Rakuten, Inc.
Annual Report 2008

Annual Report

Fiscal Year Ended December 31,2008

Rakuten, Inc. TEL: +81-3-6387-1111 URL: www.rakuten.co.jp/info/ir/english
Shinagawa Seaside Rakuten Tower, 4-12-3 Higashishinagawa, Shinagawa-ku, Tokyo 140-0002, Japan

Rakuten, Inc.
Annual Report
Fiscal Year Ended December 31, 2008

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Main Shareholders (As of December 31, 2008)

Contents
01 About Rakuten
01		 Japan’s Leading Internet Service Company
02		 A History of Expansion
03		 A Uniquely Integrated Service Range
04		 A Rapidly Evolving Industry
05		 Rakuten—Positioned at the Forefront
06 To Our Shareholders
10 Our Operations
10		 Financial Highlights
11		 Segment Information
12		 E-Commerce
13 		 Travel
14		 Credit and Payment
15 		 Securities
16		 Professional Sports
17		 Portal and Media
17		 Telecommunications
18 Corporate Activities
18		 Technology that Supports our Service
20		 Corporate Culture and Human Resources21		 Social Contribution Activities
22		 Corporate Governance25		 Risk Factors
37 Financial Section and Corporate Data

Financial Section
and Corporate DataClassification byType of Shareholder

Name

Number ofsharesPercentage
held

Crimson Group, Inc.

2,264,190

17.30

Hiroshi Mikitani

2,171,722

16.59

Haruko Mikitani(As of December 31, 2008)

1,458,750

11.15

The Master Trust Bank of Japan, Ltd. (Trust Account)813,889

6.22

Japan Trustee Services Bank, Ltd. (Trust Account)482,411

3.69

Masuda and Partners Inc.

474,910

3.63

Japan Trustee Services Bank, Ltd. (Trust Account 4G)

260,902

1.99

Shinnosuke Honjo

193,842

1.48

Individuals

Trust & Custody Services Bank, Ltd. (Trust Account Y)

123,043

0.94

Other domestic corporations

43.29%
21.38%

Bank of New York GCM Client Account JPRD ISG FE-AC

121,977

0.93

Foreign financial institutions
and individuals

17.92%

Domestic financial institutions 16.88%
Securities firms and others

0.51%

Monthly Stock Price Range (Tokyo Stock Exchange)(Yen)
140,000
105,000
70,00035,000
0(Thousands of shares)
9,000

6,000

3,000

0

Cautionary Statement
In this annual report, unless indicated otherwise, references to “Rakuten”, “Rakuten Group”,“we”, ”our” and “us” are to Rakuten, Inc. and its consolidated subsidiaries and consolidated
affiliates. Statements regarding current plans, strategies, beliefs and other statements thatare not historical facts of the Rakuten Group are forward-looking statements.
Such forward-looking statements are based on management’s assumptions andbeliefs in light of information currently available, and it should be noted that risks
and unforeseen factors could cause actual results to differ significantly from those
discussed in the report. We do not intend to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as
required by applicable laws.
andare the registered trademarks of Rakuten, Inc.
“Rakuten”,
in Japan.

Origins of the Name Rakuten
Rakuten Ichiba is named after Rakuichi-Rakuza , the first free andopen marketplace in Japan, opened in the 16th century.
When used as a verb, raku is written with a Chinese character
meaning to enjoy oneself ( 楽 ). The same character is used in Rakuten,
which means “positive spirit.” The name Rakuten Ichiba literally meansa “market of positive spirit,” where shopping is entertainment. Thesewords symbolize the driven, forward-looking nature of our business.
That is why we named our company Rakuten, Inc.

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
’04
’05
’06
’07
’08
’09

Inquiry
Investor Relations, Rakuten, Inc.
Tel +81-3-6387-0555
URL http://www.rakuten.co.jp/info/ir/english

Rakuten, Inc.

49

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

About Rakuten

Japan’s Leading Internet Service Company
Founded in 1997, we have enjoyed more than a decade of rapid growth, and today the Group Gross
Transaction Value, standing at nearly ¥1 trillion, is at a level similar to that of a major department store
chain in Japan.
With our unique business model, which leverages the integrated strength and synergies of leading
Internet businesses—such as e-commerce, online travel reservation, online securities brokerage andothers—we are able to offer a diverse lineup of personalized services to more than 55 million Rakuten
Group Members. In the key growth areas of online shopping and online hotel reservations, we hold theundisputed No. 1 positions in Japan.
Building on the strong growth of our domestic operations, we are now expanding our presencein the world, especially in the Asian market. Our ultimate aim: To become the world’s leading Internet
service company.
Rakuten, Inc.

01

A History of Expansion
Since the launch in 1997, we have actively expanded our services.

1997
E-Commerce
Business

2008

1997

2001

Internet Shopping Mall

Online Book Store

2005

Performance Marketing

2004

Credit and Payment
Business

Personal Loan

2000

Portal and MediaBusiness
Portal Site

TravelBusiness

2006

2008

AuctionInternet Shopping Mall in Taiwan

2005

2009

Credit Card

Internet Bank

2001

2005

2008

Blog

Internet Research

Marriage Consultant

2001

Online Hotel Reservation

Securities
Business

2003

Online Securities Brokerage

Professional Sports
Business

2004

Professional BaseballTelecommunications
Business

2007

IP Telephony

When Rakuten was established in 1997, Japan was
struggling with the after effects of the collapsed bubble. By
establishing a company to run an Internet shopping mall,
we hoped to help invigorate the Japanese economy, a goal
expressed in our vision Empower Japan.
Our subsequent evolution has been guided by ourdetermination to approach business from the customer’s
perspective, with a commitment to providing the same highlevel of service to people anywhere in Japan. Since 2000,
we have built a group portfolio capable of realizing ourEverything Rakuten philosophy, which emphasizes
the continual improvement of consumer convenienceand enjoyment. We have integrated service membership
IDs, and in 2005 we established a common logo for our02

Rakuten, Inc.

various brands. These policies allowed us to build a senseof unity linking all Rakuten services, and today consumers
immediately recognize the types of services offered by
Rakuten Group and can access multiple services with asingle ID. The service business that began with Rakuten
Ichiba is no longer confined to e-commerce. We havegrown into a group with operations including online travel
reservation services, portal site operation, online content
streaming, credit card services, consumer loan services,
Internet banking services, online securities brokerage, IP
telephony services and even a professional baseball team.

AboutRakuten

To OurShareholders

Our
Operations

Rakuten Eco-system

Corporate
Activities

Customer Flow
- Shopping Mall
- Auction

Rakuten ID
Rakuten Super Point

E-Commerce
Business

TravelBusiness

Credit and Payment
Business- Credit- Consumer Loan
- Banking (New)Portal and MediaBusiness

Financial Section
and Corporate Data

Membership
Database- Hotels and Facilities- Air Tickets- Long Distance Bus- Dynamic Packages

Securities
Business- Stocks- Bonds- Trust Funds- FX- Portal- Advertising- Marriage Consulting

Telecommunications
Business- IP TelephonyProfessional Sports
Business- Professional Baseball

A Uniquely Integrated Service Range
With our wide variety, we enhance customers’ quality of life in many areas.
Our goal is to build the Rakuten Group into the world’s leading Internet company. We will achieve this by attracting as many
people as possible to buy goods, trade securities, book travels and in other ways participate in the circulation of what wecall the Rakuten Eco-system.
The concept of the Rakuten Eco-system is at the core of the Group’s medium and long-term management strategy. It isan economic environment in which we provide a wide range of Internet-based services, including e-commerce and financialtransactions, for a user base consisting primarily of Rakuten Group Members. By enabling members to obtain multiple
services using a single ID, we aim to achieve synergy benefits that include increased Gross Transaction Volume, reduced
member recruitment costs, and maximization of the lifetime value per member.
Within the powerful gravitational field of the Rakuten Eco-system, we are working to maximize the satisfaction of eachindividual member by building a diverse range of services that reflect consumer behavior and match consumer needs, andby using Rakuten Cards and other mechanisms to bring about a convergence between the real world and the Internet. The
evolution of the Rakuten Eco-system has been driven by our success in generating synergies, and by our ability to develop
membership-based businesses through the accelerated migration of users through this economic zone.
Rakuten, Inc.

03

A Rapidly Evolving Industry
Advancing technology is enhancing the range and quality of services.

Growth in the Number ofInternet Users

E-commerce Ratio(Millions of people)

(%)

(%)

(Billions of yen)

(%)

100

100

10

3,000

30

2,500

25

80

80

8

2,000

20

60

60

6
1,500

15

1,000

10

500

5

40

40

20

20

0

0

4

2

0

Users (Left scale)
Penetration rate (Right scale)

Source: Survey on Internet usage trends by the Ministry ofInternal Affairs and Communications

0
GeneralSports,retail trade books,
music,
toys’04 ’05 ’06 ’07 ’08

Rakuten, Inc.

FashionFoods

0’06 ’07 ’08 ’09 ’10
Estimate Estimate

Japan
U.S.

B to C e-commerce market (Left scale)
Rakuten Ichiba gross transaction value (Left scale)
Rakuten market share (Right scale)

Source: Research concerning IT use in Japan in FY 2007,
by the Ministry of Economy, Trade and Industry

In fiscal 2008 (the year ended December 31, 2008), economic
conditions in Japan began to deteriorate rapidly in the fallunder the global slowdown triggered by the financial crisis in
the United States. This caused consumers to increasingly tend
toward at-home consumption, as a stronger desire to savemoney amid worsening economic conditions reduced thefrequency of outings and led them to spend more time at home.
This trend also suggests that Internet shopping as an easy,
time-and-cost efficient way to compare prices has becomea more typical method for making purchases. According to a2008 survey of the telecommunications sector by the Ministryof Internal Affairs and Communications, the number of Internet
users reached 90.9 million, or 75.3% of the total population,by the end of 2008. Moreover the B to C e-commerce market
04

Prospects of Domestic
E-commerce Market(Japan, U.S. comparison)

Source: Fuji Keizai Market Research, The Present and Futureof Mail Order and E-commerce 2008-2009

continued to expand steadily in 2008 and is estimated to havegrown by 14.4% year on year to approximately ¥2,500 billion*.
By fiscal 2010, it is expected to have expanded to ¥2,900
billion*.
In the United States, which has led the world in thedevelopment of the Internet, the e-commerce business’ shareof the general retail market is moving into double figures ataround 10%, about 3.6 times higher than the ratio for Japan.
The e-commerce ratios for most individual product categories
are also higher, indicating that there is still considerable scopefor further growth in the Japanese e-commerce market.
* This figure was calculated by Rakuten using data compiled by Fuji Keizai Co., Ltd.
for its study of present and future trends in e-commerce, including the Internet andmobile shopping markets, in 2008-09.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Rankings in the Japanese market
1. 

2. 

3. 

No.1

No.1

No.2

E-Commerce

Online Hotel
Reservation

Online Securities

1. By gross transaction volume in 2008,
B to C business
Source: Fuji Keizai
2. By gross transaction volume in 2007,
domestic accommodation
Source: Nikkei MJ (Oct. 15, 2008)

Market Leader in Japan.
Aiming to Become

3. By trading value of domestic equities for thethree months ended Dec. 2008
Source: Company releases

No.1

4. Portal sites by page views, domain, homepanel for Sept. 2008
Source: Nielsen // Net Ratings

in the World.

5. By gross transaction volume for the threemonths ended Dec. 31, 2008
Source: Company release
6. By gross transaction volume for 2008
Source: Fuji Keizai 2008

No.3

No.1

Portal Site

Online Golf
Reservation

4. 

5. 

No.2
6. 

OnlineBooks Store

Rakuten Positioned at the Forefront
With top rankings in key growth areas, we are the leader of our industry.
Most of Rakuten’s businesses are among the leaders in the Japanese Internet service sector. In the E-Commerce Business,
our Internet shopping mall Rakuten Ichiba is not only Japan’s biggest by far, it has also achieved a higher rate of growth than theJapanese e-commerce market as a whole. Its share of the Japanese B to C e-commerce market increased from 23.6% in 2007
to around 26.6% in 2008.
We also lead the domestic market for online hotel reservations in terms of gross transaction volume. In addition,
increased marketing and improved usability have brought success in the area of online golf tee-time reservations; in thequarter ended December 31, 2008, Rakuten’s GORA overtook GOLF DIGEST ONLINE to become the leader in this area
in terms of Gross Transaction Volume. Finally, Rakuten Securities, Inc. is the second largest online securities brokeragecompany in terms of transaction value of Japanese stocks.
We will continue to improve our services in areas where we hold the biggest market share, while concentrating
management resources into areas where we are ranked second or lower to achieve the top position in these markets also. In
this way, Rakuten will move closer to its ultimate goal of becoming the leading company in the Japanese Internet industry andthe world’s top Internet service company.
Rakuten, Inc.

05

To Our Shareholders

Rakuten-Innovation and Growth“W e have proved our growth potential,
despite the economic downturn. ”

Hiroshi Mikitani
Chairman and CEO

PerformanceGroup Gross
Transaction Volume*(Billions of yen)

1,000

800

600

400

200

0

FY ’04 ’05 ’06 ’07 ’08* Domestic E-Commerce +Travel (Booking base)06

Rakuten, Inc.

Growth under Challenging Global Conditions
Business conditions in Japan have worsened dramatically under the impactof the global financial crisis that struck in 2008, with Japan’s GDP declining
by 0.72% over the year. However, Gross Merchandise Sales (GMS) throughRakuten Ichiba, our Internet shopping mall business, and Rakuten Books
were up 23.6% year on year. Gross Booking Transaction Value on our online
travel reservation site, Rakuten Travel, also remained on a growth trend witha year-on-year increase of 18.4%.
Total Gross Transaction Volume for domestic E-Commerce and online
travel reservation amounted to ¥987.4 billion.
With this performance, the Rakuten Group has proved its growthpotential, despite the economic downturn. Although the economic
environment is expected to remain stagnant, our goal for fiscal 2009 is
to strengthen our corporate structure to support continuing growth in an
adverse economic climate.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Performance Review for Fiscal 2008
In fiscal 2008, net sales increased by 16.8% year on year to ¥249,883 million.
Strong trends in the E-Commerce Business and Travel Business segments
made significant contributions to this performance. We achieved a major
improvement in the financial performance of our Credit and Payment Business,
and also implemented Group-level cost reductions through Project V, apackage of measures designed to strengthen our management systems
and cost structure. These initiatives were reflected in the improvement of ouroperating margin, which rose by 7.4 points over the previous year’s level* to
18.9% in fiscal 2008. Operating income for the full year set a new record of¥47,151 million. Unfortunately, our net income was also affected by negative
factors, including loss on valuation of investment securities, and there was a
net loss of ¥54,978 million.
* The fiscal 2007 operating margin of 11.5% is adjusted by excluding a one-time expense of ¥24.5
billion due to additional provisions for allowances relating to interest repayment claims at Rakuten KC
Co., Ltd.

Key Developments

Growth in Rakuten Membership*(Million members)

60

50

40

30

20

10

Growth in Rakuten Membership and
Reinforcing Cross-Utilization
The Rakuten Group’s most important asset is the 55 million Rakuten Group
Members*. Our mission is to expand our revenues by supplying attractive
services and merchandise that match the lifestyle needs of each individual
member, and by encouraging members to use our services under the Rakuten
Eco–system concept, which enables smooth cross-use of multiple services.
In addition to providing attractive services, we also implemented a highly
effective loyalty program, called the Rakuten Super Points Program, and apoints-based campaign designed to encourage the use of multiple services.
These initiatives were reflected in a higher proportion of members using
multiple Rakuten Group services, and the cross-utilization ratio has now
increased to 36.5% in 2008 from 33.3% in 2007.
In fiscal 2008, we prepared to take our strategy a step further by integrating
our membership data, which were previously divided into separate databasesfor each service. Our new Super Database contains records of the demographic
profiles, addresses and goods and service purchases of every Rakuten Group
Member. By using this resource for database marketing, we will be able topromote more purchasing of goods and more cross-utilization of services.

0’04 ’05 ’06 ’07 ’08* Rakuten Group members: Rakuten members and members who have either un-integrated IDs with Rakuten Securities,
Rakuten KC, Rakuten Credit and etc, or un-integrated IDs for former-My trip.net service members etc.
Rakuten Members: Members who have integrated IDs (e.g Rakuten Ichiba, Rakuten Travel, Infoseek, Rakuten Greeting, etc)

Rakuten Group Members
Rakuten Members

Rakuten, Inc.

07

Project V — Developing and Strengthening
Our Management System
Through decisive cost reductions, the Rakuten Group is building a corporate
structure that will allow it to achieve continuing growth even in a challenging
business environment.
In the second quarter of fiscal 2008, we launched a new initiative called
Project V to strengthen our corporate structure. The benefits of this initiative
included not only improvements in the precision of budget management in individual business units, but also reductions in operating expenses, especially
fixed costs. Specifically, we used the Kaizen (improvement) method to minimize
operating expenses through wide-ranging measures, including rent reduction,
project reprioritization, and the reduction of outsourcing costs and the use of
temporary staff. By the fourth quarter of fiscal 2008, we had reduced operating
expenses by ¥2.95 billion compared with the first quarter, which is close to our
initial target of a ¥3 billion reduction. In fiscal 2009, we will take further steps tostrengthen our corporate structure and streamline our operating processes.

