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Investment Overview for Yahoo! Japan (NYSE:YAHOY)
Below are key drivers of Yahoo JAPAN's value that present opportunities for upside or downside to the current Trefis price estimate for Yahoo JAPAN:
- Yahoo! JAPAN Gross Margin:
We currently forecast that Yahoo! JAPAN's gross margins will fall slightly from 90% to 89.5% by the end of our forecast period. The company has removed listing and auction fee last year to boost its online business. We expect that this could impact the margins to some extent and have factored that in. If we're wrong about the margin pressures that the company will face due to the increasing competition in the Japanese internet industry, and gross margins increase to around 92% by the end of our forecast period, we would see approximately 10% upside to our price estimate. On the other hand, if margin pressures increase and gross margins fall to around 85%, we would see our price estimate fall by 10%.
- Yahoo! JAPAN Unique Visitors: According to our forecasts, Yahoo! JAPAN's unique visitor count will increase steadily to approximately 65 million by the end of our forecast period. Overall, we think that this figures is positively correlated with the quality of the content and services that Yahoo! JAPAN offers. If the company is unable to maintain the quality of its products, and unique visitors fall over our forecast period to around 48 million, we would see 10% downside to the Trefis price estimate. On the other hand, if Yahoo! is able to release a products which are able to attract more users, and total unique visitors increase to around 75 million, we would see 10% upside.
Yahoo! JAPAN Corporation is a Japanese internet company, with country leading positions in online advertising and eCommerce services. The company began as a joint venture between US based Yahoo! and Japanese telecommunications firm Softbank.
The company primarily generates revenues through advertising, which made up more than half of its revenues in FY 2014. The company provides search advertising by showing ads based on the type of search a user conducts. For example, if a user searches for an item, the right hand side of the screen is likely to show ads from sellers selling the item. In addition to providing search advertising, Yahoo! JAPAN provides display advertising services primarily in the form banner ads across its websites.
The company's mobile advertising segment is the largest contributor to the firm's value, and is made up display and search ads shown across mobile devices, together with product listing ads on mobiles.
*Yahoo! is currently a minority stake holder in Yahoo! JAPAN, with a stake of approximately 35%.
According to our estimates, Mobile advertising is Yahoo! JAPAN's biggest value contributor, making up approximately 20% of the company's value. While mobile ads generated only 10% of Yahoo! JAPAN's total advertising revenues in FY 2013, we expect that this revenue stream will be a major contributor to Yahoo! JAPAN's advertising revenues going forward. Revenue growth in this segment will be buoyed by an increase in smartphone penetration and an increase in mobile ad spending, which is expected to double by 2018.
PC Search and Listing Advertising
According to our estimates PC Search and Listing advertising is Yahoo! JAPAN's second largest segment, making up approximately 17% of its value. We expect this to increase to ¥114 (despite the fact that we expect these revenues to steadily decline over our forecast period, to approximately ¥86 ($960 million) billion from ¥98 ($1.25) billion in 2010.
While advertising makes up over 50% of Yahoo! JAPAN's revenues, Yahoo! JAPAN's eCommerce division is its third largest stand alone division, making up around ~17% of the Trefis price estimate. We think that this division's revenue growth will be primarily driven by an increase in Japanese eCommerce spending, which is expected to grow to almost $143 billion (¥17 trillion) by 2016 .
We think that Yahoo! JAPAN will be able to leverage its market leading positions in Auctions and Shopping to get a big chunk of the eCommerce spending growth.
Increase in Online Ad Spending
Online spending in Japan is expected to increase from $8.5 billion (¥1.1 trillion) in 2013 to $11.25 billion (¥1.32 trillion) in 2016, according to research firm eMarketer. Since Yahoo! JAPAN is a leader in the Japanese internet market, we think that it can leverage its position to capture large portions of the increase in online ad spending.
Increase in Smartphone Penetration
Japanese smartphone penetration stood at 54% in March 2014 . Since Japanese smartphone penetration is expected to increase over our forecast period, Yahoo! JAPAN has opportunity to drive growth through the mobile segment, which it is relying on in the coming years.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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