Yahoo! Japan Earnings Preview: Mobile Revenues And Online Sales Growth In Focus

Yahoo! Japan Corporation (OTC:YAHOY) is set to announce its Q3 FY2014 results on January 29. While Yahoo! Japan continues to be Japan’s most visited portal.  Management expects economic growth and a consumer shift to mobile services to spur growth in advertising revenues. The rise in smartphone penetration across Japan 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. Furthermore, the company is looking to improve its market share in the Japanese e-commerce industry, and has recently done away with the listing fee to bolster its online sales. We expect this change in strategy to augur well for the company, and for Yahoo Japan! to post growth in revenues in this earnings announcement. While we expect that advertising revenue will be the key growth driver for Yahoo! Japan’s revenues in the coming quarter, we believe the transaction value across Yahoo properties will gradually grow.  awe will look to the earnings release for confirmation.

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 grew from 27.7% in 2012 to 41.7% in 2013. ((Smartphone Use in Japan Makes Steady Gains, September 19 2013, www.emarketer.com))  We believe that revenues from this division will account for almost 25% total revenues by 2020, as ad budgets increasingly shift to mobile users.

In Q2 FY2014, the unique visitor count for the company increased to 25 million. Furthermore, its advertising revenues from smartphones have grown to JPY10 billion ($96 Million) in Q2. We expect this trend to continue in Q3 as well and forecast the revenue per 1,000 page views (RPM) to improve for the quarter. Currently, we project RPM to increase from JPY220 to around JPY370 ($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 fee for its websites in Q3 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 which 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.  In this earnings announcement, we 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.

We currently have a $14.86 price estimate for Yahoo! Japan, which is around 20% above the current market price.

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