Accelerating Rakuten’s Expansion Overseas

Operating Cost Reductions
Under Project V(Millions of yen)

70,00060,00050,00040,000Investment in eBANK and Business Integration
with Rakuten Credit

30,00020,00010,0000

FY ’081Q 2Q 3Q 4Q

Net sales
Operating expenses08

Our ultimate goal is to build the Rakuten Group into the world’s leading Internet
service company. We are working to realize this vision by using knowledge andexpertise developed for our domestic operations to strengthen our international
operations as a Japan-based global Internet service company. For example, in2008 we launched a shipping service from Japan to overseas residents called
Rakuten International Shipping Service and an Internet shopping mall in Taiwan
called Taiwan Rakuten Ichiba. We have also continued to evolve world-classservices, including the expansion of multi-language services and functions, andthe establishment of an international logistics network. As of February 2009,
people in 73 countries had used our Rakuten International Shipping Service.
Following the successful launch of Taiwan Rakuten Ichiba, we are currently
conducting market research in preparation for a wider expansion into multiple
countries. Our future goal is to build a Rakuten Eco-system that is truly global,
encompassing countries all over the world.

Rakuten, Inc.

In September 2008, Rakuten, Inc. agreed to form a capital and businessalliance with eBANK Corporation, which is Japan’s leading Internet bankin terms of account numbers. The agreement provides for the acquisitionof eBANK preferred shares by Rakuten, Inc. for ¥19,980 million and for theAboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Databusiness integration of Rakuten Credit, Inc. with eBANK.
In February 2009, as required under the Banking Law, Rakuten obtained
approval from the Financial Services Agency to become a major shareholder
of eBANK, in preparation for the conversion of preferred shares into commonshares that would make eBANK a consolidated subsidiary from fiscal 2009.
On April 1, 2009, eBANK integrated with a major part of Rakuten Credit.
eBANK has been able to establish a personal loan business by using expertisefrom Rakuten Credit, and utilize deposits as a source of capital at a lower
interest rate compared with Rakuten Credit. Loans borrowed by Rakuten
Credit from other banks were repaid in March 2009, helping to reduce the totalborrowings of the Rakuten Group.
We also aim to enable users of Rakuten services to utilize eBANK
convenient settlement services, as well as benefit from its advanced Internet
banking and electronic money (e-money) technologies.

Outlook andDividend Policy

Dividend per Share(Adjusted for Stock Splits)
(Yen)

100

Outlook for Fiscal 2009
Consumers are increasingly focusing on thrift and convenience. We expect
this trend to intensify in fiscal 2009, resulting in sustained high growth driven
by expanding demand for our E-Commerce Business segment.
Our strategy in this business environment calls for further enhancementof services based on our specific strengths. We aim to improve profitability byreforming or discontinuing unprofitable businesses so that we can concentratehuman resources and other management resources into strategic businessareas. We will also continue to enhance our corporate value by developing newrevenue streams.
In addition to these activities, we will continue to improve our services
through an active R&D program focusing on the technology infrastructureneeded to support effective Internet services, including large-scale data processing, distributed processing, advanced advertising and e-money services,
as well as technologies for various interface devices.

80

Delivering Value to Shareholders
60

40

20

0

FY ’04 ’05 ’06 ’07 ’08

Our basic policy is to link shareholder returns to our income performance, while
also having sufficient retained earnings to maintain a sound financial structureand fund dynamic business development to maximize shareholders’ value. We
have also consistently and reliably increased our dividend, regardless of performance trends in individual years. Although there was a net loss in fiscal 2008,
we maintained our dividend at ¥100 per share, as in the previous year. The dividend was paid from capital surplus, as a result of the net loss in fiscal 2008.
We look forward to the continuing support of shareholders and investors.

Rakuten, Inc.

09

Our Operations

Financial Highlights
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31

Thousands of * 1
U.S. dollars

Millions of yen

2007

2008

¥203,272
29,1492,703¥213,938
119 * 236,899 * 3¥249,883
47,151(54,978) * 4$2,745,065
517,975(603,952)* 4¥(16,567)(41,735)
76,614¥42,967
55,070(113,628)¥(13,467)(40,977)
62,397$(147,938)(450,144)
685,460¥1,296,063
1,092,866
203,197¥1,158,923
965,100
193,824¥1,086,938
928,211
158,727$11,940,433
10,196,751
1,743,682¥14,492.23¥14,212.68¥11,439.86$125.67

212.03193.0950.00

2,825.95
2,813.32
100.00(4,203.55)—
100.00(46.18)—
1.10

Fiscal Year

2006

2008

Profit and Loss

Net sales
Operating income
Net (loss) income
Cash FlowsNet cash (used in) provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Assets and Liabilities

Total assets
Total liabilities
Total net assets
Per Share (in yen and U.S. dollars)

Total net assets
Net (loss) income
Basic
DilutedDividend

Notes: *1 U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥91.03 to US$1, the approximate rate of exchange at December 31, 2008.
		*2 The fiscal 2007 operating income included a one-time expense of ¥24.5 billion due to additional provisions for allowances relating to interest repayment claims at
Rakuten KC Co., Ltd.
		*3 The fiscal 2007 net income included gain on sales of affiliate securities of ¥53,873 million.
		*4 The fiscal 2008 net loss included loss on valuation of investment securities of ¥67,177 million, or US$737,964 thousand.

Net Sales(Billions of yen)

Operating Income,Operating Margin(Billions of yen)(Billions of yen)

(%)

250

50

50

250

200

40

40

200

150

30

30

150

100

20

20

100

50

10

10

50

0

0

0

0

FY ’04 ’05 ’06 ’07 ’08

FY ’04 ’05 ’06 ’07 ’08
Operating income (Left scale)Operating margin (Right scale)10

Net Assets

Rakuten, Inc.

FY ’04 ’05 ’06 ’07 ’08

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Segment Information
Professional Sports BusinessTelecommunications Business
E-Commerce Business
Securities Business

Share ofNet Sales

Travel BusinessPortal and Media Business

Segments, Composition of Net Sales (%)

E-Commerce
Business

36.4%
Credit and Payment
Business

Credit and Payment Business

Net Sales

Business Units(External, millions of yen, year-on-year growth in %)Rakuten Ichiba (Internet Shopping Mall),Auction, Package Media, Golf, Auto, Delivery,
Dining, Tickets, Business Service,
Performance Marketing, Media Rental,
Off-track Betting, Logistics Service,
Global Ichiba, Net Super Market, Check Out¥ 91,073

Personal Finance, KC,
Banking (Alliance)¥ 65,911+20.6%–6.1%

26.4%
Portal and MediaBusiness

Infoseek, Advertising,Research, Blog, Marriage Consultancy,
Career Service, Rakuten Photo¥ 9,681+28.9%

3.9%
TravelBusiness¥ 16,199

Travel+25.5%

6.5%
Securities
Business¥ 24,807

Securities, Investment,
Mortgages, Insurance–18.8%

9.9%
Professional Sports
Business¥ 7,963

Professional Sports

+5.4%

3.2%
Telecommunications
Business¥ 34,249

IP Telephony+253.1%

13.7%
Total

¥ 249,883+16.8%
Rakuten, Inc.

11

E-Commerce

Segment Net Sales (Billions of yen)
0

20.0

40.0

Segment Operating Income (Billions of yen)
60.0

80.0

100.0

’06

’06

’07

’07

’08

’08

Performance Review
Rakuten Ichiba Achieves Record Sales andOperating Income
Rakuten Ichiba and Rakuten Books maintained strong growthin fiscal 2008 and we set new performance records. GMS
were 23.6% above the previous year’s level at ¥663,810
million. Net sales for Rakuten Ichiba, which is the corebusiness of this segment, increased by 22.8% year on year to¥63,037 million, and operating income by 33.1% to ¥30,803
million. This significant growth resulted from an increased
trend of “at-home consumption,” as consumers seeking tosave money amid worsening economic conditions spent moretime at home. We also further enhanced user convenience byintroducing a next-day delivery service, free shipping services
and the Rakuten Super Points Program. To strengthen our
support for the merchants operating in the online shopping(Billions of yen)

200

150

100

50
0
Q1

Q2

’06

Q3

Q4

Q1

’07

Q2

Q3

Q4

Q1

Q2

Q3

’08

* GMS: Mall Fixed-price, Group Buy, Mobile Fixed-price, Group Buy and Rakuten Books

Rakuten, Inc.

5.0

10.0

15.0

20.0

25.0

30.0

mall, we established four offices in Japan, and also launcheda logistics agency service, Rakuten Logistics, in fiscal 2008.
These initiatives were reflected in the results of our
E-Commerce Business segment, with net sales increasing by
20.6% year on year to ¥91,073 million and operating income
rising by 33.4% to ¥26,067 million.

Key Developments
Customer Convenience Enhanced with Asuraku,a Next-day Delivery Service
Items ordered before noon on Rakuten Ichiba can now bedelivered on the following day through Asuraku, our new
next-day delivery service. This service is available throughout
Japan for over 100,000 items, including fresh foodstuffs
and household goods. Rakuten is the only company in theJapanese e-commerce industry to offer this facility for such awide range of products.
Empowering Local Japan with the Machi-Raku ProjectThis initiative focuses the spotlight on machi (local towns
and cities) throughout Japan. The Rakuten Ichiba website
offers a variety of interesting information about communities,
including descriptions of unique local products andattractions. We will work closely with merchants and local
governments to enhance and enrich the content of the site,
and to build it into an important source of information aboutcommunities all over Japan.

GMS (Rakuten Ichiba and Rakuten Books)*

12

0

Q4

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

TravelSegment Net Sales (Billions of yen)0

5.0

Segment Operating Income (Billions of yen)

10.0

15.0

20.0

0

’06

’06

’07

’07

’08

’08

Performance Review
New Records for Net Sales, Operating Income and
Gross Booking Transaction Volume
In fiscal 2008, our Travel Business segment recorded a Gross
Booking Transaction Volume of ¥260,457 million, a year-on-yearincrease of 18.4%. We also set new records for net sales, whichwere 25.5% higher at ¥16,199 million, and operating income,with a 24.3% increase to ¥7,463 million.
To expand business, Rakuten Travel is implementing
strategic policies in three areas: usage categories, products
and geographic reach. In the usage categories area, it willseek to expand transactions from business use to leisure use.
In the area of products, it will enrich the lineup of productswith items ranging from hotel booking to air tickets and othertransportation arrangements, as well as dynamic packages*. As
for geographic reach, one of our priorities was the expansion

2.0

4.0

6.0

8.0

of our overseas turnover. Enhancements to our international
services include an update of our site for foreign tourists, whichis available in English, Chinese and Korean. In addition, users
can now book accommodation in various Asian countries.
* A package tour allowing customers to flexibly reserve a combination of multiple
travel arrangements through an Internet-based one-stop service.

Key Developments
View RakuToku Sendai—
A Travel Package with Bullet Train Transportation
Rakuten Travel collaborated with East Japan Railway Company
to create the View RakuToku Sendai package for baseballfans. This package was the first product with train tickets
reserved through Rakuten Travel, and consisted of tickets fora baseball match featuring the Tohoku Rakuten Golden Eagles
in Sendai, Miyagi Prefecture, together with round tickets for the
Shinkansen bullet train, accommodation and meal vouchers.

Rakuten Travel Gross Booking Transaction Volume (GTV)*

Number of Hotel Guests Booking Via Rakuten Travel in Japan(Billions of yen)

(Million people)(Thousand nights)

80

8,000

60

6,000

40

4,000

20

2,000

2,500
2,000
1,500
1,000

0

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

’04

’05

GTV (Left scale)Nights booked (Right scale)

’06

’07

’08

500
0

’04

’05

’06

’07

’08

*T
 ravel GTV = Booking base = Domestic / International hotel room booking,International tickets, Domestic / International DP, Domestic Bus, Rental car service

Rakuten, Inc.

13

Credit and Payment

Segment Net Sales (Billions of yen)0

20.0

Segment Operating Income (Loss) (Billions of yen)

40.0

60.0

80.0

’06

’06

’07

’07

’08

’08

Performance Review
Operating Profitably under a Business Modelin Transformation
Net sales from the Credit and Payment Business segment
amounted to ¥65,911 million, a year-on-year reduction of
6.1%, resulting from a reduction in the amount of lending at
Rakuten KC Co., Ltd. However, there were also substantial
reductions in the costs relating to interest repayments anddoubtful accounts.
This was mainly due to a one-time expense in fiscal 2007
caused by the use of a more precise method for estimating
the allowance relating to interest repayment claims, which
resulted in a substantial increase in the reserve comparedwith the previous method.
Another factor contributing to the reduction of expenses
for doubtful accounts was an improvement in the collection ofCredit Card Shopping Transaction Volume(Billions of yen)

150
120
90
60
30
0
Q1

Q2

’07

14

-30.0

Rakuten, Inc.

Q3

Q4

Q1

’08

Q2

Q3

Q4

-5.0

0

5.0

10.0

15.0

outstanding loans. These efforts were reflected in a significant
recovery from fiscal 2007.
As a result, operating income of the Credit and Payment
Business segment dramatically improved to ¥10,703 million,
compared with an operating loss of ¥25,175 million in theprevious fiscal year.

Key Developments
Rakuten Card Use Boosted by Points Program
Rakuten KC, one of the major Group companies in thissegment, is reforming its operations, moving from being a
traditional installment loan company to an Internet-based
credit card company.
	Users of Rakuten Card, a credit card issued by Rakuten
KC, earn points even on purchases made outside of the
Rakuten Group, and they receive double points for purchaseson Rakuten Ichiba. Due to the popularity of this points
program, the number of new Rakuten Card holders increased
rapidly, and helped to boost the credit card shoppingtransaction volume by 35.9% year on year to ¥482,522 million.
The revolving credit balance increased by 88.7% to ¥38,982
million.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Securities

Segment Net Sales (Billions of yen)
0

10.0

20.0

Segment Operating Income (Billions of yen)
30.0

40.0

50.0

0

’06

’06

’07

’07

’08

’08

Performance Review
Costs Streamlined, Increase in New Accounts
Plummeting prices on all of the world’s stock markets werereflected in sharply lower stock brokerage revenues andfinancial revenues from margin transactions. However, there
was an improvement in our cost structure, primarily becauseof continuing efforts to reduce systems-related costs andother cost items. In fiscal 2008, net sales of the Securities
Business segment declined by 18.8% year on year to ¥24,807
million and operating income fell by 32.9% to ¥3,857 million.

Key Developments
No. 1 in the Japanese Online Securities Businessin Terms of Number of Trust Funds Handled
Rakuten Securities, Inc. is now the leading company in the

Progress in Cost-Cutting
5
4

Other
Transaction expenses

3

Personnel
Advertisement

2Year-on-yearcomparison

System costs

0’07

Oct.-Dec.

6.0

9.0

12.0

15.0

18.0

Japanese online securities business in terms of the numberof trust funds handled. Its portfolio of 409 trust funds includes
141 no-load funds, which are free of sales commissions.
It also handles foreign exchange-traded funds (ETFs)*1,
including 64 American and 19 Chinese funds.
*1 These are mutual funds that are traded on stock exchanges.

Rakuten FX Sees Growth in Accounts and Transactions
In June 2008, we launched Rakuten FX, a foreign currency
margin trading service. Rakuten FX offers one of the best
online services in Japan, including zero fees and a 0.02 yen
spread*2. There has been steady growth in the number ofaccounts and transactions.
*2 The spread is the difference between the buying and selling prices. A “0.02 yen
spread” means that the difference between yen-dollar buying and selling rates will
normally be 0.02 yen.

Number of Rakuten FX Open Accounts(Millions of yen)

1

3.0

’08

Oct.-Dec.

(Thousand accounts)

(%)

50

25

40

20

30

15

20

10

10

5

0

0

’08

Apr.-Jun.

’08

Jul.-Sep.

’08

Oct.-Dec.

Rakuten FX accounts (Left scale)
Ratio of applications via Rakuten Group (Right scale)

Rakuten, Inc.

15

Professional Sports

Segment Net Sales (Billions of yen)
0

2.0

4.0

Segment Operating Loss (Billions of yen)
6.0

8.0

10

-4.0

’06

’06

’07

’07

’08

’08

-3.0

-2.0

-1.0

0

1.0

2.0

3.0

4.0

Performance Review

Key Developments

Increased Sales of Tickets and Goods in Fiscal 2008
In the 2008 season, spectator numbers of the Tohoku
Rakuten Golden Eagles, our professional baseball team,
were 2.8% higher year on year in fiscal 2008. This wasreflected in increased sales of tickets and goods, whichis the main business activity in this segment. Reasons forthis growth included the excellent results achieved by the
baseball team in the first half of the season, as well as theperformance of star players.
Net sales from the Professional Sports Businesssegment increased by 5.4% year on year to ¥7,963 million.
However, there was an operating loss of ¥812 million.

Players’ Popularity Reflected
in Increased Spectator Numbers
Despite determined efforts by all team members, theTohoku Rakuten Golden Eagles finished fifth in the 2008
season. However, Hisashi Iwakuma earned the Pacific
League MVP award, while Rick Short had the highest hit
rate in the Pacific League. The popularity of these players
helped to lift spectator numbers to a record high.

The Tohoku Rakuten Golden Eagles offering a training session for children.

16

Rakuten, Inc.

