Yahoo! Japan Earnings Preview: Mobile To Boost Revenues Across Divisions

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YAHOY: Yahoo Japan Corp ADR logo
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Yahoo Japan Corp ADR

Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q2 FY2017  results on November 1st. [1] (Fiscal years end with March.) The company continues to expand its services and footprint in the Japanese e-commerce industry. As a result, its revenues from ads and gross merchandise value on its e-commerce website have increased in the past two years. We expect this trend to continue in Q2 with higher transaction value across auction and online shopping divisions. Furthermore, as the company continues to expand its services to mobile domain. Therefore, Trefis expects that revenue contribution from mobile ads and transactions continued to increase during the quarter.

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 Q1 FY2017 (Q2 CY16), the mobile unique visitor count for the company increased by 16.6% to 57.39 million. Furthermore, the increasing penetration of mobile devices aided in the growth of mobile ads revenue as the Smartphone revenue ratio in the mix exceeded 47% to reach ¥30.83 billion ($296 million), reflecting 13% year-over-year growth. Additionally, e-commerce transaction value through smartphones amounted to 40.1% of total transaction value in Q1.

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According to the advertising firm Criteo, Japan leads the world when it comes to mobile conversion rates, due to fact that Japanese consumers prefer to use their phones for purchases. As a result, we expect that there was significant improvement in e-commerce transaction value through smartphones during fiscal Q2 as well.  We also believe that 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 competition 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 FY17 (Q2CY16) the company reported 57.9% year-over-year growth in shopping and 2.7% growth in auction revenues.  Additionally, its performance metrics, the number of monthly active ids (34.18 million in Q1) and number of paid ids (17.10 million) have increased by 13.7% and 10.0% respectively.

We believe that this trend continued in Q2 FY17 (Q3CY16) and the company will continue to report improvement for its performance metrics. 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.

Digital Transaction Services Are Gaining Traction

With the increasing use of Smartphones and internet, Yahoo! Japan forayed into digital wallet and credit card services in 2014. Over the past few quarter, the credit card transaction value for the company has increased by 4.2x. This trend is expected to fillip revenues for Yahoo! Japan in Q2 FY17.

At present, we have a $8.29 price estimate for Yahoo! Japan, which is 7% above the current market price.

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Notes:
  1. Investor Meeting, Yahoo! Japan []