporary reallocation for testing purposes. We recognize there is ample white space for growth in customer numbers, and growing customer counts will remain a core priority, and it will be a key focus of our work with Advantage Partners.

Q: Is the push for large client acquisition for Paid just to catch up to competitors, and is there any material difference between Paid's business model and competing offerings? Do you have a path to catch up?

A: All points related to large client acquisition have been covered earlier. Core functionality for clients is essentially the same as competitors, so improving outreach and sales to large clients will allow us to grow our large client base successfully.

Q: Results are slightly behind full-year plan. Is the full-year target still achievable?

A: We acknowledge we are slightly behind plan, but the shortfall is not large, especially for profit. The 50 million yen red ink from Q1/Q2 shipping costs has been fully offset by the improvement in Q3, and the second half performance is very different from the first half. We still believe the full-year target is achievable at this point.

Q: Have any benefits from the Advantage Partners partnership already shown up in Q3 results, or will benefits come in future periods?

A: There are no material quantitative impacts reflected in Q3 results yet. We are currently in the phase of aligning on strategy and refining plans for the new medium-term plan and 2031 vision. We are already implementing internal changes to KPI management, ROI analysis, M&A sourcing, and decision-making processes, and these improvements will drive better performance in coming periods.

Q: What is the key competitive advantage of the Rakuen BtoB Network compared to similar BtoB infrastructure offerings from other companies?

A: Our core advantage is that we have the Paid BtoB payment service as the hub of our network. All BtoB transactions require a final payment step, and we have built payment and credit functionality as an internal core capability from the start. We already have more than 500,000 client accounts, most of which we already have established credit underwriting experience for. The combination of a payment hub, existing credit expertise, and a large existing client base is something competitors do not have, in our view.

Q: What is the calculation premise for the 2031 share price and market capitalization target?

A: As we explained earlier, the target is based on an assumption of a 20x PER after all Advantage Partners warrants and CB are exercised.

Q: What is the difference between the current partnership with Advantage Partners and the earlier relationship with Taiyo Pacific Partners?

A: The two are completely different. Taiyo Pacific was an external institutional investor that did not have access to internal company data and operated as an engaged but outside shareholder. Advantage Partners is an insider strategic partner that has full access to our internal data, and works with us jointly to develop and execute strategy.

Q: Is EBITDA more important than operating profit for the period leading up to 2031, given the long-term growth focus? Or does operating profit remain important alongside the new dividend policy?

A: We do not view EBITDA as more important than operating profit at this time. However, when executing M&A, goodwill amortization creates a difference between EBITDA and operating profit that can obscure underlying operational performance, so we will disclose both metrics going forward to allow investors to see the full picture. Both metrics are important, and we do not prioritize one over the other.

Q: Won't the new profit-linked dividend policy divert too much cash from strategic investment if performance is strong?

A: The additional dividend only applies to the portion of net profit that exceeds the thresholds, not total profit. For example, 3 billion yen of incremental profit between 1.2 billion and 1.5 billion yen would only add 300 million yen in additional dividend, which is not large enough to impact our strategic investment plans. We carefully modeled the cash impact before announcing the new policy, and there is enough cash to fund both investment and enhanced dividends, so investors do not need to worry about this tradeoff.

Q: Will future profit growth be driven by top-line growth from the BtoB platform and M&A, or by cost efficiency?

A: We expect almost all future profit growth to be driven by top-line growth from GMV expansion and cross-selling. That said, as an IT company, we will actively pursue opportunities to control costs via tools like AI, and cost efficiency can contribute incremental profit growth even if it is not the primary driver.