Yahoo! Japan Earnings:Revenues Soar Higher, Investments Gain Pace

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Yahoo Japan Corp ADR

Yahoo! Japan Corporation (OTC:YAHOY) reported its Q2 FY 2016 results on October 30th. (Fiscal year ends in March.) In line with our expectation, Yahoo! Japan’s revenues grew 34% year over year to ¥138.2 billion ($1.15 billion), primarily on the back of 30% surge in transaction value of shopping business (e-commerce). Operating income also improved to ¥102.7 billion ($850 million). While the company reported 8.6% growth in advertising revenues to ¥65.7 billion ($550 million), the transaction value across shopping, auctions and listing services grew by 18.5% to ¥333.5 billion ($2.77 billion). The company also invested close to ¥6.5 billion in new ventures in order to diversify and strengthen its revenue streams. The highlights of the results are below.

See our complete analysis of Yahoo! JAPAN here

Mobile Boosts Ads Revenue And Transaction Value

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According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. As stated in our pre-earnings note, Japan leads the Asian region for the number of all online retail transactions are made on either a smartphone or tablet. [1] As a result, mobile transaction accounted for over 39% of all transaction value for Yahoo! Japan. Furthermore, the increasing penetration of mobile devices aided in growth of mobile ads revenue as Smartphone revenue ratio exceeded 41% or ¥27.2 billion ($230 million) reflecting 36.3% year-over-year growth. Furthermore, the mobile user base (at 51.61 million) exceeded desktop daily unique browsers. [2] We believe that revenues from this division will account for almost 25% (of total revenues) by 2021, as ad budgets increasingly shift to mobile users. We also believe that as the company is increasing content across its properties, it will be able to leverage its dominant position in the Japanese Internet landscape to drive mobile revenue growth in the coming years.

Transaction Value Across E-commerce Properties Grows as Listings Rise

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. 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. 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, which will increase the transaction value across Yahoo! Japan’s shopping websites.

As a result of this strategy, the company added over 346,888 store ids for its shopping portal, 35,000 of which were added in Q2, resulting a in growth of over 79% year over year. With this increase in store ids, the number of products listed across its shopping website increased by 49 year over year to nearly 180 million. The transactions value, across shopping, auction and listing divisions, grew by 11% year over year to ¥333.5 billion ($2.77 billion). We expect that, as product listing gains more traction, Yahoo! Japan’s revenues will increase due to higher transaction value across its sites.

Investments Gain Pace

In search of new revenue streams, and to leverage its footprint in the Japanese e-commerce and content vertical, the company formed four joint ventures during the quarter.

Recent Investments in Q2 (Source: Yahoo! Japan Presentation)

These partnerships are important for Yahoo! Japan as it helps the company in offering engaging content and new services for its users. As the amount of content consumed on the Yahoo! Japan’s properties increases, and more transaction across its websites grows, we expect pageviews and transaction value 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. Furthermore, as stated earlier, we also anticipate transaction value to increase.

 We are in the process of updating our Yahoo! Japan model. At present, we have a $8.29 price estimate for Yahoo! Japan, which is inline with the current market price.

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Notes:
  1. Japan leads the world in mobile commerce, March 22 2015 []
  2. Yahoo! Japan Presentation []