The Coming Week in Asia: Putting Paradise in Peril, Rakuten Pushes Ahead With IPO

In the face of a dicey Internet market, the popular Japanese Web site's stock is still a go for analysts.
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TOKYO -- If you were running an Internet company in Japan right now, would you go public in these market conditions?

If you are

Hiroshi Mikitani

, president of cybermall

Rakuten Ichiba

, the answer is a resounding "yes."

Mikitani's three-year old company, the name of which is literally "Paradise Market," provides a Web site for over 2,000 retailers to peddle goods ranging from sausages to bathroom sinks to


handbags. Reaching more than 600,000 registered shoppers, Rakuten is one of the only pure Internet plays in Japan that boasts a profit. The firm earned profits of $2.4 million on sales of $5.7 million in 1999 and some experts say sales will nearly triple by the end of this year.

These numbers obviously put a positive spin on Rakuten's public offering this coming Thursday. The firm expects to rake in 49.5 billion yen ($468 million), which would be a record for a Japanese start-up going public, when it lists on the


market. But will investors also benefit?

"Although I think the firm is unique, Rakuten has two things against them right now," says

ABN Amro

strategist Darrel Whitten. "First, the Net bashing is obviously not going to help. And if you think about it, the bashing started with online retailers."

Whitten says the fast rise in Net shares in Japan, as well as elsewhere, was caused in part by optimistic growth expectations as ambitious investors looked not a half-year or year ahead, but rather a half-decade or decade into the future. If investors are re-evaluating those assumptions now, how does one gauge Rakuten's growth potential?

Although the Internet bonanza is still going strong in Japan, Rakuten's high IPO pricing -- a whopping 33 million yen a share -- is another strike against it. Moreover, six out of the seven stocks listed on the

Tokyo Stock Exchange's

high-tech and venture market


are currently trading below their offering price.

Nevertheless, many retail analysts give Rakuten a thumbs up. The Web site is now among the 10 most popular sites in Japan, with approximately 3 million hits per day. With about 200 new retailers looking to list their products on the site each week, the firm reportedly has to turn down most of them or slap them on a waiting list.

"I admit it's not the best time to have an IPO but investors have been waiting for Rakuten to list for about a year," said one analyst at a European firm. "If the market is not willing to embrace all Net firms like it used to, why wouldn't you look at Rakuten when it has profits, a sound business plan and a growing customer base?"

With shares of Internet incubator


and mobile-phone-seller-cum-Internet play

Hikari Tsushin

more than halved in just two months, the warm and fuzzy feeling in Japanese Net shares has surely disappeared for the time being. However, maybe Mikitani knows something the rest of us don't. Formerly an investment banker at the

Industrial Bank of Japan

, he also holds an MBA from


. He says he wants to use the profits to expand into other Internet-embracing countries such as South Korea, Taiwan and Singapore.

One wonders how long it will take for those to be spun off as their own cyber paradises.