Yahoo! Japan Corporation (PINK:YAHOY) is set to announce its Q4 FY 2012 results on April 25. We will be closely watching the progress the firm has made in its mobile advertising division as it is the largest division for Yahoo! Japan, contributing 20% to the firm’s value. At present, Japan has a relatively low smartphone penetration at 15%, but we expect it to increase over our forecast period. Therefore, we will be looking for Yahoo! Japan’s mobile revenues and growth in its mobile user base.
We believe that increase in mobile penetration will be a key contributor to Yahoo! Japan’s growth over the long term as it not only affects the mobile ads division, but also its display ads and search & listing ads divisions. Moreover, we will closely watch the online shopping and auction division of the company since this division contributes 17% to the firm’s value and the competition in online space is on the rise.
Growth In Mobile Users To Bolster Mobile Ads Revenues
According to our estimates, mobile advertising contributes approximately 20% to Yahoo! Japan’s total value, even though it made up for 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 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 can gain from the secular trends in the mobile advertising industry if it can maintain a good mobile platform that offers engaging content to new smartphone users. The number of unique users on Yahoo! Japan’s mobile ad platform is one of the primary growth driver for mobile ads division. With increasing smartphone penetration in Japan, we think that the number of unique mobile users will increase from 51 million to approximately 57 million, by the end of our forecat period.
Another factor that will drive mobile ad revenues is the increase in mobile ad spending. According to research firm eMarketer, mobile ad spending in Japan is expected to double and reach $2.6 billion by 2016.  Due to this trend, we expect the revenue per 1,000 page views (RPM) to increase from approximately JPY220 in 2012 to around JPY355 by the end of our forecast period. If Yahoo! Japan is unable to engage its users on its mobile platform and pageviews per user growth declines, we would see 10% downside to our price estimate.
PC Search And Listing Ads Decline As Mobile Cannibalizes Search
Search and Listing Ads is the second largest division for Yahoo! Japan and contributes almost 20% to its estimated value. This division generated revenues of approximately JPY98 billion in 2012, and we expect total revenues from this division to decrease slowly to around JPY93 billion, by the end of our forecast period.
As web traffic from mobile devices increases, we expect that increase in the number of mobile searches will cannibalize PC searches. Moreover, spend on PC search and listing ads is on the decline as advertiser are increasing their mobile ads spend. A decline in search and listing spending, combined with decrease in the number of PC searches, will lead Yahoo! Japan’s revenue per unique browser to decline. We estimate revenue per unique visitor from PC searches and listing to decline from JPY1,720 to JPY1,600, by the end of our forecast period.
We will be closely monitoring the earnings report for more guidance on search and listing revenues. Moreover, we expect Yahoo! Japan to announce some more proactive measures, such as tie up with other services industry like apparel etc, that will aid in abetting the decline in revenues per unique visitor.
Shopping & Auctions Will Provide Solid Base
Another segment that we are closely watching is Yahoo! Japan’s online shopping division. According to our estimates, this segment contributes just over 15% to its estimated value. The division generated revenues of approximately JPY63 billion in 2012, and we expect total revenues from this division to increase slowly to around JPY74 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.
Partnerships To Bolster Display Ads Revenue
The Display ads division contributes ~15% to Yahoo! Japan’s estimated value. The division generated revenues of approximately JPY51 billion in 2012, and we expect total revenues from this division to increase slowly to around JPY62 billion, by the end of our forecast period.
In Q3 FY 2013, Yahoo! Japan announced a number of partnership with a host of developers for offering their content over its website and mobile platform. We expect Yahoo! Japan to report more partnerships in this earnings announcement. These partnerships are important for Yahoo! Japan as it helps the company in offering engaging content to its users. As the amount of content consumed on the Internet increases, we expect pageviews to increase due to Yahoo! Japan’s leadership in the Japanese market. Currently, we expect page views to remain constant at around 1,030 per month, by the end of our forecast period. However, if Yahoo! Japan is able to engage its users with better content across its properties, we can expect page views per user to increase.
Depreciating Yen To Lower Dollar Denominated Valuation
A weak yen has resulted in a lower dollar valuation for the company. A decline in the yen has made Yahoo! Japan’s earnings less valuable in dollar terms. A further decline in yen may impact its U.S. stock price further. We will continue to follow the currency movements as the Bank of Japan’s quantitative easing proposal will increase the supply of Japanese yen and create downward pressure on the currency.
We currently have a $13 price estimate for Yahoo! Japan, which is around 15% below the current market price.Notes:
- US to Top Japan as World’s Biggest Mobile Ad Market, eMarketer [↩]
- Japan Ecommerce Growth Continues, March 13 2013, www.insideretail.asia [↩]