March 6 (Bloomberg) -- Hiroshi Mikitani, chief executive officer of the Japanese e-commerce company Rakuten Inc., aims to expand to 2 billion users with his acquisition of messaging service Viber Media Inc.
Growth for Viber’s free messaging and Internet calling app is already accelerating. It’s adding 600,000 users daily, up by about 50,000 from Feb. 14 when the deal was announced, and that can rise to a million a day, Mikitani said in an interview. Viber had about 300 million users at the time of the deal.
Mikitani, 48, is plowing cash into technologies such as mobile applications and online video as he seeks to expand Rakuten beyond its core business as an online marketplace. The strategy has led to rising competition with companies such as SoftBank Corp., Amazon.com Inc. and Facebook Inc., which agreed to pay $19 billion for the messaging service WhatsApp just five days after Rakuten unveiled its deal.
“The goal is to reach 1 billion, 2 billion users, not to stop yet,” Mikitani said in Tokyo yesterday. “We are planning to increase to 1 million additional users every day. That means 365 million a year, maybe in two or three more years, we can get there.”
Rakuten itself already has about 200 million members. The company fell 0.8 percent to 1,420 yen as of the close in Tokyo, while the benchmark Nikkei 225 Stock Average gained 1.6 percent. The shares are down 9.2 percent this year, compared with a 7.1 percent slump for the Nikkei 225.
Rakuten shares more than doubled in 2013 and have slumped 14 percent since it announced the deal to buy Viber, which had a $29.5 million net loss last year.
Investors in Japan have been skeptical about the Viber acquisition and wary of competition with other Internet companies, pushing Rakuten down by the most in four months on the first trading day after the deal was announced.
In the race for 2 billion users, Mikitani faces some of the Internet’s biggest names, including billionaire Masayoshi Son’s SoftBank, Japan’s fastest-growing mobile phone carrier with stakes in e-commerce names from Alibaba Group Holding Ltd. to game developer GungHo Online Entertainment Inc.
SoftBank is seeking to buy a stake in Line Corp., the Tokyo-based online social network, people with knowledge of the matter have said. Line targets 500 million users by the end of this year.
“The competition with message apps has become more fierce,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “Rakuten’s position has been threatened by apps such as Line.”
In October, Line said it’s considering options including an initial public offering. Fumiko Hayashi, a spokeswoman for Line in Tokyo, said on Feb. 25 that nothing has been decided about an IPO.
“More M&A is needed in order to achieve 2 billion users,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co. “Rakuten is looking for similar targets as Facebook and others are looking for.”
Mikitani’s target is double that set by Facebook CEO Mark Zuckerberg for WhatsApp, which has said it’s adding 1 million users daily. Zuckerberg said last month he expects WhatsApp to reach more than 1 billion people in the next few years.
“I don’t know whether we are going to acquire, but of course some of the services like games have a natural fit with Viber,” Mikitani said. “If we find attractive opportunity, we don’t have any hesitation to move forward. But I don’t think we have anything on the table at this moment. Now I think Viber is one of the most important projects for us.”
Mikitani, Japan’s third-richest person, has a net worth of $8.2 billion, according to the Bloomberg Billionaires Index.
The $900 million deal for Viber means the Tokyo-based company is paying about $3 for each of the app’s 300 million users, a fraction of the $42 a head Facebook agreed to pay for access to WhatsApp’s 450 million users.
“Viber was a big purchase,” said Aoki of Mizuho Asset. “Now is the time for Rakuten to show it can monetize what it bought.”
Mikitani said his strategy for making money from Viber has “three layers:” operating Viber as a standalone business, introducing games through the messaging platform and developing synergy with its core e-commerce and finance businesses.
He also said the company will use its loyalty program that gives online shoppers points they can use to make purchases to help drive signups to Viber.
The Viber app allows users to make voice calls and send text messages by smartphone without paying additional fees. It is now available in 193 countries, according to its website.
Rakuten has also sought to broaden its business through acquisitions, buying Canadian e-book company Kobo Inc. in a $315 million deal in 2012. The company also led a group investing $100 million in social networking service operator Pinterest in 2012 and bought Spanish streaming and video on demand business, Wuaki.tv in the same year. Rakuten agreed to acquire global video streaming platform Viki in 2013.
Rakuten had net income of 42.9 billion yen last year on sales of 518.6 billion yen. Profit will probably surge 57 percent this year to 67.5 billion yen, the average of 17 analyst estimates compiled by Bloomberg.
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