Continuing to Contribute to
the Brand Recognition of the GroupThe Tohoku Rakuten Golden Eagles has successfully
attracted fans in the years since the team’s acceptanceof entry into the professional baseball league in 2004,
and is now one of the most popular baseball teams inJapan. After entering the professional league, the team’s
contribution to people’s recognition of the Rakuten brandcontinues to impact positively on the Group’s business.
One of the benefits of the Rakuten Group’s involvement in
the professional baseball business has been an increasein the number of Tohoku-area residents in their 40s using
Rakuten Ichiba.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Portal and Media

Segment Net Sales (Billions of yen)
0

2.0

4.0

Financial Section
and Corporate Data

Telecommunications

Segment Net Sales (Billions of yen)
6.0

8.0

10.0

0

10.0

20.0

30.0

40.0

’06

’06

’07

’07

’08

’08

Segment Operating (Loss) Income (Billions of yen)Segment Operating Income (Loss) (Billions of yen)

-4.0

-3.0

-2.0

-1.0

0

1.0

2.0

3.0

4.0

-4.0

’06

’06

’07

’07

’08

’08

-3.0

-2.0

-1.0

0

1.0

2.0

3.0

4.0

* This segment was established in 2007 and its financial performance is included in
the consolidated statements of income from the fourth quarter of fiscal 2007.

Key Developments

Key Developments

Launch of New Business and Service
Rakuten, Inc. acquired O-net, Inc., one of Japan’s largest marriage consultancies, and made this company into
a consolidated subsidiary. Under this well-known brand,established 28 years ago, we began to provide high-quality
online marriage consultant services to customers. We alsoestablished Rakuten Shashinkan, an e-commerce site where
customers can order photo books and prints online.

Positive Income Results Achieved throughCost Reductions and Elimination of Unprofitable Services
In fiscal 2008, there was a substantial improvement in income performance. This reflects cost-cutting efforts by
Fusion Communications Corporation, including the termination of unprofitable services, the streamlining of sales
promotion incentives and the reduction of cost items, suchas access charges and leasing charges.

Enhancing Our Performance-Based Advertising BusinessIn fiscal 2008, we moved into the advertising network business in earnest with the introduction of the Rakuten Pitatto
Ad service, which is a pay-per-click advertising systemlinked to content and word searches. Under a capital andbusiness alliance with Drecom Co., Ltd., we also launched
Rakuten ad4U, an Internet-based advertising product.

Encouraging Rakuten Members to Sign up for
Rakuten Broadband
In March 2008, Fusion Network Services Corporation, a subsidiary of Fusion Communications, launched Rakuten Broadband Internet connection services for individual users. The
launch was accompanied by aggressive promotion, including
a ten-times-the-points campaign for Rakuten Group Members
opting to sign up. The aim of these campaigns is to attract
new broadband customers from the Rakuten Group.

Rakuten, Inc.

17

Corporate Activities

Technologythat supports
our service

About Rakuten’s Development Division
Consumers are increasingly shifting to Internet shopping. We aim to seize these opportunities by developing services that will let consumers make choices based on simple criteria, such as convenience, ease ofuse and low price, without being limited by artificial barriers between the Internet and the non-Internet worldin their day-to-day consumption.
photo : Rakuten Group Data Center1.

 eveloping Services andDTechnologies for Long-Term SuccessIn order to support our sustained growth, we are developing
technologies to improve the user convenience of our services,boost our marketing capabilities and upgrade infrastructure.

Convenience —New Services for Rakuten Members
・Rakuten has released the Rakuten Anshin Payment Service(check-out service). Following the introduction of thisservice, sellers are able to access Rakuten’s membershipbase and CRM infrastructure without being Rakuten
merchants by adopting the Rakuten Open ID system.
・Rakuten has launched the Rakuten Cash system. This
online e-money system can be used to buy a varietyof Rakuten services in a similar way with the Rakuten
Super Points Program. The system, which is backed by
18

Rakuten, Inc.

robust security measures, is now linked to eBANK andexchangeable for cash at banks.
・Rakuten Ichiba, Rakuten Travel and Rakuten Securities
now support iPhone ® access. In addition, Rakuten isdeveloping its services by adapting them for use with avariety of multi-devices.
・With Rakuten Appli system, users can earn Rakuten Super
Points by using Edy e-money (provided by bitWallet, Inc.).
・Users can now view the same Rakuten Ichiba shopping
cart on PCs or mobile phones (this allows integrated
management of items placed in the shopping cart but not
yet purchased).

AboutRakuten

To OurShareholders

Our
Operations

Database Marketing —Carefully Selected Products and Services
for Rakuten Group Members
・Rakuten is rolling out a recommendation service based on
the Rakuten Super Database, which contains demographic
profiles, addresses and behavioral and purchase historiesof members.

Infrastructure —Enhanced Performance and Security
・We have substantially upgraded the database server
performance of the Rakuten Merchant Server (RMS), which
provides ASP services for Rakuten Ichiba merchants.
・The Rakuten Ichiba architecture has been modified toallow maintenance to be carried out without suspending
shopping cart operations.
・R akuten Ichiba became the first e-commerce site toestablish settlement processes that are fully compliant
with the Payment Card Industry Data Security Standards(PCIDSS) security standard adopted by the credit card
industry.

2.

Strengthening Our
Service Development Environment

We have focused on establishing a service development
environment to support our activities over the next decade.
We intend to create systems that will allow us to visualize
and quantify our current situation and leverage ourdevelopment productivity as a competitive advantage.
	Here, we have adopted common standardized andintegrated systems, distributed processing and automatedoperations and improved visibility, thereby establishingeffective unit cost management.
Furthermore, we have taken measures to maximize
cost benefits and optimize resource allocation, including
the adoption of flexible rules. This allows us to adjust
the precision level required for estimates and quality
management to the scale of service development. As a resultof these continuous cost-cutting efforts, while achieving
growth of 28.9% in the number of transactions of Rakuten
Ichiba and Rakuten Books, we have reduced system runningcosts to approximately 1% of GMS.
Another goal is the improvement of productivity acrossthe entire Rakuten Group. We will achieve this throughCorporate
Activities

Financial Section
and Corporate Data

optimized utilization of the knowledge and assets ofour development organization, including the systems
departments of finance-related subsidiaries.
On August 4, 2008, we opened our fourth development
center in Japan, Fukuoka Tech Center, in Fukuoka Prefecture.
This new facility will initially handle the development of
websites for Rakuten KC. We plan to recruit more local staff
at each of our development centers.
From 2009, we recruit local engineers in other countries
with the aim of facilitating international expansion of ourservices. New recruits will spend several years in Japangaining experience and learning about the Rakuten approachto development. We expect that these recruits, as future
leaders, will support our approach to integrating local culturalvalues into Rakuten’s business activities.

3.

Direction of Research and Development

In addition to service development, we also engage in
research and development activities focused on language
processing and data analysis, multimedia user interfaces,
large-scale data processing and distributed processing.
・L anguage processing and data analysis: We develop
technologies to support advanced analysis of the large
volumes of text data used in Rakuten Group’s services
and the acceleration of calculations involving large
quantities of data. We apply these technologies to common
recommendation engines for various services.
・Multimedia user interfaces: We develop user interfaces
capable of analyzing and searching multimedia content
on websites, including videos, still images and music, anddisplaying rich content.
・L arge-scale distributed processing: We enhance thecompetitiveness of our services by developing processing
infrastructure, including grid technology, to support efficient
processing of the large and growing volumes of user
information and product information used in the Rakuten
Group’s services.

Rakuten, Inc.

19

Corporate Culture and Human Resources
In this new Internet era, Rakuten will be able to evolve into a new type of company that would not previously
have been possible. For that transformation to advance, every employee must understand our Group Brand
Concept, share our goals and maintain a common philosophical foundation.

We define the Rakuten Group as a winning teammade up of people with high aspirations whoshare the same Values, Mission and Practices.

Our Values are:(1) To contribute to the innovation and evolutionof society and create a better world throughdeveloping oneself and delivering performance(2) To embrace the Group Brand Concept(3) To commit to empower business partners andcolleagues with a strong belief in the potentialof human beings

Our Mission is:
To enrich and innovate our society through theaccomplishments of individuals, and to realize
the growth potential the Internet offers to people
and society—in other words, to empower theworld through the Internet.

Our Practices are:(1) To accomplish the Five Concepts of Success,and become a role model of success(2) To develop a sense of ownership of the company that each employee promotes in his/her
daily work(3) To maintain thoroughness and innovation as
the sources of the Group’s core strength
Every Monday morning all Rakuten Group
employees attend a special meeting known as
the Asa-Kai (Morning Meeting). The purpose of
these meetings is to build a shared awarenessof our goals, and to ensure that those goals arereflected in all aspects of our operations. We
have also compiled written definitions of ourGroup Brand Concept and the Five Conceptsof Success into a handbook, which has been
distributed to all employees in Japanese, English
and Chinese.

Rakuten’s Group Brand Concept:
1. We work to empower a fair society

What enables a business to grow continuously over a long period?
	Our answer: Business operations that have social meaning and are recognized as providing value needed by society. The Rakuten Group expresses social meaning with the word
“empowerment.” Using the potential of the Internet and offering opportunities to as many
people as possible in order to contribute to the establishment of a fair society—these are
the High Principles of the Rakuten Group.

2. We approach our business activities with integrity and pride	Central to upholding the High Principles is how one approaches and behaves in performing one’s work. In our Group Brand Concept, we express this as “Maintain our Integrity”.
The qualities of “integrity,” “pride,” “honesty” and “sincerity” are the fundamental prerequisites for business performance at the Rakuten Group. All Rakuten Group employees
should maintain an attitude of integrity and pride when engaging in business activities.

3. We stand ready to execute decisions for success	Even though we follow the high principles, if we fail to succeed in business, there is no
way to contribute to society. As a method of driving success, the Rakuten Group has
established “Five Concepts of Success”. Each Group employee conducts business ina professional manner by strictly adhering to the Five Concepts of Success. Success inbusiness can only be attained when you stand fully prepared to execute your decisions.

4. We are completely committed to our mission

	Even though a business follows high principles, it is not easy to succeed in the face offierce competition. But, if each employee firmly adheres to his/her business principles,business ambitions need never be given up so easily. To accomplish the goals, adapt his/her actions to the situation at hand. Our creed to “GET THINGS DONE” expresses the attitude that drives our business forward.

5. We foster teamwork. Teamwork brings success	A wide variety of people with diverse backgrounds are actively working within the Rakuten
Group. Our policy is to convert this diversity into a source of strength for the Group: each
employee has to strive forward as part of a team. Because the Rakuten Group works as
one big team, in which our diverse staff can exercise their power to the fullest in a spirit ofgood teamwork, our organization is successful.

Rakuten’s Five Concepts of Success:1. Get Things Done

In our view, there are only two types of people:
	People who get things done will use a variety of methods to achieve their goals. Best effort people are satisfied with the status quo and use excuses to convince themselves thatwhat they have achieved so far is enough.
We must each have a strong commitment to the achievement of our goals.

2. Complete Professionalism	Rakuten is an organization of people with a strong sense of professionalism. To win, we needto think 100 times more than everyone else and achieve growth through self-management.

3. Hypothesize, Execute, Verify, Incorporate	We must base our work on specific action plans. The cycle of making hypotheses, executing action plans, verifying results and incorporating them into our organization will
improve the quality of our business operations.

4. Maximization of Customer Satisfaction

	Rakuten is above all a service company. We must avoid arrogance, and we must always
take pride in pursuing “maximization of customer satisfaction”.

5. Speed!! Speed!! Speed!!

	We must have the speed to achieve in one month tasks that take our competitors one year.
The next two or three years are a crucial time to become a winner or loser.

20

Rakuten, Inc.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Social Contribution Activities
The Rakuten Group works to bring smiles to as many people as possible by continually implementing positive
initiatives. In 2007, we sought ideas from employees for activities to commemorate the 10th anniversary of
our establishment. This resulted in a range of social contribution activities, including the Rakuten IT School, an
eco-packaging and recycling program, and support for environmental programs.
Internet Ethics Seminar
Rakuten IT School —The Rakuten Group wants to ensure that children growup with a proper understanding and usage of the power and potential of the Internet. We
are helping to achieve this goal through the Rakuten IT School program, which is a seriesof seminars held in various parts of Japan for students, teachers and other groups.
In 2008, we held an Internet ethics seminar for high school teachers in Miyagi
Prefecture. Before launching this program, we had received many inquiries from highschool teachers wanting to provide students with instruction on Internet ethics but
were unsure how to approach the topic. Responding to this need, the two-day seminar was held and attended by around 150 teachers, who experienced first-hand theInternet environment of their students by accessing community site chatting boards
used by young people. Many of the teachers commented that the seminar had given
them a new understanding of the activities of their students. There was also a seminar in Kyoto Prefecture on the creation and running of Internet shops. This program
was designed for high school students, who with the cooperation of merchants were
given opportunities to experience actual sales activities.

An Internet ethics seminar at the
Rakuten IT School.

Development of Eco-Packaging Materials
Eco-Packaging and Recycling —By developing eco-packaging materials,
Rakuten, Inc. has reduced the amount of corrugated paperboard materials used to
package books, DVDs, CDs and other items sold through its Rakuten Books business.
Development staff studied the systems used in the Rakuten Books distribution center,from packaging to dispatch, and also looked at the durability of the packaging materials used. The information gained was then used to reduce costs by developing simpler
packaging designs. Other improvements included reductions in the amount of ink andpaper used in cushioned envelopes, which are lined with shock-absorbing bubble
sheets. To reduce the burden on customers, the cushioned envelopes were also redesigned to eliminate the need to separate materials before disposal.
We will continue to review the packaging materials used by the Rakuten
Group. There are also plans for other initiatives, including the establishment of asystem to allow materials to be recovered and reused.

Rakuten employees showing the new
resource-efficient eco-packaging materials.

Donation to Afforestation Program, Carbon Offsetting Program
Support for Ecological Activities —The Rakuten Group’s efforts to reduce
environmental loads and protect the natural environment are based on our belief that
progress can best be achieved through sustained efforts, starting with initiatives in
one’s immediate environment.
For every purchase made during the campaign period, Rakuten, Inc. donated¥3 to an afforestation program on Mindoro Island in the Philippines.
Moreover, from November 19 to December 31, 2008, Rakuten Travel, Inc. implemented the Eco Raku Travel project, the aim of which was to offset CO2 emissions
resulting from the use of accommodation facilities in Japan. The total number ofovernight stays during this period was 457, resulting in 15,538 tons of CO2e* emissions. These emissions were offset through a wind power generation project in India.

Carbon Offsetting Method Usedin the Eco Raku Travel
Accommodation
facilities in JapanCO2emissions

India

OffsetCO2emissions
reduction

CO2
emissions
without
wind power

Project*CO2e:Total greenhouse gas emissions expressed as the equivalent amount of CO2.

Rakuten, Inc.

21

Corporate Governance
1. Basic Approach to Corporate Governance
The Rakuten Group gives top priority to effective corporate
governance. The Group has implemented a range of measuresdesigned to strengthen its competitiveness and maximize
corporate value through effective internal control and risk
management systems, with a view to realizing its goal of
becoming the world’s leading Internet service company.

2. Corporate Organization
Rakuten, Inc. supervises management by using a Corporate
Auditor System. In March 2003, Rakuten, Inc. adopted an
Executive Officer System to separate the roles of management
supervision and business execution. Functions that were until
then performed by the Board of Directors were divided,
making directors responsible for management decisionmaking and supervision, and Executive Officers responsible
for execution of business activities.
In 2006, Rakuten Group introduced a business unit
system to promote faster business execution by Executive
Officers, and to strengthen the supervisory functions of theBoard of Directors and the Corporate Auditors. In addition, asystem was developed for internal controls across the
Rakuten Group through the establishment of Functional
Teams with broad control powers that cut across all Rakuten
Group businesses.

(1) Directors, the Board of Directors, Executive Officers, etc.
The Board of Directors consists of 14 members, including threeoutside directors. The maximum number of directors allowed
under the Articles of Incorporation is set at 14 members.
Resolutions to appoint directors must be approved by a majorityof the shareholders with voting rights at a General Meeting of
Shareholders at which at least one-third of the shareholders
eligible to exercise voting rights are in attendance.
In addition to regular monthly meetings of the Board of
Directors, extraordinary Board Meetings are held as necessary.
At these meetings, the directors reach decisions concerning
important matters involving management, and supervise theperformance of Executive Officers responsible for businessactivities. The Rakuten Group also has Executive Strategic
Meetings, made up of executives at Senior Executive Officer
level and above, at which important matters pertaining to the
Rakuten Group strategies, such as mid-to-long term
management plans and basic policies, are discussed. This
framework helps to ensure proper decision-making by the
Board of Directors.

22

Rakuten, Inc.

Once made, decisions by the Board of Directors aredelegated to the Executive Officers’ Meeting, comprised of
Executive Officers. Board decisions then serve as a basis foreach Executive Officer when carrying out his/her duties. Where
the implementation and administration of each business isconcerned, business management meetings held at eachbusiness, as well as management meetings of committees
convened by the Functional Teams, work to ensure that eachbusiness is conducted in a proper and efficient manner, andthat administrative control that spans the entire Rakuten
Group enacted.

