Yahoo! JAPAN Corporation (PINK:YAHOY) is set to announce its Q3 FY 2012 results on January 29. We launched coverage on the company during the third quarter and have a price estimate of $14, which is approximately 30% above the current market price.
During the earnings announcement, we will be closely watching the progress the firm has made in its mobile advertising and online shopping & auctions divisions, which are the two largest contributors to the firm’s value at approximately 18% each. At present, Japan has a relatively low smartphone penetration at 15%, which we expect to rise over our forecast period. Therefore, we will be looking for Yahoo! JAPAN’s mobile revenues and user base to grow, and the division will be a key contributor to the company’s growth over the long term.
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Mobile Is Key For Yahoo! JAPAN’s Valuation
According to our estimates, mobile advertising contributes approximately 17% to Yahoo! JAPAN’s total value, even though it made up only around 7% of advertising revenues in 2012. We think that this division will be the biggest growth driver for Yahoo! JAPAN and estimate that around 15% of total revenues will be come from mobile advertising by 2015.
We will be closely looking at Yahoo! JAPAN’s mobile revenues to gauge the strength of the company’s mobile business. Yahoo! JAPAN is poised to benefit from the secular trends in the mobile advertising industry, but it has to maintain a good product line to attract new smartphone users in Japan. One of the primary growth drivers for this division is the number of page views on Yahoo! JAPAN’s mobile ad platform. We think that the monthly page views per unique visitor will increase from around 250 to approximately 550 in 2019 and will primarily be driven by an increase in smartphone penetration in Japan. If Yahoo! JAPAN is unable to engage its users on its mobile platform and page views per user growth slows to remain relatively flat, we would see 10% downside to our price estimate.
Shopping & Auctions Provide Solid Base
Another segment that we are closely watching is Yahoo! JAPAN’s online shopping division. According to our estimates, this segment is the biggest contributor to its value at around 18%. The division generated revenues of approximately JPY 60 billion in 2011, and we expect total revenues from this division to increase slowly to around JPY 75 billion by the end of our forecast period.
Overall, we’re looking for stability in this division. We don’t expect rapid growth in Yahoo!’s eCommerce segment as it faces stiff competition from another Japanese eCommerce giant Rakuten. Overall, eCommerce sales are expected to grow over 50% in Japan, and we expect Yahoo! JAPAN to rake in some revenues from this growth.  If this division’s revenues stay stable, it provides Yahoo! JAPAN a solid base to focus on other growth areas.
We currently have a $14 price estimate for Yahoo! JAPAN, which is around 30% above the current market price.Notes: