LYFT Lyft Inc

By Mayumi Negishi 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 30, 2019).

TOKYO -- The debut of Lyft Inc. shares at a valuation of $24 billion marks the arrival of Japanese billionaire Hiroshi Mikitani to the list of Silicon Valley's venture-capital heavyweights.

Mr. Mikitani leads Japanese e-commerce company Rakuten Inc., which has steadily built on its first $300 million investment in Lyft in 2015. Its accumulation of a 13% stake turned Rakuten into the biggest investor in the ride-hailing company. It will earn an unrealized profit of about $1.5 billion from the Lyft public share offering, according to estimates based on VentureSource data.

Often outshone in Japan by SoftBank Group Corp.'s founder Masayoshi Son -- a backer of Lyft rival Uber Technologies Inc. through SoftBank's near-$100 billion Vision Fund -- Mr. Mikitani has been more cautious in his investments.

Mr. Mikitani founded Rakuten in 1997 and soon built Japan's biggest e-commerce site and online bank, promising rapid overseas expansion. But the bulk of Rakuten's revenues still remain in Japan, where it is fighting for its lead against an ascendant Amazon.com Inc.

To find growth, Rakuten has taken minority stakes in companies including image-search company Pinterest Inc. and Middle Eastern ride-hailing firm Careem Networks FZ. It has also sponsored the Golden State Warriors basketball team and the FC Barcelona soccer team to raise its profile in Silicon Valley and around the world.

Four years ago, Rakuten made its first investment in Lyft at a valuation of roughly $2.5 billion. At the time, Lyft was burning through cash in its fight against market pioneer Uber.

The Japanese company later invested at valuations of up to $7.5 billion, according to VentureSource.

The Lyft initial public offering means Mr. Mikitani notches a win over Mr. Son, whom he once advised on acquisitions while working at the Industrial Bank of Japan, which later merged into Mizuho Financial Group Inc.

Mr. Son's SoftBank Vision Fund, backed with money from Saudi Arabia and Abu Dhabi, has invested billions in ride-hailing companies, including China's Didi Chuxing Technology Co., India's ANI Technologies Pvt.-owned Ola, and Southeast Asia's Grab Holdings Inc., in addition to Uber. SoftBank itself has invested in Brazil's 99, which competes with Cabify, which has an investment from Rakuten. None have yet launched an IPO -- a move that Mr. Son is betting will validate the big valuations the Vision Fund has paid.

The areas in which Messrs. Mikitani and Son compete have grown over time. Rakuten plans to move into Japan's mobile-phone carrier sector later this year, fighting for the same users that constitute the core of SoftBank's cash-churning investment apparatus.

For its part, SoftBank-backed Yahoo Japan Corp. has been trying to woo vendors and buyers away from Rakuten's e-commerce operations.

SoftBank and Rakuten are also locked in a battle on multiple fronts for dominance in Japan's mobile payments, which involves messaging apps, banks and convenience store chains -- a fight in which SoftBank has enlisted China's Alibaba Group Holding Ltd. and India's Paytm.

Rakuten and SoftBank even operate rival professional baseball teams in Japan.

The Lyft IPO creates a war chest for Rakuten's push to build out its services in mobile phones, payments, logistics, and insurance. The planned foray into mobile phones could be especially costly. Major market incumbent NTT Docomo Inc. has pledged to use its scale to lower costs by up to 40% at a time when operators are lifting investment for faster 5G networks. Those costs come as Rakuten's margins in e-commerce have halved in the last two years as it battles Amazon and others.

David Gibson, chief investment adviser for Astris Advisory Japan, says it is highly likely Rakuten will sell some of its investments, which could include a part of its stakes in Lyft and Dubai-based Careem. This week, Uber said it is acquiring Careem for $3.1 billion.

Rakuten declined to make Mr. Mikitani available for an interview and a company spokeswoman declined to comment on its plans for its Lyft stake ahead of Lyft's IPO. It also declined to comment on its Careem stake.

Write to Mayumi Negishi at mayumi.negishi@wsj.com

(END) Dow Jones Newswires

March 30, 2019 02:47 ET (06:47 GMT)

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