(2) Corporate Auditors and the Board of Auditors
Rakuten, Inc. has four Corporate Auditors, three of whom areoutside auditors. Of the Corporate Auditors, two serve on afull-time basis. In accordance with a resolution adopted at the12th Annual General Meeting of Shareholders on March 27,
2009, all four Corporate Auditors, including the two full-time
auditors, were outside auditors as of the date of filing ofYuukashouken-Houkokusho on March 27, 2009.
The Corporate Auditors are assisted in their duties by athree-member Corporate Auditors’ Office, a body that has
been established under the Board of Auditors. The Board ofAuditors holds regular meetings and extraordinary meetings
as necessary.
The Corporate Auditors attend meetings of the Board of
Directors and other important meetings, receive reports bydirectors, the Internal Audit Department and other sources on
the performance of duties, check operations at the head officeand other important business sites, and check subsidiary
operations. These activities are performed in line with audit
policies, plans and other parameters established by the Boardof Corporate Auditors. In addition, the Corporate Auditors
receive auditing reports from independent accountants, andexamine the financial statements and related documents. The
Corporate Auditors also hold meetings with CEO to discussvarious matters.

(3) Independent Auditors
Rakuten, Inc. has an auditing contract with an audit corporation, Ernst & Young ShinNihon LLC, to perform financial
audits as prescribed by Japan’s Corporation Law and
Financial Instruments and Exchange Law. The names of thechartered public accountants and the composition of theteam that assisted them in fiscal 2008 were as follows:AboutRakuten

To OurShareholders

Our
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1. Chartered public accountants
Designated limited
liability partner

Executive
partner

Kazunori
Watanabe

Designated limited
liability partner

Executive
partner

Kenichi
Ishida2. Audit assistants
Certifiedaccountants

15

Assistantaccountants, etc.

28(4) Internal Audits
The seven-member Internal Audit Department, established as
an independent body under the direct authority of the CEO,performs audits based on an annual internal audit plan for the
purpose of checking the status of operational execution ateach department. These audits cover internal controls,
including items such as the legality, suitability and efficiencyof these activities, as well as progress with regard to audits
and compliance programs. By bolstering ties with the Internal
Audit Department at each subsidiary, it works to ensure thatbusiness operations are properly conducted through theimplementation of an ongoing internal audit process acrossthe Rakuten Group.
The results of this internal audit process are reported to the
CEO and the Compliance Committee, as well as to Executive
Officers involved and the Executive Officers’ Meeting. The
results are also reported to the Board of Auditors as a means oflinking these findings to audits performed by the Corporate
Auditors.

3. Internal Control Systems
Basic internal control policies for Rakuten, Inc. are determinedby the Board of Directors. The Rakuten Group has declaredits determination to comply with all regulatory requirements,
and apply high ethical standards to all business activities.
The Internal Audit Department, which reports directly to
the CEO, conducts regular operational audits focusing on theperformance of directors’ and employees’ duties. The
Compliance Committee, meanwhile, implements Group-wide
compliance initiatives designed to ensure that all tasks arecarried out appropriately. Compliance training is used to help
all directors and employees develop the necessary knowledge
and ethical perceptions. Other measures to support appropriate administration include the establishment of systems
based on the Whistleblower Protection Act.

Corporate
Activities

Financial Section
and Corporate Data

Attorneys have been appointed to assist each of theexternal directors and external corporate auditors, whoclosely supervise directors in the performance of theirprofessional duties. This system provides expert, objective
verification that all actions comply with legal requirements
and the Articles of Incorporation.
In fiscal 2008, the Rakuten Group laid foundations for
future growth by adopting the Rakuten Group Regulation (RGR)
as the basis for Group-wide integrated management. The
establishment of uniform rules that are also applied to Group
companies will further strengthen corporate governance.

4. Risk Management Systems
The units responsible for each area of business respond
appropriately to related risks as stipulated in the RGR.
Measures to control information management risk are implemented primarily by the Risk Management Department.
Group-level efforts to minimize this type of risk include theInformation Security Management System (ISMS) certification. In addition, emergency reporting systems have beenstrengthened to ensure a timely response to risk factors.
To ensure appropriate supervision of actions by directors
from the viewpoint of business risk, a resolution of the Boardof Directors is required for any business investment over acertain amount. In addition, business management meetingsin each business unit receive detailed reports about risk
factors affecting business operations. These systems provide
a framework for the gathering of risk information and thein-depth management of risk factors.
Integrated risk management at the Group level is provided
by the Group Risk Management Committee, which is chairedby the CEO. This committee monitors all risk factors that could
have a serious impact on the Rakuten Group.

5. Remuneration for Directors and Auditors(1) Directors and Corporate Auditors
Fees paid to directors and Corporate Auditors are as follows:
Number of recipients

Amount of fees

Directors

15¥640 million

Corporate Auditors

4¥40 million* 	The above amounts do not include salaries of ¥45 million paid to directors who arealso employees.
* 	The above amounts include bonuses paid to directors in the fiscal 2008.
* 	The above amounts include fees and other remuneration to three outside directors
and three outside auditors, amounting to ¥23 million and ¥28 million respectively.

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23

(2) Independent Auditors
Fees paid to Ernst & Young ShinNihon for audit services
under the provisions of Article 2, Paragraph 1 of the Certified
Public Accountants Act:		 ¥92 million
Fees other than fees for services under the provisions of Article
2, Paragraph 1 of the Certified Public Accountants Act:		 ¥4 million

6.	Summary of Personal, Capital andBusiness Relationships andOther Interests between the Company andOutside Directors and Outside Auditors
Rakuten, Inc. has three outside directors and four outside
auditors. One of the outside directors, Koichi Kusano, and oneof the outside auditors, Katsuyuki Yamaguchi, are partners
with Nishimura & Asahi, a law firm with which Rakuten, Inc.
has a business relationship that includes the provision ofservices. Tatsumi Yoda, an outside director, is the Representative Director/Chairman of GAGA Communications, Inc., withwhich Rakuten, Inc. has a business relationship that includes
the provision of services. There are no other personal, capitalor business relationships or significant interests.
Rakuten, Inc. has signed an agreement with each of its
outside directors and outside auditors as stipulated in Article
427 Paragraph 1 of the Corporation Law. This agreement issummarized below:
In circumstances to which the provisions of Article 423,
Paragraph 1 of the Corporation Law apply, outside directors
and auditors accept liability up to the sum of the limits stipulated below, provided that they have carried out their duties
in good faith and without serious negligence.
i.	The total amount of fees, bonuses and other payments
for the performance of professional duties received during
the period in which they held office in the fiscal year that
includes the date on which the event that caused theliability occurred, and in the previous fiscal year, or the
total amount of property benefit (except benefit excludedin the following item) in each fiscal year, whichever isgreater, multiplied by twoii.	The total amount of retirement bonuses, or property
benefit that is in the nature of retirement bonuses, or that
total divided by the number of years in which they held

24

Rakuten, Inc.

office as outside director and multiplied by two, whicheveris loweriii.	The amounts stipulated in the following items, resulting
from the exercise or transfer of stock options, as stipulated
in the items attached to Article 238, Paragraph 3 of the
Corporation Law, after appointment as an outside director
a. If the options have been exercised		An amount calculated by subtracting the sum of theissue price per share and paid-in value per share of theoptions when they were exercised, from the share priceat the time when the options were exercised, and multiplying the result by the number of shares issued throughthe exercise of the options
b. If the options have been transferred		An amount calculated by subtracting the issue price ofthe options from the transfer price of the options, andmultiplying the result by the number of options transferred

7.	Resolutions of General Meetings ofShareholders that Can Be Implemented
by Resolutions of the Board of Directors
The Articles of Incorporation of Rakuten, Inc. state that,unless otherwise stipulated in laws and regulations, theBoard of Directors is authorized to pass resolutions on
matters pertaining to the dividends of surpluses and othermatters, as stipulated in the items attached to Article 459,
Paragraph 1 of the Corporation Low, without resolutions atGeneral Meetings of Shareholders. The purpose of thisprovision is to allow the Board of Directors to implement a
flexible dividend policy.

8.	Items Requiring Special Resolutions ofGeneral Meetings of Shareholders
The Articles of Incorporation of Rakuten, Inc. state thatmatters requiring resolutions of General Meetings of Shareholders, as stipulated in Article 309, Paragraph 2 of the
Corporation Low, require at least two-thirds of the voting
rights of shareholders present at a General Meeting of Shareholders at which shareholders with one third or more of voting
rights are in attendance. The purpose of this provision is tofacilitate the running of General Meetings of Shareholders byeasing the quorum requirements for special resolutions atthese meetings.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Risk Factors
Business Risk and Other Risk Factors
Described below are the main aspects of the business activities and finances of the Rakuten Group that are considered to
be potential risk factors or that may influence decisions byinvestors. Having identified these risks, the policy of the
Rakuten Group is to take steps to prevent occurrences or totake appropriate action in response to contingencies. This
policy notwithstanding, the Rakuten Group’s position is thatdecisions to invest in its securities should be preceded bycareful examination of relevant information, including information provided elsewhere.
Unless otherwise stated, all forward-looking statements
herein are based on judgments by the Rakuten Group as ofthe date of filing of the Yuukashouken-Houkokusho on March
27, 2009 to the Finance Services Agency of the Japanese
government. They are subject to uncertainty and could differ
from actual results.

1. Business-Related Risks
1-1. E-Commerce BusinessThis segment consists of the Internet shopping mall andInternet auction businesses. The Rakuten Group basicallyprovides systems and trading environments to support direct
trading between merchants and consumers, or between
auction sellers and bidders. The Rakuten Group is not a party
to any sales agreement or other contract in those transactions. However, there is a risk that the use of these Internet
shopping mall and Internet auction systems will result in
infringements against the rights of third parties, including
defamation or violations of ownership rights, intellectual
property rights or privacy rights, or in other inappropriate
behavior, such as fraud or other criminal activities. If suchsituations arise, liabilities could be incurred not only by theparties involved in the actions concerned, but also by the
Rakuten Group, as the provider of the trading environment.
The Rakuten Group has taken the following steps toprevent such situations, and to fulfill their legal and regulatory
obligations as business operators.
(1) Rakuten Ichiba
Risk management for Rakuten Ichiba begins with backgroundchecks prior to the opening of store accounts. This processincludes screening of all merchants wishing to open stores,
and preliminary examinations of procurement sources, sales
methods and other factors in the case of merchants who plan
to handle certain types of goods. Once a store has opened,
Rakuten E-Commerce Consultants provide business support
services, through which they are able to monitor the goods
handled by the merchant, the appropriateness of sales
methods, compliance with the terms of the mall agreement,
and other factors. When necessary, the consultants provide
guidance. The mall agreement specifically states that disputes
between merchants and consumers concerning transactions
on Rakuten Ichiba must be settled by the parties, and that the
Rakuten Group will accept no liability whatsoever. Throughmonitoring and other processes, we identify merchants withpoor reputations and those that have been the subject ofnumerous complaints. We then take appropriate actions, suchas giving advice on the improvement of business practices. In
serious cases, the merchant’s contract will be terminated.
We take great care to ensure reasonable grounds for thetermination of contracts. However, because of the Rakuten
Group’s large presence in the Internet shopping mall market,
there is a possibility that such actions, or the provisions of the
documents on which they are based, such as mall agreements,
may result in a violation of the Act on Prohibition of Private
Monopolization and Maintenance of Fair Trade. In such cases,
it is possible that the business activities of the Rakuten Groupmay become subject to new restrictions that could impact on
the Group’s business results and financial position.
To provide security for shoppers on Rakuten Ichiba, weintroduced a purchaser indemnity scheme, Rakuten Anshin
Payment Service, in October 2007. This scheme provides
compensation to purchasers under certain conditions, such as
when goods fail to arrive despite payment, or if a merchantcannot be contacted. The business results and financial positionof the Rakuten Group might be affected if the amount payable
under this scheme increases due to a series of bankruptcies
among merchants, or large-scale fraudulent transactions.
(2) Rakuten Auction
Rakuten Auction is classed as an auctioneer of second-handgoods under the Antique Dealings Act. As such, we are required
to endeavor to verify the authenticity of sellers, and to maintainand preserve records of auctions. We are also obliged to report

Rakuten, Inc.

25

any suspected stolen goods to the police. To prevent problems
relating to the receipt of goods and payments, Rakuten Auction
provides an escrow system, Rakuten Anshin Kessai Service,whereby the Rakuten Group stands between the seller and thebuyer and holds payment for goods from the successful bidder.
The funds are remitted to the sellers only after a delivery of
goods has been completed and confirmed. However, agreements specifically state that disputes must be settled by theparties, and that the Rakuten Group will accept no liability
whatsoever. The Rakuten Group has worked with other Internet
auction companies to formulate voluntary guidelines for Internet
auctions. We have established a monitoring system to eliminate
goods that infringe intellectual property rights, and to prevent
activities that are illegal or otherwise inappropriate. To preventand minimize transaction-related disputes between sellers andbidders, we display lists of feedback from past sellers andbidders on our website.
Because the Rakuten Group is not a party to transactionsin its Internet shopping mall and Internet auction businesses, it
is difficult to monitor with total reliability whether parties arecomplying with the agreements or engaging in illegal activities.
If problems arise in these business areas, it is possible that the
Rakuten Group would be held liable, regardless of the content
of its agreements. It is also possible that the occurrence ofproblems by itself could have consequences for the Rakuten
Group as a whole, including damage to our brand image.
There is also a possibility that the development of ourbusiness activities may be limited or that we will be required
to make changes because of the establishment of new laws,
action by supervisory agencies, or the adoption or amendmentof guidelines. Such situations might impact on the businessresults and financial position of the Rakuten Group.

1-2. Credit and Payment Business(1) Laws and Regulations
Our Credit and Payment Business is subject to the Law
Concerning the Regulation of Receiving of Capital Subscription,
Deposits and Interest on Deposits (hereinafter referred to as the“Capital Subscription Law”), the Money-lending Control Law
and the Installment Sales Law.
Under the amended Moneylending Control Law, Rakuten
KC will be required to control the total amount of credit
provided on cards through the use of credit agencies, based

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Rakuten, Inc.

on consumer information, including annual incomes. The newlaw requires the provision of credit to members to be managedwith greater precision. Earnings could be affected by thesemeasures, as they necessitate major system upgrades,changes to operating methods and the restriction of newlending. Further tightening of credit management will bemandatory as a result of amendments to the Installment Sales
Law, which have not yet taken effect.
The amended Capital Subscription Law will also takeeffect at the same time as the amended Moneylending Control
Law. This could have a negative impact on earnings, since itwill require the interest rate on new loans to be reduced to
20% or lower.
Rakuten Credit has no interest agreements that exceed
the limits set down in the Interest Rate Restriction Law.
However, some of the loan agreements established by Rakuten
KC before December 31, 2007 set interest rates that are above
those limits. For this reason, the company has provided anallowance for loss on interest repayments reflecting theestimated amount of future refund demands, based on
historical interest repayment request data (loan transition
ratio, average amount). It has also provided an allowance forwrite-off of principals triggered by interest repayment claims,
including allowance for doubtful accounts. If there is anincrease in the average amount of repayments used as thebasis for calculating the allowance, it will be necessary to
make additional provision to the allowances. This could
impact on our business results in this segment. Earnings inthis segment could also be affected by the reduction of theinterest rate on new loans provided by Rakuten KC to 18% orlower since January 1, 2008.
Other amendments to related laws may result in a further
tightening of restrictions on related businesses, such as moneylenders and credit card companies. Such changes could havea negative impact on our earnings in this business segment.
(2) Business Conditions
The Economic Environment
Because our activities in this segment target individual
customers, business results could be adversely affected by adecline in operating revenues, an increase in expenses for
doubtful accounts or other consequences, if a downturn inconsumer spending leads to reduced demand for loans, or ifAboutRakuten

To OurShareholders

Our
Operations

rising unemployment causes an increase in personalbankruptcies or the number of people who borrow moneyfrom multiple lenders.
Fund Raising
We raise funds for working capital of this segment primarily inthe form of loans from financial institutions. Interest rates andother conditions vary according to prevailing market conditions and other factors. Our business results in this segment
could be negatively impacted by future trends in financial
markets, changes in the credit status of the Rakuten Group,or other factors.
Credit Management and Loan Collection
In order to operate the business of the segment, we need acredit management system to reduce the risk of loan defaults,
as well as recruit and retain staff with knowledge of loancollection. The sustainability and future development of thisbusiness could be harmed if there are major problems
affecting our ability to maintain and operate the necessary
systems and recruit human resources.

