Yahoo Japan Pre-Earnings: Revenue Growth Expected To Continue In Q3

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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 Q3 FY2017  results on February 3. [1] (Fiscal years end with March.) With the impetus to expand its services and footprint in the Japanese e-commerce industry, the company looks set to report another quarter of growth for its e-Commerce business. We also expect its revenues from ads to report growth as has been the trend in the past two years. Furthermore, as the company continues to expand its services to the mobile domain, the company is expected to report growth in revenues contribution from mobile devices across its verticals.

See our complete analysis of Yahoo! JAPAN here

Mobile To Boost Revenues Across Ads And E-Commerce Divisions

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According to our estimates, mobile advertising contributes 20% to Yahoo! Japan’s total value. In Q2 FY2017 (Q3 CY16), the mobile unique visitor count for the company increased by 16.3% to 60.04 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 49.5% to reach ¥34.4 billion ($304 million), reflecting 26.5% year-over-year growth. Additionally, e-commerce transaction value through smartphones amounted to 45.5% of total transaction value in Q2.

According to the advertising firm Criteo, Japan leads the world when it comes to mobile commerce transaction volume, due to fact that Japanese consumers prefer to use their phones for purchases. [2] For Q3, we expect that e-commerce transaction value through smartphones grew once again. Furthermore, as more users now use smartphones to view content, we also believe that the ads revenue per 1,000 page views (RPM) from mobile devices improved Q3.

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. 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 that have helped the company to strengthen its position in the e-commerce business. In Q2, Yahoo! Japan’s total transaction value grew by 39.7% to ¥432.4 billion ($3.77 billion). Additionally, its performance metrics, the number of monthly active shopping IDs grew by 28.9% to 447,214. We believe that this trend continued in Q3 FY17 (Q4 CY16) 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.

Digital Transaction Services Are Gaining Traction

With the increasing use of Smartphones and the 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 a factor of 4.2. In Q2 (Q4 CY16), the company reported that the transaction value for the credit card business grew by 118% year over year to ¥118.8 billion, while the number of credit card holders grew by 101.4% to 2.83 million. We expect the company to sustain this trend in Q3 FY17 and boost revenues for Yahoo! Japan.

At present, we have a $8.29 price estimate for Yahoo! Japan, which is 1.8% above the current market price.

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Notes:
  1. Investor Meeting, Yahoo! Japan []
  2. With close to 55%, Japan has highest number of mobile commerce transactions in Q2 2016, October 28 2016 []