Yahoo! Japan Earnings: Mobile Boosts Revenue Growth Across E-Commerce And Ads Vertical

Yahoo! Japan Corporation (OTC:YAHOY) reported its Q3 FY 2017 results February 3rd. (Fiscal year ends in March.) In line with our expectation, Yahoo! Japan’s revenues grew 12.7% year over year to ¥221.3 billion ($1.95 billion), primarily on the back of 17.4% surge in the transaction value of shopping business (e-commerce), which grew to ¥503.9 billion ($4.45 billion). Additionally, operating income grew by 20% to ¥50 billion ($440 million). Additionally, the company reported 10.4% growth in advertising revenues to ¥72.9 billion ($644 million). As we had expected and noted in our pre-earnings note, revenue from Mobile continued to boost revenues during the quarter as Japanese consumers continued to use smartphones for shopping and accessing websites. The highlights of the results are below.

See our complete analysis of Yahoo! JAPAN here

Mobile Boosts Ads Revenue And Transaction Value

According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. As stated in our pre-earnings note, Japan leads the Asian region for the number of all online retail transactions are made on either a smartphone or tablet. As a result, mobile transaction accounted for over 47.4% (¥212.8 billion) of all transaction value for Yahoo! Japan. Furthermore, the increasing penetration of mobile devices aided in the growth of mobile ads revenue as Smartphone revenue ratio exceeded 50% for the first time in the company’s history. ^[1] We believe that revenues from this division will account for almost 25% of total revenues by 2022, as ad budgets increasingly shift to mobile users. We also believe that as the company is increasing content across its properties, it will be able to leverage its dominant position in the Japanese Internet landscape to drive mobile revenue growth in the coming years.

Transaction Value Across E-commerce Websites  Grows Once More

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. 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. The number of listed sellers is important for Yahoo! Japan’s shopping division because as 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.

As a result of this strategy, the company added over 106,809 store ids for its shopping portal, of which 34,407 were added in Q3, resulting in a growth of over 28.4% year over year to 481,621. With this increase in store ids, the number of products listed across its shopping website increased by 70 million year over year to nearly 250 million. The transactions value, across shopping, auction and listing divisions, grew by 17.4% year over year to ¥503.9 billion ($4.45 billion). We expect that as product listing gains more traction, Yahoo! Japan’s revenues will increase due to higher transaction value across its sites. Furthermore, since online sales only account for 5% of all retail sales in Japan, the untapped market for the company presents a huge opportunity to grow its business in the ensuing years.

Transaction Value And Membership Across Credit Card And Wallet Services Grows

In 2014, Yahoo! Japan forayed into credit card services. Over the past few quarter, the credit card transaction value for the company has increased by 4.2x. This trend continued in Q2 as transaction value increased by 2.8x and number of valid card holders increased by 2x to 3.41 million. Furthermore, credit card transaction value grew by over 156% to ¥174.1 billion ($1.54 billion).

The other bright spot in earnings was the growth in the number of Yahoo Wallet Accounts and transaction value. This was the 15^th successive quarter for which the company has reported growth for e-payment services. While the number of wallet accounts grew by 3.5% to 35.79 million, the transaction value grew by 35.4% to ¥322.4 billion ($2.85 million). This translates into ¥900 per account, up from ¥700 a year ago. We expect this trend to continue in the coming quarters as Japanese continue to adopt e-payment services for transactions, both online and in brick and mortar stores.

 We are in the process of updating our Yahoo! Japan model. At present, we have a $8.29 price estimate for Yahoo! Japan, which is 9% above the current market price.

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