1-3. Portal and Media Business(1) Internet Advertising Market
Activities in the Portal and Media Business segment consist
primarily of the operation and management of portal sites,with Internet advertising sales accounting for a large percentageof revenues.
Internet availability continues to expand, and the user
population is also growing. In addition, companies are increasingly using the Internet for their business activities. These
factors all point to continuing growth in the Internet advertisingmarket. However, Internet-based advertising is now in directcompetition with other forms of advertising, while the advertising as a whole is vulnerable to shifts in economic conditions.
Any decline in business confidence could therefore have anegative impact on business performance in this segment.
(2) Traffic on Internet Sites
The value of the Internet as an advertising medium depends
primarily on the ability of websites to attract consumers. By
responding to consumer needs, especially through the content
provided on its sites, the Rakuten Group is continually improving

Corporate
Activities

Financial Section
and Corporate Data

its ability to attract traffic. We will continue to use a variety ofmethods to attract advertising revenues, including advertising
linked to search results, and the enhancement of content.
However, our business results could be affected if there is a
shift away from the present trend toward establishment of asolid position for Internet advertising in the advertising market,
or if we are prevented from providing attractive content.
The Rakuten Group uses web search engines, news andother content provided by outside suppliers on its websites.
Any interruption to the supply of these web search engines
and content could prevent the Rakuten Group from obtaining
useful content efficiently. Such a situation would hinder theoperation of websites and could have an adverse impact on
business operations and results in this segment.
(3) Regulatory Requirements, etc.
Under the Harmful Site Restriction Law, which was introduced
to create an environment in which children and young people
can use the Internet safely, the Rakuten Group is required to
endeavor to prevent access to harmful information.
The Rakuten Group has strengthened its site monitoring
systems and implemented the necessary filtering measures,
including applying for verification by a certification organization. However, if the Rakuten Group’s community sites are
not certified by such an organization, children and young
people will become unable to visit the sites via mobile phones
and other equipment. This could impact on business operations and results in this segment, since any reduction in thenumber of people viewing pages would lead to a decline inadvertising revenues.
Business operations in this segment could be subject toincreased controls under certain circumstances, for instanceif amendments to the aforementioned law or other developments lead to a tightening of regulations, or if the criteria usedby certification organizations to identify harmful information
are changed. Business operations and results in this segment
could be impacted by the results of such changes, including
the cost of complying with these requirements.

1-4. Travel Business(1) The Business Environment
The Rakuten Group’s policy in this segment calls for businessexpansion through the enhancement of travel-related services

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27

in partnership with airlines and other travel-related companies.
In recent years, there has been an expansionary trend in market
for Internet-based travel services. However, travel-related
services are inherently vulnerable to economic trends, changes
in the economic climate within Japan and overseas, and shifts
in consumer preferences. Factors such as these could impact
on business operations and results in this segment.
There are numerous competing services and companies inthis area. Competition could result in a reduction in commission
rates on transactions. Furthermore, there is no guarantee that
the Rakuten Group will be able to maintain contractual relationships with accommodation facilities and other service providers.
Business operations and results in this segment could be
affected if accommodation facilities and other businesses wereto transfer their contracts to competitors.
(2) Regulatory Requirements, etc.
Activities in this segment are subject to the Travel Agency Law
and other laws, as well as regulations established by supervisory agencies and industry organizations. The establishment
or amendment of new laws and regulations or other requirements could affect the Group’s business operations and resultsin this segment, as well as the Group’s financial position.

1-5. Securities Business(1) Regulatory Requirements, etc.
In addition to the provisions of the Financial Instruments andExchange Law, activities in this segment are also subject toself-regulatory requirements imposed by related organizations, including supervisory agencies, stock exchanges andthe Japan Securities Dealers Association. Business operations and results could be affected by changes or additions torelated laws, regulations and business practices, or new interpretations of these.
In particular, brokers in financial instruments are required tomaintain specific capital adequacy ratios under the Financial
Instruments and Exchange Law and the Cabinet Office
Ordinance Concerning the Financial Instruments Business. The
operation of this business and the business performance andfinancial position of the Rakuten Group could be impacted if
Rakuten Securities is required to change its operating methods
or suspend part or all of its operations due to a decline in thecapital adequacy ratio. Rakuten Securities could be affected by

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Rakuten, Inc.

similar actions if it violates requirements under the Financial
Instruments and Exchange Law, such as advertising regulations or obligations pertaining to the provision of information, or
if it fails to establish an adequate control structure for systems
used in this business. Such situations could affect operation ofthis business and the business performance and financial
position of this segment and the Rakuten Group.
(2) Business Environment and Strategy
Brokerage commissions, which are this segment’s principle
source of revenue, are affected by the price environment insecurities markets. Securities markets are affected byeconomic conditions, by political trends and regulatory trends
in Japan, by worldwide market trends and by investor
sentiment. When markets slow down, existing and potential
customers will be less inclined to invest. The resulting declines
in the volume and value of trade could have a negative impact
on business results in this segment. This segment is also
affected by intense competition resulting from the influx ofnumerous companies, including existing securities firms, into
the market for online securities trading services. Brokeragecommissions, which are the main source of revenues in thissegment, have been deregulated, which means that businessresults and the ability to attract customers could be adversely
affected if price competition intensifies.
Business performance in this segment could also beaffected by factors relating to margin transactions, including adecline in margin transactions and an inability to collectoutstanding balances, resulting from rising interest rates orhigh market volatility. There are similar margin transaction
risks relating to foreign exchange guarantee transactions andfutures options.
(3) System Failures
In the past, Rakuten Securities experienced several system
failures due to heavy user traffic and other factors. As a resultof these events, the Financial Services Agency (FSA) issued
directives requiring Rakuten Securities to improve its operations in November 2005 and June 2007. The company
responded by implementing a variety of measures to upgrade
and strengthen its systems. However, there were further system
failures in November 2008 and January 2009. On March 24,
2009, the FSA directed Rakuten Securities to improve its

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operations and suspend the establishment of new operations
involving systems development (excluding activities individually
approved by the FSA) for a specific period, on the grounds thatthe steps taken by the company to restore services were inadequate. Rakuten Securities has since taken a range of steps toensure the reliable operation of its systems, including hardware
upgrades and reinforcement, the reinforcement of its organizations for system quality management and operational
monitoring, and the improvement of contingency planning forsystem failures. However, if there are frequent, serious system
failures in the future, the business results of Rakuten Securities,
Inc. and the entire Rakuten Group could be adversely affectedby the resulting damage to public confidence and loss ofcustomers. In addition, the FSA could implement additional
administrative actions against Rakuten Securities.

1-6. Professional Sports BusinessIn this business segment, the Rakuten Group aims to build astrong local fan support by strengthening the team’s operatingbase through the expansion of spectator facilities, reinforcementof its player lineup and staging of various events. Anticipatedcosts relating to these measures include the depreciation ofcapital investment and wages for players. If the projected
revenues from this business fail to materialize, business resultsin this segment could be adversely affected.
The Rakuten Group also anticipates synergy benefits fromits ownership of the Tohoku Rakuten Golden Eagles andresulting improvement in brand recognition, including a contribution to improved business performance in other businessareas. However, these benefits may be limited if there is asituation with the potential to damage the Rakuten Group’s
public reputation, or if the team is less popular than expected.
This segment is subject to various regulations, including
the provisions of the Nippon Professional Baseball Agreement
formulated by Nippon Professional Baseball. These requirements could place certain limitations on the operation of thisbusiness.

1-7. Telecommunications Business(1) Regulatory Requirements
This business is operated by Fusion Communications, which isregistered as a telecommunications provider under the provisions of Article 9 of the Telecommunications Business Law, andCorporate
Activities

Financial Section
and Corporate Datais therefore subject to regulations based on that law. The establishment of new laws and regulations, or the amendment ofexisting regulatory requirements, could affect the businessresults and financial position of the Rakuten Group.
(2) Interconnection Agreements
To facilitate the efficient provision of telecommunications
services, Fusion Communications has signed interconnection agreements providing for reciprocal connections
between its telecommunications facilities and those of othertelecommunications providers. At present, carriers that own
telecommunications facilities are in principle required to allow
other carriers to connect to those facilities. However, thebusiness results or financial position of the Rakuten Group
could be affected if future measures, such as the abolition oreasing of this requirement, result in increases in accesscharges and interconnection charges payable by Fusion
Communications or if there are changes to the terms andconditions that would be disadvantageous to Fusion Communications. The Rakuten Group’s business results and financial
position could also be affected if Fusion Communications
were required to provide guarantees or collateral because ofconcerns about its ability to meet its obligations.
(3) Reliability of Networks, etc.
Confidence in the business activities and services of the
Rakuten Group could be eroded if the telecommunications
services provided by Fusion Communications were disrupted
because of an inability on the part of the company to keep
pace with traffic growth on its network, due to network
equipment failures, natural disasters, power outages, thesuspension of telecommunications functions or other contingencies, or because of computer viruses, hacking or cracking.
Such situations could affect the business results and financial
position of the Rakuten Group.

1-8. M easures to Expand Gross Transaction Value
Gross Transaction Value (GTV) on the Rakuten Group’s websites
is a key performance indicator used by the Rakuten Group tomonitor the results of its various businesses, especially the
E-Commerce Business and Travel Business segments. The
Group is working to expand GTV by increasing the number of
new purchasers and the repeat rate for existing purchasers. It is

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29

strengthening its marketing activities and implementing an
aggressive marketing program and system development
strategy based on an economic structure known as the Rakuten
Eco-system. Specific measures include the operation of agroup-wide loyalty point system known as Rakuten Super
Points, the introduction of online electronic money, and thepersonalization of website content to match consumer profiles,
including gender, age and other attributes.
Currently, GTV and the number of unique buyers* on
Rakuten Group websites both appear to be on an expansionary
trend. Contributing factors include the expansion of thebusiness to consumer (B to C) e-commerce market. However,the business results of the Rakuten Group could be affected if
GTV on Rakuten Group websites fails to show sustained growth
because of external factors, such as regulatory measures
restricting Internet use, increased concern about information
security and in particular the security of personal information,
economic trends and competition from other companies.
The Rakuten Group is also working to expand GTV byunifying the branding of all services under the Rakuten brand.
In addition, membership databases are being integrated, andall member IDs are being brought together through the Rakuten
Super Points program. However, rebranding and membership
ID changes could cause a decline in the loyalty of existing
members or cause them to withdraw from membership organizations. GTV on Rakuten Group websites and the businessresults of the Rakuten Group could be affected if thesemeasures fail to yield the anticipated benefits.
* Number of unique buyers: The total number of buyers who purchase items even once
on Rakuten Ichiba during a specified period.

1-9. International Business Expansion
In its medium- and long-term strategies, the Rakuten Groupsees global expansion of various services to meet the needsof overseas consumers as an important way of expanding its
income opportunities.
Business operations are now being actively developed inother countries. For example, a U.S. subsidiary, LinkShare
Corporation, is already providing performance marketing
services in the United States and elsewhere, while in Taiwan,
Taiwan Rakuten Ichiba has started to provide marketplacestyle Internet shopping mall services similar to those offeredthrough Rakuten Ichiba in Japan. Management is currently

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Rakuten, Inc.

considering a range of measures relating to the establishmentof overseas branches and research facilities, including somein emerging markets. In a related initiative, the introduction of
the Rakuten International Shipment service means that items
purchased from Internet shopping mall merchants in Japan
can now be shipped to overseas consumers.
Global expansion will result in exposure to a variety ofrisks, including factors relating to laws, regulations, systems
and social conditions in other countries. The business activities and performance of the Rakuten Group could be affected
if these risks are not handled properly.
In particular, global business development is expected toresult in additional costs, including personnel recruitment
costs, and development costs relating to the localization ofsystems. Income will temporarily come under pressure fromthese additional costs, and it will take time before new operations start to generate reliable income streams. Delays inglobal business development resulting from changes in local
conditions or other factors could have consequences for thebusiness performance of the Rakuten Group, including difficulties in the recovery of the capital invested. Overseas sales,
expenditure, assets and liabilities will also be exposed to theeffects of currency exchange rate fluctuations.

2. Risks Relating to Regulatory Systems
2-1. Potential for Application of Regulatory Restrictions
The Rakuten Group is involved in a wide range of business activities. The main laws and regulations affecting these businesssegments are stated in Section 1 (“Business-Related Risks”).
In Japan, the Rakuten Group’s main business activities include Internet-based information distribution ande-commerce. These activities are subject to regulation undera number of laws, including the Act Concerning the Prohibition of Unauthorized Computer Access, Act on the Limitationof Liability for Damages of Specified Telecommunications
Service Providers and the Right to Demand Disclosure of
Identification Information of the Senders, the Act on Specified
Commercial Transactions and the Consumer Contract Act. A
regulatory framework is now evolving in response to the
spread and expansion of Internet-based business activities.
For example, in December 2008 restrictions were placed one-mail advertising through amendments to the Act on Specified

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Commercial Transactions and the Act on Regulation of Transmission of Specified Electronic Mail.
In addition to new laws or amendments, the distribution of
information on the Internet could also be affected by otherfactors, such as the formulation of new voluntary rules. The
business results and financial position of the Rakuten Group
could be affected if the Group’s activities become subject to
new restrictions, or if existing regulations are tightened becauseof continuing social pressure calling for comprehensive legal
regulation of information intermediaries.
Payment collection services, electronic money, points
services and mail-order selling of specific goods are all thesubject of wide-ranging debate at present. The business results
and financial position of the Rakuten Group could be affected
if this debate leads to the establishment of new laws or thetightening of regulations.

2-3. Intellectual Property Rights

2-2. Handling of Personal Information

2-4. Possibility of Litigation

As an organization that handles personal information, theRakuten Group is subject to the provisions of the Act on theProtection of Personal Information. Currently, users of
Rakuten Ichiba and the main services provided by the Rakuten
Group are required to complete membership registration. This
process involves the collection of information that can beused to identify users, including names, addresses, telephone
numbers and credit card numbers.
The Rakuten Group takes all possible care to protect
privacy and personal information through proper information
management. It complies with laws and regulations covering
each type of service business and follows guidelines established by government agencies, industry groups and otherorganizations. In April 2007, the Rakuten Group gained certification for its main business activities under ISO/IEC 27001,
which is the international standard for information security.
However, in 2008 there was an incident in which part of theregistration information for an e-mail magazine was placed on
the Internet in a way that allowed perusal by third parties. The
possibility of further information leaks or abuse in the future
cannot be ruled out, and it is possible that such incidents will
result in legal disputes or damage to the Rakuten Group’s
reputation. Such situations could impact on the businessactivities and performance of the Rakuten Group.

As noted above, the Rakuten Group could be exposed tolitigation or other claims if merchants, purchasers, participants
or other users engage in illegal activities or involved in disputes,
if users violate the rights of third parties through illegal actionsor the distribution of harmful information, or if losses are
incurred by merchants, purchasers, participants or other users
as a result of system failures or other situations. Furthermore,
the Internet itself is still a relatively new phenomenon, and thereis the possibility of unforeseeable litigation or other actions
resulting from new contingencies or business risks that have
not yet become apparent. Depending on the nature of such
litigation and other actions and the amounts sought, suchsituations could impact on the business activities, performanceand financial performance of the Rakuten Group.

The Rakuten Group endeavors to protect intellectual property
rights, including patents, trademarks, copyrights and domainnames, and licenses granted to it. However, the business activities and performance of the Rakuten Group could be adversely
affected if it is unable to protect its intellectual property rightsfrom infringement by third parties, or if substantial costs are
incurred in order to protect intellectual property rights. Costs orlosses could also be incurred if it becomes necessary to defend
against or settle claims of intellectual property right infringements in relation to technology, content and other items usedby the Rakuten Group. Such situations could also result in the
restriction of the Rakuten Group’s ability to provide specificcontent or services or use specific technologies. The businessactivities, performance and financial position of the Rakuten
Group could be adversely affected in such cases.

3. Risks Relating to the Business Environment
and Business Operations
3-1. Competition
There has been a rapid rise in the number of people with
continuous access to high-speed Internet services through
ADSL and FTTH (Fiber To The Home) systems, and in thenumber of people accessing the Internet through mobile
phones. This growth is helping to drive an expansion trend in
the use of Internet-related services by ordinary consumers.

Rakuten, Inc.

31

As a result, many companies are moving into Internet-related
business activities across a wide spectrum of product andservice categories. In addition to its Internet-related business
operations, the Rakuten Group also faces competition fromnumerous companies in its other areas of business.
Mobile Internet access is expected to expand further inthe future. As part of its efforts to expand turnover on its sites,
the Rakuten Group is enhancing its systems to facilitate
mobile phone access to its Internet-based business activities.
It has also stepped up its marketing activities. Other initiatives
target the enhancement and expansion of services other than
Rakuten Ichiba, such as Rakuten Auctions, Rakuten Business,
Rakuten Books and Rakuten Travel. In addition, the Rakuten
Group is expanding its areas of business through mergers
and acquisitions (M&A) and other means, and through thelinkage of various business segments.
The Rakuten Group aims to expand its business activities
by responding to customer needs and through service ID
integration, service tie-ups and other innovations. However, it
is possible that these initiatives will fail to yield the anticipatedbenefits, or that the revenues of the Rakuten Group will fallbecause of changes in the competitive environment, such as
the emergence of a competitor with revolutionary services
backed by powerful system development capabilities. Thereis also a possibility that the Rakuten Group will be forced tocompete on prices or increase its advertising expenditure.
Such situations could have a serious impact on the businessactivities and performance of the Rakuten Group.

3-2. Technological Changes in the Industry
Rapid changes in technology, industry standards, customer
needs and the competitive environment are characteristic of
the Internet sector, in which the Rakuten Group is developing
its business activities. The sector is also characterized by thefrequent introduction of new products and services and an
influx of new competitors. The pace of progress and change
in this field of technology is extremely rapid, and the Rakuten
Group must adapt to the resulting changes. Recently, theGroup identified user-initiated Internet services and mobile
services as two areas to which it will need to adapt. However,if these adaptation efforts are delayed for some reason, theGroup’s services could become outdated and uncompetitive.
Even if the Rakuten Group is able to adapt, it could still face

32

Rakuten, Inc.

increased costs, including facility improvements and development costs. The Rakuten Group’s business performance
could be affected by these changes, and by its efforts toadapt to them. There is also the possibility that new technology
could become a barrier to the business operations of the
Rakuten Group. If such technology becomes widely available,
there could be implications for the Rakuten Group’s businessactivities and performance.

