Yahoo! Japan Corporation (PINK:YAHOY) reported its Q2 FY 2014 results on October 25. The company posted a solid 21% y-o-y increase in revenue, as total revenues for the quarter grew to Japanese yen (JPY) 95.7 billion.  Moreover, operating income grew 14% to JPY49.23 billion.
In our pre-earnings announcement, we stated that we will closely watch the progress the company has made in its mobile advertising division. The increase in mobile ads revenue was instrumental in bolstering search ads revenues. We think that growth in smartphone penetration will be a big growth driver in the future as it affects most of Yahoo! Japan’s division.
Additionally, the company discussed its strategy to remove listing fees to boost revenues from the online shopping and auction division. It also disclosed that the ‘no fee listing’ strategy will negatively impact operating income by 6% in second half of the current fiscal year.
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‘No Fee Strategy’ To Impact Online Shopping And Auction Division
According to our estimates, online shopping and auction contributes 15% to Yahoo! Japan’s total value. While the transaction value from shopping was flat, the transaction value from auctions grew by 5% y-o-y in the quarter. According to e-marketer, Japan’s business to consumer (B2C) e-commerce sales can grow from $127 billion in 2012 to $144 billion in 2016. 
Since Yahoo! Japan’s shopping division continues to lag in the face of intense competition, it launched the ‘no fee strategy’ to engage more sellers and get them on-board its shopping web portal. We believe that this strategy will have limited impact on the company’s revenues.  Yahoo! Japan’s management concurs with our view and stated that the strategy will lower revenues by JPY 3.5 -4.5 billion per quarter. Moreover, the company also expects to incur additional cost to market these services, which will negatively impact operating income by JPY3-5 billion.
However, if this strategy to increase its market share is successful, the transaction value at its shopping division can increase significantly. Currently, we estimate transaction value from shopping to increase slowly from JPY300 billion in 2012 to JPY 400 billion by the end of our forecast period. However, if the transaction value at the shopping division were to double by the end of our forecast period due to more listings, our stock price estimate would increase by 12%.
Mobile Boosts Revenues Across Division
According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. We believe that revenues from this division will account for almost 25% by 2020, as ad budgets increasingly shift to mobile users. During the quarter, the firm posted a healthy increase in mobile ad revenues, which grew to JPY10 billion, and now accounts for 20% of total ad revenues.
Furthermore, the company reported 60% y-o-y growth in smartphone daily unique browsers (DUB) to 25 million during the quarter. As a result, the number of monthly smartphone page views grew by 70% y-o-y to 16 billion. However, we estimate that mobile ads revenue per page view declined marginally to JPY 208 in Q2 FY14. As the company is increasing content across its properties, we believe that the company will be able to leverage its dominant position in the Japanese Internet landscape to drive mobile revenue growth in the coming future.
Focus On Content To Drive Traffic
Display ads division contributes ~14% to Yahoo! Japan’s estimated value. During the quarter, display ads revenues grew by 27% to JPY18.4 billion. This growth in revenues was fueled by 155% revenue growth in Yahoo! Japan’s display ad network (YDN), which increased to JPY6.8 Billion.
Yahoo! Japan announced a number of services such as Famiport Coupon to attract more users to its websites during the quarter. Additionally, it continues to forge partnership with content writers and developers to offer more engaging content to its users. During the quarter, Yahoo! Japan reported 15% increase in unique visitor base, from 53 million in Q2 FY13 to 61 million. We expect unique visitor base for Yahoo! Japan to increase to 66 million by the end of our forecast period, as it continues to add content across its properties.
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 pageviews to remain constant at around 1,000 per month, by the end of our forecast period. However, since these partnerships have helped the company in increasing revenues and engage its users with better content across its properties, we can expect pageviews per user to increase in the coming quarters.
We are in the process of updating our Yahoo! Japan model. At present we have a $14 price estimate, which is 40% above the current market price.
- Yahoo! JAPAN IR [↩]
- B2C Ecommerce Climbs Worldwide, as Emerging Markets Drive Sales Higher, June 27 2013, www.emarketer.com [↩]
- Read Yahoo! Japan’s strategy To Remove Listing Fee Is Not A Bad Idea for more details [↩]