Rakuten Inc. (4755), the Japanese online retailer controlled by billionaire Hiroshi Mikitani, plummeted in Tokyo trading after announcing it will buy the Viber Internet messaging and calling service for $900 million.
Mikitani, seeking to boost sales after missing analyst estimates for two years, has bought stakes in social-network operator Pinterest Inc. and digital book seller Kobo Inc. Losses at overseas operations and new businesses are approaching levels that may test investors’ patience, Kuni Kanamori, an analyst at SMBC Nikko Securities Inc., said in a note.
“The deal is large and comes despite the absence of contraction in Kobo operating losses,” Kanamori wrote. “As we had hoped to see shrinking losses on M&A projects overseas, the deal leaves a negative impression.”
With Viber, Rakuten will be competing with Naver Corp. (035420)’s Line service and Tencent Holdings Ltd.’s WeChat, which both combine instant messaging with shopping and gaming, and Microsoft Corp.’s Skye service. Viber had a $29.5 million net loss last year, Rakuten said in a statement last week.
The share-price drop trimmed Rakuten’s climb in the past year to 83 percent, compared with a 26 percent advance for the broader Topix index.
“So far Viber has not done well in monetization, so that is the task for Rakuten,” Oliver Matthew, an analyst at CLSA, wrote in a note. “We understand the strategic role to help merchants communicate with consumers through mobiles, but are not sure Rakuten needed to buy Viber for that.”
Matthew downgraded the stock to underperform, or sell, from buy and said “direct monetization of the Viber business is likely to take a long time.”
Viber will provide a distribution channel for Rakuten’s digital products, Mikitani said at a briefing in Tokyo on Feb. 14. Rakuten also plans to create a game platform on closely held Viber, which has 300 million users of its instant messaging and free Internet phone services.
The acquisition is being financed through bank borrowing and is expected to close in March, according to Mikitani. Rakuten had cash and near-cash items worth 345 billion yen ($3.4 billion) as of Sept. 30, almost quadruple the amount at the end of 2011, according to data compiled by Bloomberg.
Rakuten posted annual earnings on Feb. 14 that were 21 percent below analyst projections, its second straight year of missing estimates. Net income was 42.9 billion yen in 2013, missing the 54.2 billion-yen average of 21 analyst estimates compiled by Bloomberg.
Last year, Rakuten acquired digital content platform Viki Inc. In 2012, it acquired Wuaki.tv, a Europe-based video-on-demand and streaming service, and led a group that acquired a minority stake in Pinterest for $100 million.
Mikitani is Japan’s third-richest man with a net worth of $9.4 billion, according to the Bloomberg Billionaires Index. His company also competes for online sales with Yahoo Japan Corp., whose biggest shareholder is billionaire Masayoshi Son’s SoftBank Corp.