Yahoo Japan Earnings Preview: Strategy For Revenue Growth In Focus

Yahoo! Japan Corporation (PINK:YAHOY) is set to announce its Q2 FY2014 results on October 25. While Yahoo! Japan continues to be Japan’s most visited portal, it expects economic growth and a consumer shift to mobile services to spur growth in advertising revenues. We believe that mobile penetration growth will be a key contributor to Yahoo! Japan’s growth over the long term as it not only affects the mobile ads division but also helps its display ads and search & listing ads divisions. Additionally, the company is aggressively pursuing the Japanese online shopping space for revenue growth. Recently, it removed the fees for listing online retail outlets on its shopping site. ^[1]

In this earnings announcement, we will closely follow Yahoo! Japan’s growth in unique visitors from mobile devices. While we expect that advertising revenue will be the key growth driver for Yahoo! Japan’s revenues in the coming quarter, we expect the transaction value across Yahoo properties to gradually grow and continue to monitor it during this earnings announcement.

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 even though it made up only around 6% of total revenues in 2012. We believe that revenues from this division will account for almost 25% by 2020, as ad budgets increasingly shift to mobile users.

In Q1 FY2014, we estimate that Yahoo! Japan’s page views per unique visitor rose to 2013 per month from 194 per month in Q4 FY2011. Additionally, the unique visitor count for the company increased to 23 million. As advertisers are earmarking more funds for mobile ads, mobile is driving revenues growth for internet companies such as Yahoo! Japan that lead the internet market in terms of traffic.

Yahoo! Japan’s advertising sales from smartphones has grown to JPY 8 billion in Q1. We expect this trend to continue in Q2 as well and forecast the revenue per 1,000 page views (RPM) to improve for the quarter. Currently, we project RPM to increase from JPY 220 to around JPY 370 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.

Revenue Growth In Listing

While search and listings ads division contributes ~18% and display ads division contributes ~14% to Yahoo! Japan’s estimated value, these divisions combined generated revenues of approximately JPY 149 billion in 2012, and we expect total revenues from them to increase slowly to around JPY 190 billion by the end of our forecast period.

Recently, Yahoo! Japan announced a number of partnerships with a host of developers for offering their content on its website and mobile platform. We expect Yahoo! Japan to report more partnerships in this earnings announcement. These partnerships are important for Yahoo! Japan as it helps the company in offering engaging content to its users. As the amount of content consumed on the Internet increases, we expect pageviews to increase due to Yahoo! Japan’s leadership in the Japanese market. Currently, we expect page views to remain constant at around 1,000 per month, by the end of our forecast period.

New Measures To Boost Online Shopping Division

According to our estimates, online shopping and auction contributes 15% to Yahoo! Japan’s total value. While transaction value from shopping was flat, transaction value from auctions grew by 4% y-o-y in Q1 FY14. According to e-marketer, Japan’s business to consumer (B2C) e-commerce sales can grow from $127 billion in 2012 to $144 billion in 2016. ^[2]

Yahoo! Japan’s shopping division continues to lag in the face of intense competition. It plans to strengthen its footprint in the Japanese online shopping segment by expanding its product portfolio, the number of stock keeping units and distribution channels. The only way for Yahoo! Japan to compete with these incumbents is to forge strong partnership with brick and mortar companies as well as third-party vendors. It has recently removed the listing fee to engage more sellers and get them on-board its shopping web portal. It is also aggressively pursuing daily necessities of online shopping domain through its website LOHACO. Additionally, it acquired Venture Republic’s comparison shopping business

The number of listed sellers is important for Yahoo! Japan’s shopping division because as the listing grow, more users are likely to find and buy products on its site. As listings across Yahoo! Japan’s properties grow, more users are likely to buy products from Yahoo! Japan that will increase the transaction value across Yahoo! Japan’s shopping websites. 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.

We currently have a $15 price estimate for Yahoo! Japan, which is around 40% above the current market price.

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1. Read Yahoo! Japan’s strategy To Remove Listing Fee Is Not A Bad Idea for more details [↩]
2. B2C Ecommerce Climbs Worldwide, as Emerging Markets Drive Sales Higher, June 27 2013, www.emarketer.com [↩]