Yahoo! Japan Earnings Preview: Revenue From Mobile Devices And E-Commerce Sites In Focus

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Yahoo Japan Corp ADR

Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q2 FY2016  results on October 30th. [1] (Fiscal years end with March.) The company continues to expand its services and footprint in the Japanese e-commerce industry. As a result, the transaction value across the online shopping and auction division has increased. We expect this trend to continue in Q2. Furthermore, we expect that the growth in ads through mobile devices will  continue as Yahoo! Japan continues to leverage its growing base of smartphone users to deliver more content. We also expect penetration of smart connected devices 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.

See our complete analysis of Yahoo! JAPAN here

Mobile To Boost Revenues Across Ads And E-Commerce Divisions

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According to our estimates, mobile advertising contributes 20% to Yahoo! Japan’s total value. In Q1 FY2016 (Q2 CY16), the unique visitor count for the company increased to 49 million. Furthermore, its advertising revenues from smartphones grew to ¥24.2 billion ($210 million) in the June quarter. Additionally, e-commerce transaction value through smartphones amounts to 30% of total transaction value, and stood at ¥114.2 billion ($920 million) in Q1.

According to advertising firm Criteo, nearly half of all online retail transactions are made on either a smartphone or tablet in Japan, and it leads the Asian region under this metric. [2] The report also states that Japan leads the world when it comes to mobile conversion rates due to propensity of Japanese consumer to use a phone ever since feature phones were used. As a result, we expect that there was significant improvement in e-commerce transaction value through smartphones during fiscal Q2 as well and forecast the ads revenue per 1,000 page views (RPM)  improved in the quarter. Currently, we project RPM to increase from ¥250 to around ¥380 ($2.11 to around $3.55) by the end of our forecast period.

Transaction Revenues Across Shopping And Auction Sites To Grow

While the search and listings ads division contributes 16.7% of Yahoo! Japan’s total value, the online shopping and auction division contributes 14.5%, according to our estimates. We expect total revenues from this division to increase slowly to around ¥74 billion ($690 million), by the end of our forecast period. According to e-Marketer, Japan’s e-commerce sale was over $71 billion in 2014 and is expected to grow to $106 billion in 2018. [3] Yahoo! Japan’s online shopping division continues to lag due to intense competition from incumbents such as Amazon and Rakuten that list more products on their sites. Furthermore, new entreants continue to eat into share of the incumbent as most of these new players have mobile optimized sites.

Yahoo! Japan has reacted well to these challenges and implemented numerous changes. The company removed listing and tenant fees for its websites in Q2 FY14 (Q3 CY13), to stimulate growth and increase the number of listed sellers. This bore fruit in Q1 FY16 (Q2CY15) as the company reversed the declining trend of the e-commerce and shopping to one of 20% growth.

The strategy was also instrumental in increasing the number of listed sellers at Yahoo!  Japan’s e-commerce and auction websites. The number of listed sellers is important for Yahoo! Japan’s shopping division because, as listings grow, more users are likely to find and buy products on its site. This in turn will increase the transaction value across Yahoo! Japan’s shopping websites. The company added over 185,000 store ids for its shopping portal in the last year, 35,000 of which were added in Q1.With this increase in store IDs, the number of products listed across its shopping website increased by 68% year over year to nearly 180 million. The transactions value, across shopping, auction and listing divisions, grew by 11% to ¥311 billion ($2.55 billion).

In this earnings announcement, we will be closely following the transaction value for both the listing and auction properties of Yahoo! Japan to gauge how these divisions have done vis-a-vis the Japanese e-commerce industry, which is expected to grow to $106 billion.

At present, we have a $8.29 price estimate for Yahoo! Japan, which is 5% above the current market price.

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Notes:
  1. Investor Meeting, Yahoo!Japan []
  2. Japan leads the world in mobile commerce, March 22 2015 []
  3. INFOGRAPHIC: JAPAN ECOMMERCE MARKET, May 22 2015 []