How Mobile Will Drive Yahoo! Japan’s Advertising Revenues

Yahoo! Japan Corporation (OTC: YAHOY) is an online advertising behemoth in Japan. The company generates ad revenues through search and display ads across its desktop website and mobile applications. In 2016, its online ad revenues declined by 4.1% due to lower revenues from desktop ads, which saw a 20% decline. However, revenues from mobile ads grew as Yahoo Japan’s apps gained traction among Japanese users. We estimate that revenues from mobile will account for almost 72% of the company’s online ad revenues and 21% of total revenues by 2023. In this note, we explore how mobile adoption is driving Yahoo! Japan’s online advertising revenues.

See our complete analysis of Yahoo! JAPAN here

 Smartphone Adoption To Drive Advertising Revenues

Yahoo! Japan, through its website and mobile apps, reaches over 80% of internet users in Japan. The company has been able to leverage this reach to establish a firm footing in the Japanese online ad market. The key drivers for the online advertising business are page views per visitor, unique monthly visitors, and RPM (revenue per 1000 views). In 2016, the company generated close to 2.1 billion daily page views, which translated into 67 billion page views each month for its properties. While the unique monthly visitor count for the company increased by over 7% in 2016 to 89 million, the blended RPM (for both mobile and desktop) declined by 11% to $2.94.

Yahoo Japan’s desktop online ad division is witnessing a decline in revenues due to the change in user browsing habits and a shift in advertising budgets away from desktop to mobile. This trend has benefited its mobile ad business, which reported 17.5% growth in revenues. Furthermore, with the increase in smartphone penetration, which exceeds 50% of the population, mobile web traffic is on the rise in Japan.

Yahoo! Japan continues to attract more users for its mobile platform through the acquisition of companies in the mobile domain and the development of novel smartphone content. As a result of these measures, Yahoo! Japan applications are consistently ranked among the top 5 apps installed on Android and iOS smartphones in Japan. This has helped the company to grow its monthly unique user visitor count by 14% to over 57 million. We currently forecast the number of unique users across the company’s properties to rise from 58 million to 85 million by the end of our forecast period. However, the user base could be significantly higher if smartphone penetration reaches around 90% sooner than expected, which has been the trend in other developed countries such as the U.S. This could significantly increase the mobile unique user base for Yahoo! Japan, and drive incremental revenue growth.

Mobile Monetization Improving Due To New Formats, Data-Driven Insights

As advertisers shift their budgets further toward mobile platforms, we expect mobile ad revenues to drive much of Yahoo! Japan’s growth. We also expect that mobile penetration growth will be a key contributor to Yahoo! Japan’s growth over the long term, as it not only affects the mobile ad business but also helps its display ad and search & listing ad businesses.

To improve the monetization rate of its mobile user base, the company continues to introduce new ad formats such as inline video feeds. Additionally, the company is deploying data analytics to improve content/ad targeting accuracy. This has led to a 70% improvement in click-through rates on the Yahoo! Display network. Furthermore, due to the deployment of data analytics, user engagement has improved, which should lead to an improvement in RPM as advertisers are generally willing to pay more per impression for sites that engage users better. While we currently estimate the RPM for Yahoo! Japan to decline from $2.49 per 1000 impressions in 2016 to $2.12 by 2023, better mobile engagement could allow the company to prevent that decline. As Yahoo! Japan enhances user engagement by developing the more user-centric, data-driven mobile platform for its properties, there is scope for the company to improve its monetization rate going forward. If mobile RPM were to instead grow to $2.85, the revenue for the mobile division could increase to $2.24 billion by 2023, and this would lead to an upside of around 12% to our price estimate for the company’s stock.

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