3-3. Telecommunications Networks
Most of the business activities of the Rakuten Group rely on theuse of telecommunications networks to link computer systems.
If these telecommunications networks are disrupted by natural
disasters or other contingencies, the Rakuten Group would beunable to continue its business operations. Overloading causedby growth in the number of users accessing systems could
cause failures in servers operated by the Rakuten Group or its
providers. Additionally, defects in the hardware or software of
the Rakuten Group, merchants, purchasers, participants orother users could prevent normal trading or cause systems tocrash. Moreover, website pages belonging to Rakuten Groupor merchants could be rewritten or become non-functional,
and valuable data could be destroyed or illegally obtained as aresult of viruses, criminal activities such as hacking, or errors
and other problems caused by officers and employees.
The Rakuten Group outsources some important aspects ofInternet-related operations, including Internet connections anddata server management. Any disruption to the operations of
the Rakuten Group or these outside contractors could not only
cause direct losses for the Rakuten Group, but also degrade
the reliability of the Rakuten Group’s systems or result in claims
for damages resulting server crashes or defects, including theinterruption of business activities. Such situations could impact
on the business activities of the Rakuten Group. See also
Section 1 (“Business-Related Risks”), 1.5 (“Securities Business”),(3) (“System Failures”).

3-4. Group Branding
Since its establishment, the Rakuten Group has worked toinvest substantial management resources in business development and advertising with the aim of building the Rakuten
brand. While the Rakuten Group believes that it has achieved acertain level of brand recognition among consumers, there isAboutRakuten

To OurShareholders

Our
Operations

no guarantee that future initiatives will yield the anticipatedbenefits, and it is possible that these efforts will not result inrevenues for the Group. If there are problems relating tobusiness development, confidence in the Rakuten brand could
be eroded, with possible implications for the Rakuten Group’sbusiness performance, financial position and share price.

3-5. Natural Disasters and Accidents
Natural disasters, such as earthquakes, typhoons, floods andtsunamis, fires, power outages, unknown computer viruses,
infections by unknown infectious diseases, terrorist attacks, international conflict and other contingencies could have a serious
impact on the business operations of the Rakuten Group.
Since the business premises of the Rakuten Group areconcentrated in the greater Tokyo area, a natural disaster orother event in that area could temporarily disrupt services. In
addition to degrading the Rakuten Group’s reliability anddamaging its brand image, such situations could also impact
on business performance.
Within the Rakuten Group, the Risk Management
Department of Rakuten, Inc. has worked to prepare for
emergencies through response measures. However, there is
no guarantee that these measures will be sufficient to mitigate
all of the effects of natural disasters or other events, and thecontinuity of business operations may be jeopardized if there
are serious losses to physical and human resources.

3-6. Financing
As noted above, the Rakuten Group conducts its Credit andPayment business and Securities business through subsidiaries. The main methods used to raise funds for these
activities are loans from financial institutions and bonds. As of
December 31, 2008, the balance of consolidated interestbearing borrowings was ¥512,639 million. This total consistsof long-term and short-term borrowings, corporate bonds,
commercial paper, borrowings on securities margin transactions, and lease debt. The ratio of interest-bearing liabilities toconsolidated total assets is 47.16%. Because of this debt, thebusiness performance of the Rakuten Group is exposed tothe effects of the recent sudden changes in financial markets,and it is possible that this situation could have an adverse
effect on the financial position of the Rakuten Group and its
ability to raise funds. Loan contracts and commitment lines

Corporate
Activities

Financial Section
and Corporate Data

are in some cases subject to covenants and collateral clauses,
and any deterioration in the business performance, financial
position or credit rating of the Rakuten Group could result indemands for full repayment of existing debt or the provision of
new collaterals under these clauses.
Future financing needs could exceed expectations becauseof changes in the business environment or the business strategies of the Rakuten Group. This could result in further increases
in interest-bearing debt. Since there is no guarantee that the
Rakuten Group will be able to raise funds on favorable terms in
the future, this situation could have a limiting effect on thedevelopment of the Rakuten Group’s business operations.

4. Risks Relating to the Operating Structure
4-1. Dependence on the Chairman and CEO
Hiroshi Mikitani, the Chairman and CEO of Rakuten, Inc., is thedriving force behind the Rakuten Group. Mr. Mikitani has been
the CEO of Rakuten, Inc. since its establishment and continues
to determine management policies and strategies as well as
playing a central role in business operations, including marketing,technology and financial management. As of December 31,
2008, Mr. Mikitani and his family directly or indirectly owned
45.04% of shares in Rakuten, Inc. Hiroshi Mikitani could
therefore be considered to have a substantial influence over
final decisions that affect the business operations of the Rakuten
Group, including the appointment of officers.
The Rakuten Group is making organizational changes withthe aim of building a management structure that is not excessively dependent on Mr. Mikitani, including the adoption of abusiness unit (BU) system, and the restructuring of humanresource management systems. However, the business performance and financial position of the Rakuten Group could beseriously affected if Mr. Mikitani were to resign or become
incapable of performing his duties at the present time.

4-2. Human Resources
In addition to engineers capable of building and maintaining
computer systems, the business operations of the Rakuten
Group also require human resources with specialized skills
relating to individual business segments. As the Group’s
activities expand, there is likely to be a continuing need for the
recruitment of personnel. The Rakuten Group is not aware of

Rakuten, Inc.

33

any serious obstacles to recruitment at the present time.
However, the business activities, performance and financial
position of the Rakuten Group could be adversely affected if
it becomes difficult to secure skilled staff in the future becauseof escalating competition for human resources, or if there isan exodus of existing staff.

5. Risks Relating to Business Expansion
and Development
5-1. M&A Policies and Results
The Rakuten Group is actively engaged in M&A activities andthe establishment of joint ventures, both in Japan and overseas.
As an organization operating within the Internet sector, abusiness environment that is affected by rapid changes intechnology, business models and other factors, it regards
these activities as essential to realizing key management goals,
such as entering new business areas, attracting new users,
expanding existing businesses and acquiring related technologies. The Rakuten Group believes that M&A allows it toachieve its goals with shorter lead times, compared with establishing new Group businesses or expanding existing operations,and it will continue to follow a policy of taking M&A into consideration when determining business strategies.
When acquiring a company, the Rakuten Group seeks to
avoid risk as much as possible by conducting detailed due
diligence concerning the financial position, contractual relationships and other aspects of the potential acquisition. However,
it is not always possible to carry out due diligence exhaustively
because of the circumstances surrounding individual acquisitions, and it is possible that contingent or unrecognized liabilities
will come to light after an acquisition. Furthermore, it is impossible to predict reliably how the characteristics of a newly
created business will affect the business operations and performance of the Rakuten Group. It may also become impossible
to develop the new business as anticipated because of changes
in the business environment or other factors. In such cases, thebusiness performance of the Rakuten Group may be adversely
affected, and it may be impossible to recover the investment.
It is also possible that the information systems and internal
control systems of an acquired company cannot be integrated
successfully, or that executives, staff and customers of an
acquired company will be lost as a result of the acquisition. In

34

Rakuten, Inc.

addition, because future investment and lending could besubstantial compared with the current scale of business
operations, there is the possibility of increased risk affecting
the financial position and other factors across the entire
Rakuten Group. Furthermore, it may become impossible todevelop business operations established in other countries
because of factors that include the Rakuten Group’s shortageof experience in the operation of overseas businesses, as well
as differences in language, geographical factors, legal
systems, taxation systems and commercial practices, andeconomic and political instability.
When the Rakuten Group launches a new business in anarea in which it has not previously been involved, it becomes
exposed to risk factors specific to that activity. It is possiblethat the Rakuten Group will be affected by risk factors not listed
in this section as a result of acquisitions and other actions.

5-2. Amortization of Goodwill
The Rakuten Group amortizes goodwill over the period inwhich such action is deemed effective. Companies that have aclose relevance to the activities of the Rakuten Group, such as
Rakuten KC and LinkShare, have been acquired on the basisof long-term assessments of corporate value. Goodwill for
those companies is therefore amortized on the basis ofreasonable estimates over a period of 20 years, which is thelongest period stipulated in the accounting standards forbusiness combinations. Goodwill amortization is included inselling, general and administrative expenses. The balance of
goodwill (consolidation adjustment accounts) showing in the
consolidated balance sheets as of December 31, 2008 was¥64,211 million.
Amortization expenses could increase if new goodwill isgenerated in the future. Furthermore, the business results andfinancial position of the Rakuten Group could be adversely
affected by an impairment of goodwill if a situation arises inwhich the goodwill from a company is likely to be amortizedover a shorter period than was estimated at the time of acquisition, because of a deterioration in the company’s businessperformance or other factors.

AboutRakuten

To OurShareholders

Our
Operations

5-3. Discussions Concerning a Capital andBusiness Alliance(1) Capital and Business Alliance with eBANK Corporation
On September 4, 2008, the Rakuten Group signed anagreement with eBANK concerning the formation of a capitaland business alliance. This alliance aims to provide customers
with highly convenient financial services and developing new
products and services. The Rakuten Group and eBANK are
currently considering wide-ranging business collaboration insuch areas as settlements, marketing and product development. On September 29, 2008, Rakuten, Inc. acquired
666,000 preferred shares issued by eBANK (acquisition value:¥19,980 million). On February 10, 2009, Rakuten, Inc. converted
these preferred shares into common stock, having obtained
approval from the Financial Services Agency as a major shareholder with voting rights in eBANK as required under the
Banking Law. This brought Rakuten, Inc.’s shareholding in
eBANK to 46.4%, and it is anticipated that eBANK will betreated as a consolidated subsidiary from the year ending
December 31, 2009. In March 2009, Rakuten, Inc. acquired afurther 333,000 preferred shares (acquisition value: ¥9,990
million) issued by eBANK. Part of the business operations of
Rakuten Credit, a subsidiary of Rakuten, Inc. that is involved in
the lending to individuals, will be split off and merged with theoperations of eBANK in April 2009. This plan was approved atGeneral Meetings of Shareholders of both companies in March
2009. After the integration of the business operations of
Rakuten Credit and eBANK, the shareholding in eBANK is
expected to increase to 67.2%. The business results andfinancial position of the Rakuten Group could be seriously
affected if the business integration between Rakuten Credit,
Inc. and eBANK fails to proceed according to plan, or if there
are problems with the business operations of eBANK.
Business Licenses and Registrations
As a company engaged primarily in the banking business,eBANK is required to hold a banking license under the provisions of the Banking Law, and to be registered under Article33-2 of the Financial Instruments and Exchange Act withregard to its securities-related business and handling of
foreign currency margin transactions. eBANK has obtained
the license and completed the required registration. eTRUST
Corporation, a subsidiary of eBANK, has obtained a license

Corporate
Activities

Financial Section
and Corporate Data

under the Trust Law and is conducting its business in accordance with that license. The suspension or cancellation of
any of the licenses or registrations required for the business
operations of the eBANK Group may impede the eBANKGroup’s business operations and have a serious impact
on its business performance.
Legal Requirements
The eBANK Group conducts its business operations inaccordance with applicable laws and regulations, including the
Banking Law, the Financial Instruments and Exchange Act, theTrust Law and the Depositor Protection Act, as well as rules
established by supervisory agencies and voluntary regulatoryorganizations, such as the Japanese Bankers Association.
However, changes to the related laws and regulations andbusiness practices, or the addition of new laws and regulations
or interpretations thereof could affect the operations andperformance of this segment.
Under the provisions of the Banking Law, the eBANK Groupis required to maintain its capital adequacy ratio at a specificlevel. If the capital adequacy ratio falls below the standard level
determined by the Financial Services Agency, the eBANK Groupwill be directed to suspend part or all of its business operations,or its banking license may be revoked. This could affect thebusiness performance of the Rakuten Group.
The Internet banking business operated by the eBANKGroup is not subject to the provisions of the Depositor
Protection Act concerning compensation for victims of crime.
However, the Japanese Bankers Association, of which eBANK
is a member, requires it to take actions in accordance with the
Depositor Protection Act with regard to fraudulent withdrawals
of deposits and other funds through Internet banking.
eBANK has implemented a range of countermeasures,
including system-related security measures, and the use of
insurance against the fraudulent use of deposit accounts or
the theft of bank cards. However, if there are substantial losses
resulting from criminal activities using forged or stolen bankcards, or fraudulent withdrawals of deposits and other funds
through Internet banking, there could be negative consequences for the reputation and business performance of theeBANK Group, including administrative action by supervisoryagencies, and demands from customers for compensation forlosses in excess of the insurance indemnity.

Rakuten, Inc.

35

Liquidity of Funds
Users of Internet banking services provided by eBANK are able
to withdraw ordinary deposits, cancel time deposits and remit
or transfer funds to other financial institutions over the Internet.
For this reason, an outflow of cash could occur more rapidly
than with conventional bank deposits if unexpected circumstances arise, such as the spread of rumors that would have anegative effect on the bank’s reputation. The bank may become
unable to continue its operations in the event of bigger-thananticipated outflows of cash.
Investment of Assets
Securities and money held in trusts make up a major part ofassets invested in by the eBANK Group and influences its
investment returns. The bank divides its portfolio into safe
assets, which are used to supplement liquidity, and risk
assets, which are used mainly to produce returns. It invests ina wide range of financial instruments, including bonds, shares,
funds, and securitization products. Returns from these activities are significantly influenced by factors that include interest
rates, foreign exchange rates, and trends in bond and stock
markets and other markets. The performance of the eBANKGroup could be affected if there are significant changes in thevaluations of these assets.
(2) D iscussions Concerning a Capital andBusiness Alliance with TBS
On October 13, 2005, the Rakuten Group proposed the establishment of a joint holding company with Tokyo Broadcasting
System, Inc. (TBS). The Rakuten Group aims to become a mediagroup capable of succeeding in the global market by building astrong business partnership with TBS. As of December 31,
2008, Rakuten, Inc. held 37,770,700 shares of TBS common
stock.
In the year ended December 31, 2008, a ¥65,395 million
valuation loss on these shares was booked on a consolidated
basis, and the book value as of December 31, 2008 was ¥51,519
million. The business performance and financial position of the
Rakuten Group could be seriously affected if there are further
changes in the price of TBS shares.
In accordance with the takeover defense measure adopted
by TBS in September 2007, a special committee, establishedto advise the company’s Board of Directors on corporate value

36

Rakuten, Inc.

appraisal, concluded that the acquisition of additional TBS
shares by the Rakuten Group would not require the implementation of the takeover defense measure.
However, if in the future the committee for some reason
advises the Board to implement the takeover defense measure,and if this is proposed and approved at a General Meeting of
Shareholders, this measure could cause TBS shares held by
the Rakuten Group to be diluted by up to 50%. In that case, it
could become impossible to make TBS an equity-method
affiliate of Rakuten, Inc. Furthermore, it is anticipated thatcompensation for the impairment of the share value due todilution under the takeover defense measure of TBS would be
provided in the form of cash or other assets. However, themethod and extent of such compensation are not known at thispoint in time, and it is possible that the compensation would
not be adequate. Such a situation could have a serious impact
on the financial position of the Rakuten Group.
In December 2008, TBS convened an extraordinary General
Meeting of Shareholders, at which an agenda was approved
providing for the company’s transition to a designated holding
company structure. Rakuten, Inc. exercised its voting rights to
oppose this agenda, as a result of which it now has the right todemand the purchase of its holding of TBS shares. This rightcan be exercised during a period from 20 days to one day
before April 1, 2009, which is the date on which the organizational restructuring of TBS for its transition to a designatedholding company takes effect.
Depending on the progress of negotiations with TBS andother factors, such as changes in the situation, the Rakuten
Group may be forced to change its policy on ownership of TBS
shares. Depending on the method used to dispose of theshares and on market conditions at that time, this could have aserious effect on the business performance and financial
position of the Rakuten Group.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Financial Section
and Corporate Data
Contents
38
39
40
42
44
45
47

Result of Operations and Financial Condition
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Net Assets
Consolidated Subsidiaries and Affiliated Companies
Corporate Information

Rakuten, Inc.

37

Result of Operations and Financial Condition
For the fiscal year ended December 31, 2008

Net Sales, Operating Income
Net sales amounted to ¥249,883 million, an increase of 16.8%
over the previous fiscal year. One of the key factors of thisgrowth was the buoyant performance of the E-Commerce
Business and Travel Business segments. Another was partly
attributable to a full year’s contribution from Fusion Communications, which was added to the consolidation in the end of
third quarter of fiscal 2007.
Operating income amounted to ¥47,151 million, comparedwith ¥119 million in the previous fiscal year. This figure is a
new record. Contributing factors include higher net sales fromthe E-Commerce Business and Travel Business segments,
and a substantial recovery in the profitability of our Credit andPayment Business segment, which benefited from reduced
provision to the allowance for interest repayment losses andlower expenses for doubtful accounts. Another positive factor
was a Group-wide review of our cost structures throughProject V, a package of measures designed to strengthen
our management and administration systems.

