Yahoo! Japan Earnings: Mobile Ads And e-Commerce Growth Power Revenues

Yahoo! Japan Corporation (OTC:YAHOY) reported its Q4 FY 2014 results on April 25.  The company posted 9% year-over-year growth in revenues to ¥101.3 billion ($993 million). However, the operating income declined by 1.3% to ¥50.2 billion ($492 million) due to implementation of new strategies for its shopping division.

In our pre-earnings note, we stated that we will closely watch the progress the company has made in its mobile advertising division. The increase in mobile ads revenue was instrumental in bolstering search ads revenues. We believe that growth in smartphone penetration will be a big growth driver for the company in the future as it affects all of Yahoo! Japan’s divisions. Furthermore, the company reported higher transaction value for its shopping division as change in listing strategy bore fruit. The highlights of the results are as follows.

See our complete analysis of Yahoo! JAPAN here

Mobile Services Take Center Stage

According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. We believe that revenues from this division will account for almost 25% by 2020, as ad budgets increasingly shift to mobile users. During the quarter, the firm posted a healthy increase in mobile ad revenues, which grew to ¥15 billion, and now accounts for 25.4% of total ad revenues. ^[1]

Furthermore, the company reported 60% year-over-year growth in smartphone daily unique browsers (DUB) to 32 million and over 160 million downloads for its smartphone app during the quarter. As a result, the number of monthly smartphone page views grew by 75% year over year to 20.5 billion. As the company is increasing content across its properties, we believe that the company will be able to leverage its dominant position in the Japanese Internet landscape to drive mobile revenue growth in the coming future.

The company is also targeting the existing and new smartphone users for e-commerce sales. The company is planning to launch its premier services for Y! mobile to strengthen its presence in the Japanese auction market. Furthermore, it has forged alliance with smartphone vendors to bundle its applications that will help it to expand its user base and promote shopping through mobile platform. We believe that this strategy will help the company to grow the transaction value across its shopping, auction and listing websites.

Transaction Value across E-commerce Properties Grows As Listings Rise

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 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 which will increase the transaction value across Yahoo! Japan’s shopping websites.

As a result of this new strategy, the company added over 60,000 store ids for its shopping portal in the last six months. As a result of increase in store ids, the number of product listed across its shopping website increased by 40% year over year to nearly 95 million, and transaction value grew by 35.8% year over year to a record ¥88.8 billion. However, the company reported 7% year-over-year growth in the transaction value across its auction, listing and shopping websites to ¥461.8 billion ($4.52 billion). As a result of increase in store ids, the number of product listed across its shopping website increased by 30% year-over-year to nearly 90 million. For the auction division, the company added over 1,000 store ids in Q4 that resulted in 10% jump in the number of listings. Furthermore, the transaction value grew by 11.5% to ¥193.5 billion. We expect that this strategy will continue to reap benefits in the future as well. Currently, we estimate that by 2020, the transaction value from shopping and auction divisions will grow to ¥400 billion and ¥780 billion respectively.

We are in the process of updating our Yahoo! Japan model. At present, we have a $14.86 price estimate for Yahoo! Japan, which is around 50% above the current market price.

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1. Yahoo! Japan Presentation [↩]