Yahoo! Japan Corporation (OTC:YAHOY) reported its Q3 FY 2014 results on January 29. The company posted 9% year-over-year growth in revenues to ¥96.8 billion ($950 million). However, the operating income declined by 1.5% to ¥49.2 billion ($480 million) due to implementation of new strategies for its shopping division.
In our pre-earnings note, 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 divisions. Additionally, the company discussed its strategy to boost revenues from the search and listing, and the online shopping and auction divisions. The highlights of the results are as follows.
Mobile Boosts Ad Revenues
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%of revenues 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 ¥12 billion, and now accounts for 22% of total ad revenues.
Furthermore, the company reported 60% year-over-year growth in smartphone daily unique browsers (DUB) to 28 million and over 135 million downloads for its smartphone app during the quarter. As a result, the number of monthly smartphone page views grew by 70% year-over-year to 17.5 billion. 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.
Marginal Drop In Revenue Growth Rate Even As Listings Firms Up
While the search and listings ads division contributes 17% of Yahoo! Japan’s total value, according to our estimates, the online shopping and auction division contributes 15%. The company removed listing and tenant fee for its websites in Q2 FY14 to stimulate growth and increase the number of listed sellers. The number of listed sellers is important for Yahoo! Japan’s shopping division because as the listings grow, more users are likely to find and buy products on its site which will increase the transaction value across Yahoo! Japan’s shopping websites.
As a result of the ‘no fee strategy’, revenues across these two division declined 41% year over year from ¥68.44 billion to ¥40 billion. This also tempered the growth rate of overall revenues. However, the company reported 7% year-over-year growth in the transaction value across its auction, listing and shopping websites to ¥461.8 billion ($4.52 billion). Furthermore, the company received 90,000 applications and added over 10,000 store ids for its shopping portal during the quarter. As a result of increase in store ids, the number of products listed across its shopping website increased by 30% year over year to nearly 90 million. We expect that this strategy will continue to reap benefits in the future as well. Currently, we estimate that by 2020, the transaction value from shopping and auction will grow to ¥400 billion and ¥780 billion respectively.
We are in the process of updating our Yahoo! Japan model. At present, we have a $14.86 price estimate for Yahoo! Japan, which is around 20% above the current market price.