Yahoo! Japan Earnings Preview: Mobile Ads Revenue And Transaction Value Across Shopping To Increase

Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q3 FY2016  results on February 2nd. ^[1] (Fiscal years end with March.) As the company continues to expand its services and footprint in the Japanese e-commerce industry, its revenues from ads and gross merchandise value have increased. We expect this trend to continue in Q3 with higher transaction value across auction and online shopping divisions. Furthermore, as the company continues to expand its services to mobile domain, growth in ads through mobile devices will  continue, in our view. 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

According to our estimates, mobile advertising contributes 20% to Yahoo! Japan’s total value. In Q2 FY2016 (Q3 CY16), the unique visitor count for the company increased to 51.61 million. 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. Additionally, e-commerce transaction value through smartphones amounts to 32% of total transaction value in Q2.

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 Q3 as well and forecast the ads revenue per 1,000 page views (RPM)  improved in the quarter.

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. However, this division faces stiff from old and new entrants that continue to eat into share of the incumbent.

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 continues to bear fruit for the company and in Q1 FY16 (Q2CY15) as the company reversed the declining trend of the e-commerce and shopping to one of 20% growth.  We believe that this trend continued in Q3 FY16 (Q4CY15).

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 9% above the current market price.

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1. Investor Meeting, Yahoo! Japan [↩]
2. Japan leads the world in mobile commerce, March 22 2015 [↩]