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Investment Overview for Yahoo! Japan (NYSE:YAHOY)
Below are key drivers of Yahoo JAPAN's value that present opportunities for upside or downside to the current Trefis price estimate for Yahoo JAPAN:
- Yahoo! JAPAN Gross Margin:
We currently forecast that Yahoo! JAPAN's gross margins will fall slightly from 90% now to 88.5% by the end of our forecast period. If we're wrong about the margin pressures that the company will face due to the increasing competition in the Japanese internet industry, and gross margins increase to around 92% by the end of our forecast period, we would see approximately 10% upside to our price estimate. On the other hand, if margin pressures increase and gross margins fall to around 85%, we would see our price estimate fall by 10%.
- Yahoo! JAPAN Unique Visitors: According to our forecasts, Yahoo! JAPAN's unique visitor count will increase steadily to approximately 62 million by the end of our forecast period. Overall, we think that this figures is positively correlated with the quality of the content and services that Yahoo! JAPAN offers. If the company is unable to maintain the quality of its products, and unique visitors fall over our forecast period to around 48 million, we would see 10% downside to the Trefis price estimate. On the other hand, if Yahoo! is able to release a products which are able to attract more users, and total unique visitors increase to around 69 million, we would see 10% upside.
Yahoo! JAPAN Corporation is a Japanese internet company, with country leading positions in online advertising and eCommerce services. The company began as a joint venture between US based Yahoo! and Japanese telecommunications firm Softbank.
The company primarily generates revenues through advertising, which made up more than half of its revenues in FY 2012. The company provides search advertising by showing ads based on the type of search a user conducts. For example, if a user searches for an item, the right hand side of the screen is likely to show ads from sellers selling the item. In addition to providing search advertising, Yahoo! JAPAN provides display advertising services primarily in the form banner ads across its websites.
The company's eCommerce segment is the largest contributor to the firm's value, and is made up of Yahoo! Shopping and the Yahoo! Auctions!.
*Yahoo! is currently a minority stake holder in Yahoo! JAPAN, with a stake of approximately 35%. The company is looking to liquidate the stake, as Yahoo!'s new CEO looks to focus on Yahoo!'s core business offerings.
While advertising makes up over 50% of Yahoo! JAPAN's revenues, Yahoo! JAPAN's eCommerce division is its largest stand alone division, making up around 18% of the Trefis price estimate. We think that this division's revenue growth will be primarily driven by an increase in Japanese eCommerce spending, which is expected to grow over 50% to almost $100 billion (¥7.8 trillion) by 2016. We think that Yahoo! JAPAN will be able to leverage its market leading positions in Auctions and Shopping to get a big chunk of the eCommerce spending growth.
PC Search and Listing Advertising
According to our estimates PC Search and Listing advertising is Yahoo! JAPAN's second largest segment, making up approximately 17% of its value. This is despite the fact that we expect these revenues to steadily decline over our forecast period, to approximately ¥86 ($1.1) billion from ¥98 ($1.25) billion in 2011. The reason that this division is a big contributor to Yahoo! JAPAN's value is because its current outsized contribution to the firms revenues will cause it to to represent a big chunk of overall revenues going forward (approximately 30% of the firm's revenues in 2014).
According to our estimates, Mobile advertising is Yahoo! JAPAN's third biggest value contributor, making up approximately 17% of the company's value. While mobile ads generated only 10% of Yahoo! JAPAN's total advertising revenues in FY 2011, we expect that this revenue stream will be a major contributor to Yahoo! JAPAN's advertising revenues going forward. Revenue growth in this segment will be buoyed by an increase in smartphone penetration and an increase in mobile ad spending, which is expected to almost double by 2016.
Increase in Online Ad Spending
Online spending in Japan is expected to increase by 50% from $8.5 (¥664) billion in 2011 to $13 billion (¥1 trillion) in 2016, according to research firm eMarketer. Since Yahoo! JAPAN is a leader in the Japanese internet market, we think that it can leverage its position to capture large portions of the increase in online ad spending.
Increase in Smartphone Penetration
Japanese smartphone penetration stood at a measly 17% in Dec. 2011. Since Japanese smartphone penetration is expected to increase over our forecast period, Yahoo! JAPAN has a golden opportunity to drive growth through the mobile segment.
New Young CEO
Yahoo! JAPAN went through a transition in early 2012, which saw its CEO change to 44 yr. old Manabu Miyasaka. The new, and relatively young, CEO has made changes to reduce the bureaucratic issues which plague big organizations. For example, he has replaced what was previously an eight-step approval process for new projects to two steps. We think that these changes will make the company's culture more innovative, which is key if the firm wants to retain its dominance in the Japanese market.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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