Yahoo! Japan Earnings Preview: Mobile Revenues And Online Sales Growth In Focus

Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q4 FY2014  results on April 25. During the third quarter, the company posted 9% year-over-year growth in revenues to ¥96.8 billion ($950 million), buoyed by growth in revenues from mobile ads division. However, the operating income declined by 1.5% to ¥49.2 billion ($480 million) due to implementation of new strategies for its shopping division.

Japanese users are quickly adopting smartphones and the penetration has increased to over 42% in 2013. We expect this trend to continue for the near term, and will be closely following the growth in Yahoo! Japan’s revenues from smartphones. Increasing mobile penetration will be a key contributor to Yahoo! Japan’s growth over the long term as it not only affects the mobile ads division, but also helps its display ads and search & listing ads divisions. Furthermore, the company is looking to improve its market share in the Japanese e-commerce industry and has done away with the listing fee to bolster its online sales. We are eager to learn if this strategy has boosted transaction value across online shopping and auction division.

See our complete analysis of Yahoo! JAPAN here

Mobile To Boost Revenues

According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. Smartphone penetration is gaining traction in Japan and eMarketer estimates that smartphone penetration grew from 27.7% in 2012 to 41.7% in 2013. ^[1] We believe that revenues from this division will account for almost 25% of the total revenues by 2020, as ad budgets increasingly shift to mobile users.

In Q3 FY2014, the unique visitor count for the company increased to 28 million. Furthermore, its advertising revenues from smartphones have grown to ¥12 billion ($96 Million) in Q3. We expect this trend to continue in Q4 as well and forecast the revenue per 1,000 page views (RPM) to improve for the quarter. Currently, we project RPM to increase from ¥220 to around ¥370 ($2.11 to around $3.55) by the end of our forecast period. We will be closely monitoring the RPM metrics in the quarter to update our growth projection for Yahoo! Japan.

Net Additions In Listing & Online Shopping Space In Focus

While the search and listings ads division contributes 17% of Yahoo! Japan’s total value, the online shopping and auction division contributes 15%, according to our estimates. The company removed listing and tenant fee for its websites in Q3 (Q2 FY14), 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 the listings grow, more users are likely to find and buy products on its site.  And this in turn will increase the transaction value across Yahoo! Japan’s shopping websites. It is assumed the lost listing revenues will be more than offset by the revenue generated from transactions. In this earnings announcement, we will be closely following the transaction value and number of listed sellers for the listing, shopping and auction properties of Yahoo! Japan, to gauge how these divisions have done vis-a-vis the Japanese e-commerce industry. Currently, we estimate that by 2020, the transaction value from shopping and auction will grow to ¥400 billion and ¥780 billion, respectively.  We will be looking for confirmation of our growth rate in this earnings announcement.

We currently have a $14.86 price estimate for Yahoo! Japan, which is around 50% above the current market price.

1. Smartphone Use in Japan Makes Steady Gains, September 19 2013, www.emarketer.com [↩]