Japanese e-commerce giant Rakuten (OTC:RKUNY) is selling $2.2 billion-worth of new stock to aid it in its fight against Amazon (NASDAQ:AMZN). Rakuten announced it was selling shares primarily to postal and logistics company Japan Post, as well as Chinese technologist-turned-investor Tencent Holdings (OTC:TCEHY) and Walmart (NYSE:WMT). In addition to taking about an 8.3% stake in Rakuten via the new share issuance, Japan Post is partnering with Rakuten on things like new logistics centers, delivery and pick-up systems, and digital payments.
Losing its top spot to you-know-who
Like Amazon, Rakuten was founded during the late 1990s when the internet began to be commercialized. For many years, it held the top spot in Japan as the largest online retailer and has since expanded overseas. The company reports having over 1.4 billion members worldwide.
However, Rakuten has struggled to gain traction in the lucrative U.S. retail market. Amazon, of course, owns the lion’s share of e-commerce. But while Rakuten has spun its wheels here in the states, Amazon has actually picked up quite the head of steam on Rakuten’s home turf. It’s Amazon that’s now Japan’s largest e-commerce site. Rakuten managed to grow its internet business last year during the pandemic, but not by much.
Perhaps the $2.2 billion cash infusion it will receive will remedy the situation. Rakuten and Japan Post will double down on shipping services and will try to help traditional retailers adapt to new expectations consumers have in a post-pandemic world. Having the mighty Tencent as an ally could help its cause, too. Tencent operates mainland China’s largest social media network WeChat, a super app that combines shopping, payments, entertainment, and a myriad of other services in one place. Walmart also has a vested interest in Rakuten succeeding. While Walmart currently holds the top overall retail spot in the U.S. in terms of revenue, Amazon is closing in fast as online shopping grows increasingly important every year.
Only time will tell if the fresh liquidity will help, though. In a year in which online selling boomed because of COVID-19, Rakuten grew its “internet services” segment revenue by only a single-digit percentage compared to 2019.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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