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APRIL 21, 2000 VOL. 26 NO. 15 | SEARCH ASIAWEEK Unafraid To Face Investors This Japanese Internet mall expects a windfall By MURAKAMI MUTSUKO Tokyo Given the volatility of technology stocks globally, you could excuse Internet companies for wanting to delay their initial public offerings. Not a chance, says Rakuten Inc., a Tokyo-based company that runs an online shopping mall. The company anticipates healthy demand for its stock when it begins trading April 19 on Tokyo's over-the-counter bourse, which is run by the Japan Securities Dealers Association. Rakuten is pricing its shares at $300,000 each, which locks out all but institutional investors and wealthy individuals. The company expects to rake in $463 million - a record haul for a Japanese IPO - with its listing.
Analysts say Rakuten is different. For one thing, it has a track record of small but growing sales - and profits. Robert Burghart, an Internet analyst for ING Baring in Tokyo, says the company is substantial compared with others that have no history. Sales for the three-year-old company are not huge, but they increased four-fold in 1999 from the previous year to $5.6 million. Profits for the year were $1 million - an impressive profit-to-sales ratio of 18%. Rakuten is the creation of Mikitani Hiroshi, a 35-year-old business whiz who was traveling along a highly respectable path to success - an MBA from Harvard gained while working with the Industrial Bank of Japan - before he decided to pursue a new kind of Japanese Dream. His friends thought he was crazy when he launched Rakuten in 1997 to compete with Internet shopping malls started by giants like NTT. It turns out that Rakuten's independence from a large corporate bureaucracy was a big advantage. As Internet use exploded in Japan - the number of Japanese Net surfers has doubled to more than 20 million in the last two years - the company reacted quickly to changing tastes. Rakuten managers say they've been able to create a feeling of community among shoppers with interactive links to online stores. Rakuten, with 2,300 online stores and 3 million page views per day, now counts itself as Japan's most successful online shopping mall. However, the halcyon days of competing against slow-moving companies may be ending. Yahoo! Japan, partly owned by Softbank, is aggressively expanding its Japan-focused Internet shopping mall. Burghart predicts Rakuten will remain strong for a year or two. After that? "The trick is to keep adding and diversifying so that customers will keep coming back instead of drifting off," he says. Not so different from the challenge facing a bricks-and-mortar retailer. Write to Asiaweek at mail@web.asiaweek.com
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