Net Assets
Total net assets amounted to ¥158,727 million at the end of
fiscal 2008, compared with ¥193,823 million a year earlier.
Factors affecting net assets included the reduction of bookvalues, the recognition of valuation losses on investment
securities, ¥21,732 million increase in the valuation difference
on available-for-sale securities, as well as ¥56,286 million
reduction in retained earnings mainly resulting from a valuation
loss on investment securities.

Cash Flows
Operating Activities
Net cash used in operating activities was ¥13,467 million in
fiscal 2008, compared with a positive inflow of ¥42,967 million
in the previous year. The major reason is payment of income
taxes amounting to ¥23,453 million relating to the previous
fiscal year. Another factor was the redemption of securitizedloan receivables in the Credit and Payment Business segment
caused an increase in accounts receivable-installment andoperating loans.

Net Loss (Income)However, valuation loss on investment securities, amounted
to ¥67,177 million in fiscal 2008. As a result, there was a net
loss before adjustment for income taxes and minority interestsof ¥34,989 million. This is a marked reduction from the result
for the previous fiscal year, when we recorded gains on salesof shares of affiliated companies of ¥53,873 million. In addition,
due to factors including a loss on valuation of investment
securities of ¥67,177 million recorded, and in fiscal 2008,
because the valuation loss and other items were treated as
taxable, there was a net loss of ¥54,978 million, comparedwith net income of ¥36,899 million in the previous fiscal year.

Assets and Liabilities
AssetsTotal assets declined to ¥1,086,938 million at the end of fiscal
2008, compared with ¥1,158,923 million a year earlier. The
main changes were ¥107,550 million reduction in margintransactions assets for the securities business, and ¥31,151
million increase in cash and deposits.
Liabilities
At the end of the fiscal 2008 total liabilities were ¥928,211
million, compared with ¥965,100 million at the end of theprevious fiscal year. This resulted primarily from ¥48,150
million reduction in margin transactions liabilities for the
securities business.

38

Rakuten, Inc.

Investing Activities
Net cash used in investing activities amounted to ¥40,977 million,
compared with a net inflow of ¥55,070 million in the previous
fiscal year. Reasons for this result include the acquisition ofpreferred shares in eBANK and investment in intangible fixed
assets, such as software.
Financing Activities
Net cash provided by financing activities amounted to ¥62,397
million, compared with a net outflow of ¥113,628 million in theprevious fiscal year. This resulted from policies including an
increase in liquidity in hand introduced in response to thechange in the world’s financial markets.
The balance of cash and cash equivalents increased by¥7,088 million in fiscal 2008, compared with a decline of¥15,358 million in the previous year. The year-end balance of
cash and cash equivalents was ¥81,284 million, an increaseof 10.1% over the position a year earlier.

* For detailed information by business segment, please refer the individual
segment descriptions in Our Operations (page 12-17).

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Consolidated Statements of Income
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31, 2008 and 2007
Thousands of
U.S. dollars

Millions of yen

NET SALESCOST OF SALES

Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Operating income

2007

2008

2008

¥ 213,938
		 39,480
		 174,458
		 174,339
		119¥ 249,883
		 55,347
		 194,536
		 147,385
		 47,151$ 2,745,065
		
608,004
		 2,137,061
		 1,619,086
		517,975

OTHER INCOME (EXPENSES):Interest income
Dividend income
Gain on sales of investment securities
Foreign exchange (loss) gain
Equity in (losses) earnings of affiliates
Interest expenses
Commission fee
Gain on sales of noncurrent assets
Gain on receipt of investment securities
Gain on sales of affiliate securities
Gain on sales of subsidiary securities
Gain on changes in equity
Reversal of provision for loss on business liquidation
Reversal of reserve for financial products transaction liabilities
Loss on business liquidation
Loss on special retirement benefits
Loss on sales of noncurrent assets
Loss on retirement of noncurrent assets
Office relocation expenses
Loss on cancellation of leases
Provision for loss on business liquidation
Provision for statutory reserve for securities business
Loss on valuation of investment securities
Impairment loss
Other—net
Other (expenses) income—net(LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		
		

274 		
1,707 		1,764 		259 		
1,047 		(1,505) 		
(670) 		1,085 		– 		53,873 		
1,037 		598 		40 		– 		(412) 		(240) 		– 		(1,426) 		
(304) 		(3,108) 		
– 		(778) 		(322) 		(750) 		(1,615) 		
50,554 		
50,673 		

171 		
867 		
– 		(68) 		(116) 		(2,224) 		
(1,244) 		
121 		
267 		
– 		
– 		
31 		
185 		
714 		
– 		– 		(145) 		(1,855) 		
(691) 		– 		(4,481) 		
– 		(67,177) 		
(5,418) 		
(1,077) 		
(82,140) 		
(34,989) 		

1,877
9,527
–
(752)
(1,277)(24,430)(13,668)
1,333
2,934
–
–
339
2,029
7,845
–
–
(1,598)(20,383)(7,586)–(49,229)–(737,964)(59,517)(11,827)(902,347)(384,372)

		
		
		
		
¥

20,942 		 15,695 		
(5,971) 		
4,911 		14,971 		 20,606 		
(1,197) 		
(617) 		36,899¥ (54,978) $172, 417
53,951
226,368(6,788)(603,952)

INCOME TAXES

Income taxes - current
Income taxes - deferred
Income taxes
MINORITY INTERESTS IN LOSS
NET (LOSS) INCOME

The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been
made at ¥ 91.03 to $1, the rate of exchange prevailing at December 31, 2008.

Rakuten, Inc.

39

Consolidated Balance Sheets
Rakuten, Inc. and Consolidated Subsidiaries
December 31, 2008 and 2007

Thousands of
U.S. dollars

Millions of yen

2007

2008

¥
		
		
		
		
		
		
		
		
		
		
		
		
		

57,437¥
27,904 		
70,739 		
4,497 		110,144 		
230,641 		
188,704 		
8,731 		158,964 		
26,380 		
15,635 		
47,872 		
(44,447) 		
903,201 		

88,588 $32,241 		
93,631 		
3,551 		101,572 		
214,892 		
81,154 		
11,430 		
188,696 		
2,629 		12,829 		
55,127 		
(36,073) 		
850,267 		

973,174
354,180
1,028,576
39,005
1,115,810
2,360,671
891,506
125,558
2,072,899
28,883140,935
605,595(396,278)
9,340,514

Property, plant and equipment		24,027 		

21,115 		

231,956

Intangible assets
Goodwill
Other
Total intangible assets

		
		
		

64,466 		
28,944 		
93,410 		

65,083 		
28,230 		
93,313 		

714,965
310,116
1,025,081

		
		
		
		
		
		

104,070 		
18,713 		
20,609 		
(5,107) 		
138,285 		
255,722 		

82,846 		
15,510 		
29,295 		
(5,408) 		
122,243 		
236,671 		

910,096
170,388
321,806(59,408)
1,342,882
2,599,919

ASSETS

2008

CURRENT ASSETS:

Cash and deposits
Notes and accounts receivable – trade
Accounts receivable – installment
Accounts receivable – installment sales - credit guarantee
Beneficial interests in securitized assets
Cash segregated as deposits for securities businessMargin transaction assets for securities business
Short-term guarantee deposits for securities business
Operating loans
Short-term investment securities
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
NONCURRENT ASSETS:

INVESTMENTS AND OTHER ASSETS:

Investment securities
Deferred tax assets
Other
Allowance for doubtful accounts
Investments and other assets
Total noncurrent assets
Total Assets¥ 1,158,923¥ 1,086,938$ 11,940,433

The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been
made at ¥ 91.03 to $1, the rate of exchange prevailing at December 31, 2008.

40

Rakuten, Inc.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Thousands of
U.S. dollars

Millions of yen

2008

2007

LIABILITIES AND NET ASSETS

2008

CURRENT LIABILITIES:

Short-term debts
Current portion of long-term debts
Notes and accounts payable – trade
Accounts payable - credit guarantee
Advances received
Income taxes payable
Deposits received for securities businessMargin transaction liabilities for securities business
Guarantee deposits received for securities business
Collateralized guarantee borrowings for securities business
Provision
Other
Total current liabilities

¥
		
		
		
		
		
		
		
		
		
		
		
		

140,475
96,60016,668
4,497
23,177
17,075
148,316
101,688
104,929
40,666
7,144
49,207
750,442

¥
		
		
		
		
		
		
		
		
		
		
		
		

156,150
134,156
20,2103,551
33,282
10,697
142,60953,53988,7494,607
13,452
41,854
702,856

$
		
		
		
		
		
		
		
		
		
		
		
		

1,715,373
1,473,761
222,01039,005
365,619
117,5121,566,615
588,145974,942
50,613
147,780
459,762
7,721,137

		
		
		
		
		
		

183,404
20,075
5,838
212
1,209
210,738

		
		
		
		
		
		

197,081
15,365
8,266
375
1,051
222,138

		
		
		
		
		
		

2,165,013
168,789
90,808
4,118
11,5422,440,270

		
		
		
		

3,920
–
3,920
965,100

		
		
		
		

3,206
11
3,217
928,211

		
35,221
		123
		
35,344
		 10,196,751

		107,454 		

107,536 		

1,181,312

		
		
		
		

119,484 		
(20,123) 		
(11) 		206,804 		

119,565 		
(76,409) 		
(11) 		150,681 		

1,313,473(839,378)(122)
1,655,285

		
		
		
		

(21,077) 		
27 		
81 		
(20,969) 		

656 		
(336) 		(1,298) 		
(978) 		7,204(3,687)(14,256)(10,739)

SUBSCRIPTION RIGHTS TO SHARES		128 		

243 		

2,673

MINORITY INTERESTS

		

7,860 		8,781 		96,463

Total net assets

		

193,824 		

158,727 		

1,743,682

NONCURRENT LIABILITIES:Long-term debts
Provision for loss on interest repayments
Deferred tax liabilities
Other provision
Other
Total noncurrent liabilities
RESERVES UNDER THE SPECIAL LAWS:

Reserve for financial instrument transaction liabilities
Reserve for commodities transaction liabilities
Reserves under the special laws
Total liabilities
NET ASSETS
Shareholders’ equity:

Capital stock—authorized, 39,418,000 shares;
issued, 13,087,064 shares in 2008 and 13,076,334 shares in 2007
Capital surplus
Retained earnings
Treasury stock—at cost, 979.50 shares in 2008 and 977.3 shares in 2007
Total shareholders’ equity
VALUATION AND TRANSLATION ADJUSTMENTS:

Valuation difference on available - for - sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Total valuation and translation adjustments

TOTAL LIABILITIES AND NET ASSETS¥ 1,158,923¥ 1,086,938$ 11,940,433

Rakuten, Inc.

41

Consolidated Statements of Cash Flows
Rakuten, Inc. and Consolidated Subsidiaries
Years Ended December 31, 2008 and 2007
Thousands of
U.S. dollars

Millions of yen

2007

2008

2008

¥ 50,673¥ (34,989)$ (384,372)

3,752(1,047)
8,518
35
1,426
(1,835)(53,873)(1,037)322
17,146
16,527(598)(1,981)
1,505
1,215(4,143)(7,383)556(36,931)(556)
37,806(31,581)

3,931
116
12,284
145
1,855
–
–
–
67,177(8,125)(4,710)(31)(1,038)2,224
4,781(4,146)(22,892)
946
8,572
(946)
128,326(77,630)

43,1791,277
134,945
1,598
20,383–––
737,964(89,258)(51,743)(339)(11,404)
24,43052,519(45,543)(251,480)
10,395
94,166(10,395)
1,409,716(852,794)

778

(714)

(7,845)

8,066(36,059)(396,120)

26,618(8,497)
7,943
9,543¥ 42,967(29,732)(23,453)
1,031
(390)
¥ (13,467)(326,617)(257,640)
11,321(4,281)$ (147,938)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:(Loss) income before income taxes and minority interests
Adjustments for:
Amortization of goodwill
Equity in earnings (losses) of affiliates
Depreciation and amortization
Loss on sales of noncurrent assets
Loss on retirement of noncurrent assets
Gain on sales of securities
Gain on sales of affiliate securities
Gain on sales of subsidiary securities
Loss on valuation of investment securities(Decrease) increase in allowance for doubtful accounts(Decrease) increase in provision for loss on interest repayments
Gain on changes in equity
Interest and dividend income
Interest expenses
Other loss
Increase in notes and accounts receivable – trade
Increase in accounts receivable – installment
Decrease in accounts receivable installment sale – credit guarantee
Decrease (increase) in beneficial interests in securitized assets
Decrease in accounts payable - credit guarantee
Decrease in operating receivables for securities business
Decrease in operating payable for securities business(Decrease) increase in reserve for financial instruments
transaction liabilities(Decrease) increase in advances received from borrowing
for securities business(Decrease) increase in operating loans receivable
Income taxes paid
Income taxes refund
Other—net
Net cash (used in) provided by operating activities - (Carried forward)

The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been
made at ¥ 91.03 to $1, the rate of exchange prevailing at December 31, 2008.

42

Rakuten, Inc.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES:Payments into time deposits
Proceeds from withdrawal of time deposits
Proceeds from sales and redemption of securities
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Proceeds from sales of affiliates securities
Purchase of investments in subsidiaries
Purchases of investments in subsidiaries resulting
in change in scope of consolidation
Proceeds from sales of investments in subsidiaries resulting
in change in scope of consolidation
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Payment for lease and guarantee deposits
Proceeds from collection of lease and guarantee deposit
Payment of loans receivableCollection of loans receivable
Proceeds from transfer of business
Other payments
Other proceeds
Interest and dividends income received
Net cash (used in) provided by investing activities¥(4,058)3,339
3,618(8,650)65,102
3,416
3,225
(654)

¥

(9,296)
3,873–(21,071)
17
170
–
(404)

$

(102,121)
42,546–(231,472)
184
1,869
–
(4,443)

(712)

(537)

(5,901)

–

195

2,144

(5,259)1,818(11,371)
(999)
1,512
(441)
443
1,822
(744)
821
2,842
55,070(3,699)1,663(12,848)
(257)
1,350
(102)
104
–
(3,009)1,753
1,121(40,977)(40,634)
18,269(141,139)(2,825)
14,835(1,121)
1,146–(33,052)
19,263
12,308(450,144)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:Net increase (decrease) in short-term debt
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from issuance of common stock
Proceeds from sales and leaseback
Repayment of lease obligations
Purchase of treasury stock
Interest expenses paid
Proceeds from minority shareholders pursuant to increase in capital
Proceeds from stock issuance to minority shareholders
Repayments of stock issuance to minority shareholders
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS(71,589)
14,605
160,437
40,004
156,410
1,718,224(83,105)(106,499)(1,169,929)
318
162
1,780
3,048
778
8,549
(142)
(811)
(8,894)(0)(0)(1)(1,483)(2,310)(25,380)
329
623
6,840
40
1,030
11,315
(85)
–
–
(648)
(1,299)(14,272)
(315)
(292)
(3,209)(113,628)
62,397685,460
232(865)(9,512)(15,358)
7,088
77,866
		 89,219 		 73,861 		
811,388

EFFECT OF CHANGE OF THE SCOPE OF CONSOLIDATIONON CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS–¥

73,861

335¥

81,284

3,682$

892,936

Rakuten, Inc.

43

Consolidated Statements of Changes in Net Assets
Rakuten, Inc. and Consolidated Subsidiaries
Year Ended December 31, 2008
Millions of yen
As of Dec. 31,
2007
Issuance ofcapitalstock

Capital stockCashdividends
paid

Changesin thescope ofconsolidation

Net loss

Purchaseof treasurystock

Net changes in
items otherthan those inshareholders’equityTotal ofchanges infiscal 2008

¥

81 		

– 		

– 		

– 		

– 		

– ¥

81

Capital surplus

119,484 		

81 		

– 		

– 		

– 		

– 		

– 		

81 		

119,565

Retained earnings(20,123) 		

–(1) 		

– 		– 		(56,285) 		

76,409–¥(0) 		

– 		(0) 		

(11)(1) 		

(0) 		

– 		(56,123) 		

150,681¥ 21,733 		

21,733 		

656

Treasury stock¥ 107,454

As of Dec.31,
2008

Changes in fiscal 2008

¥ (1,308) ¥ (54,978)(11) 		

– 		

Shareholders’ equity

206,804 		

162 		

Valuation difference on
available-for-sale securities(21,077) 		

– 		

– 		

– 		

– 		

–

Deferred gains orlosses on hedges

27 		

– 		

– 		

– 		

– 		

– 		

(363) 		

(363) 		

(336)Foreign currencytranslation adjustments

81 		

– 		

– 		

– 		

– 		

– 		

(1,379) 		

(1,379) 		

(1,298)Valuation andtranslation adjustments(20,969) 		

– 		

– 		

– 		

– 		

– 		

19,991 		

19,991 		

(978)

Subscription rights to shares
Minority interests
Net assets
Net assets, Dec. 31, 2008
thousands of U.S. dollars

– 		

¥

– 		

¥ 107,536(1,308) 		 (54,978) 		

128 		

– 		

– 		

– 		

– 		

– 		

115 		

115 		

243

7,860 		

– 		

– 		

– 		

– 		

– 		

921 		

921 		

8,781

¥ 193,824$ 2,129,227¥

162¥ (1,308) ¥ (54,978)

¥

(1)

¥

(0) ¥ 21,027 ¥ (35,097)¥ 158,727$ 1,780$ (14,364) $ (603,952)

$

(6)

$

(1) $ 230,996 $ (385,547)$ 1,743,680

The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been
made at ¥ 91.03 to $1, the rate of exchange prevailing at December 31, 2008.

