Yahoo! Japan Earnings Preview: Mobile Ads And Transaction Revenue To Grow

Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q2 FY2015  results on October 29th. (Fiscal year ends in March.) The company continues to expand its services for core businesses to the mobile platform, which is bolstering its revenues. During the first quarter, the company posted 2.8% year-over-year growth in revenues to ¥99.9 billion ($970 million). The growth in revenues slowed due to a change in its strategy for its online shopping and listing division. Internet connected mobile devices, which includes smartphones and tablets, are expected to drive the next leg of growth at Yahoo! Japan, as it not only affects the mobile ads division, but also helps its display ads and search & listing ads divisions. Furthermore, we expect the company to make headway in the Japanese e-commerce industry as its no fee strategy gains traction. With this earnings report, we will continue to closely monitor the transaction value across the 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 will grow to over 50% in 2014. ^[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 Q1 FY2015, the unique visitor count for the company increased to 36 million. Furthermore, its advertising revenues from smartphones grew to ¥18.1 billion in Q1.We expect this trend to continue in Q2 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.

Transaction Revenues To Grow

According to our estimates, online shopping division contributes just over 15% to its estimated value. We expect total revenues from this division to increase slowly to around ¥74 billion ($690 million), by the end of our forecast period. Competition in e-commerce business in Japan is intense and Yahoo! Japan needs to add more products and services to compete against Amazon Inc. and Rakuten Inc. The only way for Yahoo! Japan to compete with these incumbents is to forge strong partnership with brick and mortar companies as well as third-party vendors. As a result, the company removed listing and tenant fees for its websites in Q3 CY14 (Q2 FY14), to stimulate growth and increase the number of listed sellers. As listings across Yahoo! Japan’s properties grow, more users are likely to buy products from Yahoo! Japan and this will increase the transaction value across Yahoo! Japan’s websites. 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. Currently, we estimate that by 2020, the transaction value from shopping and auction will grow to ¥400 billion ($3.71 billion) and ¥780 billion ($7.23 billion), respectively. We will be looking for confirmation of our growth rate in this earnings announcement.

Partnerships Are Key To Overall Revenue Growth

While search and listings ads division contributes ~18%, display ads division contributes ~15% to Yahoo! Japan’s estimated value, and we expect total revenues from them to increase slowly to around ¥180 billion ($1.67 billion) by the end of our forecast period. In Q1 FY 2014, Yahoo! Japan announced a number of partnerships with a host of developers for offering their content on its website and mobile platform. We expect Yahoo! Japan to report more partnerships in this earnings announcement. These partnerships are important for Yahoo! Japan as it helps the company in offering engaging content to its users. As the amount of content consumed on the Internet increases, we expect pageviews to increase due to Yahoo! Japan’s leadership in the Japanese market. Currently, we expect page views to remain constant at around 1,030 per month, by the end of our forecast period.

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