Yahoo Japan Earnings Preview: What we are Watching

Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q1 FY2015  results on July 31. (Fiscal years end with March.) The company continues to expand its services for core businesses to improve its revenues. During the fourth quarter, the company posted 9% year-over-year growth in revenues to ¥101.3 billion ($993 million), buoyed by growth in revenues from mobile ads division. However, operating income declined by 1.3% to ¥50.2 billion ($492 million) due to implementation of new strategies for its shopping division.

As the Japanese users have quickly adopted smartphones, penetration has increased to over 42% by yearend 2013.  Accordingly, internet connected mobiles are expected to drive the next leg of growth at Yahoo! Japan, as it not only affects the mobile ads division, but also helps its display ads and search & listing ads divisions. Furthermore, the company is looking to improve its market share in the Japanese e-commerce industry, and is making headway by systematically modifying its e-commerce business. We expect that these strategies will augur well for the company in the long term and are eager to learn if the new strategy has boosted transaction value across online shopping and auction division.

See our complete analysis of Yahoo! JAPAN here

Mobile To Boost Revenues

According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. Smartphone penetration is gaining traction in Japan and eMarketer estimates that smartphone penetration will grow from 37.4% in 2013 to over 50% in 2014. ^[1] We believe that revenues from this division will account for almost 25% of the total revenues by 2020, as ad budgets increasingly shift to mobile users. In Q4 FY2014, the unique visitor count for the company increased to 32 million. Furthermore, its advertising revenues from smartphones grew to ¥15 billion ($96 Million) in Q4. We expect this trend to continue in Q1 as well and forecast the revenue per 1,000 page views (RPM) to improve for the quarter. Currently, we project RPM to increase from ¥220 to around ¥370 ($2.11 to around $3.55) by the end of our forecast period. We will be closely monitoring the RPM metrics in the quarter to update our growth projection for Yahoo! Japan.

Net Additions In Listing & Online Shopping Space In Focus

While the search and listings ads division contributes 17% of Yahoo! Japan’s total value, the online shopping and auction division contributes 15%, according to our estimates. The company removed listing and tenant fees for its websites in Q3 CY14 (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. And this in turn will increase the transaction value across Yahoo! Japan’s shopping websites. It is assumed the lost listing revenues will be more than offset by the revenue generated from transactions. While in Q4 this strategy did yield results, as  transaction value across its shopping sites grew by 35.8% year over year to a record ¥88.8 billion, the transaction value across its listing and auction site also increased by 7%     to ¥461.8 billion ($4.52 billion). We expect similar trend to continue in  Q1 FY15 as well and will be closely following the transaction value and number of listed sellers for the listing, shopping and auction properties of Yahoo! Japan, to gauge how these divisions have done vis-a-vis the Japanese e-commerce industry. Currently, we estimate that by 2020, the transaction value from shopping and auction will grow to ¥400 billion and ¥780 billion, respectively.  We will be looking for confirmation of our growth rate in this earnings announcement.

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1. In Asia-Pacific, Emerging Markets Grab Highest Smartphone User Shares, June 18 2014, www.emarketer.com [↩]