44

Rakuten, Inc.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Consolidated Subsidiaries and Affiliated Companies(As of December 31, 2008)

Name

Location

Capital or investment(Millions of yen)Type of business

Voting rights orownership (%)

Note

Consolidated Subsidiaries
Rakuten Auction, Inc.

Shinagawa-ku, Tokyo

1,650

E-Commerce Business

60.0

Rakuten Enterprise Inc.

Shinagawa-ku, Tokyo

10

E-Commerce Business

100.0

Signature Japan Co., Ltd.

Shinagawa-ku, Tokyo

80

E-Commerce Business

100.0

Fine Wine Co., Ltd.

Shinagawa-ku, Tokyo

205

E-Commerce Business

100.0

E-Commerce Business

E-Commerce Business

100.0(100.0)100.0(100.0)100.0(100.0)E-Commerce Business

100.0

LinkShare Corporation

U.S.A.

LinkShare International, LLC

U.S.A.

LinkShare Ltd.

U.K.

Rakuten USA, Inc.

U.S.A.

1
U.S. dollars
2,640 thousand
U.S. dollars
1
U.K. pounds
182
U.S. dollars

CauseLoyalty, LLC

U.S.A.

—

E-Commerce Business

100.0(100.0)Keiba Mall, Inc.

Shinagawa-ku, Tokyo

499

E-Commerce Business

100.0

CASAREAL, inc.

Chuo-ku, Tokyo

Rakuten Europe S.a.r.l.

Luxembourg

Taiwan Rakuten Ichiba Inc.

TaiwanNet’s Partners Co., Ltd.

E-Commerce Business

5
5
5

5

146

E-Commerce Business

46.7

625 thousand
EUR
174 million
NT dollars

E-Commerce Business

100.0

2

E-Commerce Business

51.0

2

Shibuya-ku, Tokyo

425

E-Commerce Business

53.2

Rakuten Credit, Inc.

Shinagawa-ku, Tokyo

4,450

Credit and Payment Business

96.5

Rakuten KC Co., Ltd.

Fukuoka-shi, Fukuoka

3,055

Credit and Payment Business

97.1

Kajiyama Warehouse Co., Ltd.

Kitakyusyu-shi,
Fukuoka240

Credit and Payment Business

100.0(100.0)7

Rakuten Financial Solution, Inc

Shinagawa-ku, Tokyo

1,500

Credit and Payment Business

95.0

15

Target, Inc.

Shinagawa-ku, Tokyo

480

Portal and Media Business

100.0

College Students’ Portal Community, Inc.

Shinagawa-ku, Tokyo

10

Portal and Media Business

100.0

Rakuten Research, Inc.

Shinagawa-ku, Tokyo

Cyber Brains (Shanghai)Consulting Co., Ltd.

People’s Republicof China

Rakuten Shashinkan, Inc.

246

Portal and Media Business

100.0

2,763 thousand
RMB

Portal and Media Business

100.0(100.0)Shinagawa-ku, Tokyo

210

Portal and Media Business55.0

O-net, Inc.

Shinagawa-ku, Tokyo

1,035

Portal and Media Business

100.0

Rakuten Travel, Inc.

Shinagawa-ku, Tokyo

212

Travel Business

100.0

350 million
won
1,000 thousand
RMB

Travel BusinessTravel Business40

Travel Business

200 thousand
U.S. dollars

Travel Business

16

6

2

Rakuten Securities, Inc.

Shinagawa-ku, Tokyo

7,445

Securities Business

100.0(100.0)—[100.0]100.0(100.0)100.0(100.0)100.0(100.0)

Rakuten Securities Holdings, Inc.

Minato-ku, Tokyo

1,000

Securities Business

100.0

Rakuten Asset Management Co., Ltd.

Minato-ku, Tokyo

10

Securities Business

Rakuten Strategic Partners, Inc.

Minato-ku, Tokyo

50

Securities Business

100.0(100.0)100.0(100.0)

Rakuten Realty Management Co., Ltd.

Shinagawa-ku, Tokyo

200

Securities Business

100.0

Rakuten Investment Management, Inc.

Minato-ku, Tokyo

150

Securities Business

Polestar Asset Management, Inc.

Chuo-ku, Tokyo

50

Securities Business

100.0(100.0)100.0(100.0)2, 9

Rakuten, Inc.

45

RAKUTEN TRAVEL KOREA CO., LTD.

Republic of Korea

TABIMADO CO., LTD SHANGHAI

People’s Republicof China

Rakuten Bus Services Inc.

Shinagawa-ku, Tokyo

Rakuten Travel Guam Inc.

U.S.A.

8
4
8
8
9

9
9

9

Name

Location

Capital or investment(Millions of yen)Type of business

Voting rights orownership (%)

1,899

Securities Business

56.7(56.7)

500

Securities Business

100.0

2,340

Securities Business

—

Note

. Commodity, Inc.

Shibuya-ku, Tokyo

9

Rakuten Mortgage Co., Ltd.

Shinagawa-ku, Tokyo

Rakuten Financial Frontier Investment
Limited Partnership—

Rakuten Baseball, Inc.

Sendai-shi, Miyagi

400

Professional Sports Business

100.0

Rakuten Sports Properties, Inc.

Sendai-shi, Miyagi

150

Professional Sports Business

100.0(100.0)10

FUSION COMMUNICATIONSCORPORATION

Chiyoda-ku, Tokyo

10,955

Telecommunication Business

73.5

14, 16100.0(100.0)100.0(100.0)11

Fusion Network Services Corporation

Chiyoda-ku, Tokyo

40

Telecommunication Business

TTNet Service Company, Incorporated

Chiyoda-ku, Tokyo

10

Telecommunication Business

Rakuten Business Service, Inc

Shinagawa-ku, Tokyo

25

100.0

Rakuten Sociobusiness, Inc

Sendai-shi, Miyagi

10

100.0

LinkShare Japan K.K.

Chiyoda-ku, Tokyo

10

E-Commerce Business

50.0(50.0)

12

OKWaveShibuya-ku, Tokyo

964

E-Commerce Business

18.6

13

SHOWTIME, Inc.

Minato-ku, Tokyo

480

Portal and Media Business

50.0

Rakuten & Fast Mobile Search Inc.

Shinagawa-ku, Tokyo

400

Portal and Media Business

50.0

Drecom Co., Ltd

Shinjuku-ku, Tokyo

1,038

Portal and Media Business

20.0

WORLD TRAVEL SYSTEMS INC.

Shinjuku-ku, Tokyo

110

Travel Business

20.0

Rakuten ANA Travel Online Co., Ltd.

Shinagawa-ku, Tokyo

90

Travel Business

50.0

TRAFFIC GATE, LTD.

Minato-ku, Tokyo

217

45.9

TECHMATRIX CORPORATION

Minato-ku, Tokyo

1,298

31.4

13

NEXT Co., Ltd.

Chuo-ku, Tokyo

1,982

16.9

13

11

Equity-method Affiliates

Notes:

46

2, 13

1. Business segments are used to indicate the type of business.
2. The company became a group member during the fiscal year ended December 31, 2008.
3. Indirectly held voting rights are shown in parentheses.
4. V oting rights held by parties close to Rakuten or that support Rakuten’s policies, but not included in the voting rights percentage, are shown in square brackets.
5. L inkShare Corporation and CauseLoyalty, LLC are subsidiaries of Rakuten USA, Inc. In addition, LinkShare International, LLC is a subsidiary of LinkShare
Corporation, and LinkShare Ltd. is a subsidiary of LinkShare International, LLC.
6. Cyber Brains (Shanghai) Consulting Co., Ltd. is a subsidiary of Rakuten Research, Inc.
7. Warehouse Co., Ltd., is a subsidiary of Rakuten KC Co., Ltd.
8. RAKUTEN TRAVEL KOREA CO., LTD., Rakuten Bus Services Inc. and Rakuten Travel Guam, Inc. are subsidiaries of Rakuten Travel, Inc.
9. R
 akuten Securities, Inc., Rakuten Asset Management Co., Ltd., Rakuten Strategic Partners Co., Ltd., Rakuten Investment Trust Co., Ltd., Commodity, Inc. andPolestar Asset Management, Inc. are subsidiaries of Rakuten Securities Holdings, Inc.
10. Rakuten Sports Properties, Inc. is a subsidiary of Rakuten Baseball, Inc.
11. Fusion Network Services Corp. and TTNet Service Company, Incorporated are subsidiaries of FUSION COMMUNICATIONS CORPORATION.
12. LinkShare Japan K.K. is an equity-method affiliate of LinkShare International, LLC.
13. Denotes companies required to submit financial reports and securities registration statements according to Japanese securities and exchange legislation.
14. This is a special-purpose company.
15. The company’s liabilities exceed its assets by 4,307 million yen.
16. N
 et sales of Rakuten KC Co., Ltd. and FUSION COMMUNICATIONS CORPORATION (excluding internal sales between consolidated subsidiaries) account for over
10% of consolidated net sales.

Rakuten, Inc.

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Financial Section
and Corporate Data

Corporate Information
Company Overview
Name

Rakuten, Inc.

FoundedFebruary 7, 1997

Service Launched

May 1, 1997

IPO

April 19, 2000

Capital107,534 million yen (As of December 31, 2008)

Employees

4,874 (Consolidated)
2,081 (Non-consolidated) (As of December 31, 2008)

Headquarters

Shinagawa Seaside Rakuten Tower,
4-12-3 Higashishinagawa, Shinagawa-ku, Tokyo 140-0002, Japan

Corporate History
1998

Hiroshi Mikitani founds MDM, Inc., the predecessor of Rakuten, Inc.

1999

MDM, Inc. renamed to Rakuten, Inc.

2000

Rakuten, Inc. goes public through an IPO on the JASDAQ market.

Rakuten Ichiba, the Internet shopping mall, commences operation.

Rakuten Books is founded as a joint venture with Nippon Shuppan Hanbai Inc.
Infoseek Japan K.K. is acquired by Rakuten, Inc. to create a portal service.

2001

Rakuten Travel starts on online hotel reservation services.

2003

MyTrip.net is acquired by Rakuten, Inc. to spearhead the travel business; later merged with Rakuten Travel, Inc. in 2004.

2004

Rakuten, Inc. acquires 96.5% of shares in Aozora Card; the company is later renamed Rakuten Credit, Inc.

2005

Rakuten, Inc. acquires 100% of shares in Linkshare Corporation (also current name) to spearhead overseas push.

Rakuten, Inc. acquires 96.7% of shares in DLJdirect SFG Securities to create the current Rakuten Securities, Inc.

Rakuten Baseball, Inc. is founded to start a professional sports business.

Rakuten Auction, Inc. is founded as a joint venture with NTT Docomo, Inc.
Kokunai Shinpan Co., Ltd. is included in the consolidation as a subsidiary of Rakuten Inc. to create the current Rakuten KC.

2006

Rakuten KC transfers its credit business to Orient Corporation to streamline its business.

2007

Rakuten, Inc. acquires 73.5% of the shares in Fusion Communications to commence IP telephony business.
Rakuten, Inc. and President Chain Store sign a joint venture agreement to start a Taiwan-based internet shopping mallbusiness: Rakuten Ichiba Taiwan.
Rakuten Books is integrated into Rakuten Ichiba to improve business efficiency.

2008

Rakuten Logistics is founded to commence new logistics business.
Rakuten, Inc. signs an MOU with eBANK Corporation regarding a strategic and capital alliance.

Rakuten, Inc.

47

Board of Directors and Corporate Auditors (As of March 27, 2009)
Chief Executive Officer andChairman of the Board

Hiroshi Mikitani

E-Commerce Business Unit (BU), Securities andInvestment BU, Credit and Payment BU

Deputy President and Director

Atsushi Kunishige

Banking BU

Senior Executive Officer and Director

Masatada Kobayashi

Sub-head of E-Commerce BU

Toru Shimada

Advertising BU, Telephony BU, Professional Sports BU,Group Marketing Department

Akio Sugihara

Development Department

Hisashi Suzuki

Content BU, Package and Entertainment BU

Ken Takayama

Finance Department

Kazunori Takeda

Business Directorate Department

Takao Toshishige

Content BU

Hiroaki Yasutake

Sub-head of Development Department

Executive Officer and Director

Yoshiaki Ohnishi

Corporate Planning Department

Director

Kouichi Kusano
Hiroshi Fukino
Tatsumi Yoda

Corporate Auditor

Tanekiyo Kunitake
Kouji Hata
Takeo Hirata
Katsuyuki Yamaguchi

Note: Mr.Kusano, Mr.Yoda and Mr.Fukino are outside corporate directors stipulated in Paragraph 15, Article 2 of the Corporation Law of Japan.
Mr. Kunitake, Mr. Hata, Mr. Hirata and Mr. Yamaguchi are outside corporate auditors stipulated in Paragraph 16, Article 2 of the Corporation Law of Japan.

Stock Information
Stock Code4755 (JASDAQ)

Fiscal Year

January 1 to December 31

Month of Annual General Shareholders’ Meeting

March

Shareholder Record Date

December 31

Transfer Agent

The Sumitomo Trust & Banking Co., Ltd.

Contact

The Sumitomo Trust & Banking Co., Ltd.
Stock Transfer Agency Department
1-10 Nikko-cho, Fuchu-shi, Tokyo 183-8701, Japan

Number of Shares and Shareholders (As of December 31, 2008)
Number of shares authorized

39,418,000 (common stock)Total number of shares issued

13,087,064 (common stock)

Number of shareholders

48

Rakuten, Inc.

107,760

AboutRakuten

To OurShareholders

Our
Operations

Corporate
Activities

Main Shareholders (As of December 31, 2008)

Contents
01 About Rakuten
01		 Japan’s Leading Internet Service Company
02		 A History of Expansion
03		 A Uniquely Integrated Service Range
04		 A Rapidly Evolving Industry
05		 Rakuten—Positioned at the Forefront
06 To Our Shareholders
10 Our Operations
10		 Financial Highlights
11		 Segment Information
12		 E-Commerce
13 		 Travel
14		 Credit and Payment
15 		 Securities
16		 Professional Sports
17		 Portal and Media
17		 Telecommunications
18 Corporate Activities
18		 Technology that Supports our Service
20		 Corporate Culture and Human Resources21		 Social Contribution Activities
22		 Corporate Governance25		 Risk Factors
37 Financial Section and Corporate Data

Financial Section
and Corporate DataClassification byType of Shareholder

Name

Number ofsharesPercentage
held

Crimson Group, Inc.

2,264,190

17.30

Hiroshi Mikitani

2,171,722

16.59

Haruko Mikitani(As of December 31, 2008)

1,458,750

11.15

The Master Trust Bank of Japan, Ltd. (Trust Account)813,889

6.22

Japan Trustee Services Bank, Ltd. (Trust Account)482,411

3.69

Masuda and Partners Inc.

474,910

3.63

Japan Trustee Services Bank, Ltd. (Trust Account 4G)

260,902

1.99

Shinnosuke Honjo

193,842

1.48

Individuals

Trust & Custody Services Bank, Ltd. (Trust Account Y)

123,043

0.94

Other domestic corporations

43.29%
21.38%

Bank of New York GCM Client Account JPRD ISG FE-AC

121,977

0.93

Foreign financial institutions
and individuals

17.92%

Domestic financial institutions 16.88%
Securities firms and others

0.51%

Monthly Stock Price Range (Tokyo Stock Exchange)(Yen)
140,000
105,000
70,00035,000
0(Thousands of shares)
9,000

6,000

3,000

0

Cautionary Statement
In this annual report, unless indicated otherwise, references to “Rakuten”, “Rakuten Group”,“we”, ”our” and “us” are to Rakuten, Inc. and its consolidated subsidiaries and consolidated
affiliates. Statements regarding current plans, strategies, beliefs and other statements thatare not historical facts of the Rakuten Group are forward-looking statements.
Such forward-looking statements are based on management’s assumptions andbeliefs in light of information currently available, and it should be noted that risks
and unforeseen factors could cause actual results to differ significantly from those
discussed in the report. We do not intend to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as
required by applicable laws.
andare the registered trademarks of Rakuten, Inc.
“Rakuten”,
in Japan.

Origins of the Name Rakuten
Rakuten Ichiba is named after Rakuichi-Rakuza , the first free andopen marketplace in Japan, opened in the 16th century.
When used as a verb, raku is written with a Chinese character
meaning to enjoy oneself ( 楽 ). The same character is used in Rakuten,
which means “positive spirit.” The name Rakuten Ichiba literally meansa “market of positive spirit,” where shopping is entertainment. Thesewords symbolize the driven, forward-looking nature of our business.
That is why we named our company Rakuten, Inc.

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’05
’06
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Inquiry
Investor Relations, Rakuten, Inc.
Tel +81-3-6387-0555
URL http://www.rakuten.co.jp/info/ir/english

Rakuten, Inc.

49

Rakuten, Inc.
Annual Report 2008

Annual Report

Fiscal Year Ended December 31,2008

Rakuten, Inc. TEL: +81-3-6387-1111 URL: www.rakuten.co.jp/info/ir/english
Shinagawa Seaside Rakuten Tower, 4-12-3 Higashishinagawa, Shinagawa-ku, Tokyo 140-0002, Japan

Rakuten, Inc.
Annual Report
Fiscal Year Ended December 31, 2008