Yahoo! Japan’s Results: Revenue Grows As Mobile Platform Gains Traction

Yahoo! Japan Corporation (OTC:YAHOY) reported its Q2 FY 2015 results on Ocotber 29. (Fiscal year end with March) The company posted 2.5% year-over-year growth in revenues to ¥103 billion ($960 million). However, operating income declined by 7.6% to ¥46 billion ($430 million) due to the implementation of ‘no fee’ strategies for its shopping division. While the company reported 7.2% growth in its advertising revenues to ¥60.5 billion ($560 million), its transaction value across shopping, auctions and listing services grew by 11.9% to ¥281.1 billion ($2.6 billion). The highlights of the results are as follows.

See our complete analysis of Yahoo! JAPAN here

Mobile Boosts Revenue And Transaction Value

In our pre-earnings note, we stated that we would 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. According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. During the quarter, the firm posted a healthy increase in mobile ad revenues, which grew by 74% to ¥17.4 billion ($160 million), and now account for 33.7% of total ad revenues. ^[1] Furthermore, e-commerce transaction value through smartphones now amounts to 32% of total transaction value, and stands at ¥91.4 billion($850 million). 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 company reported 55.6% year-over-year growth in smartphone daily unique browsers (DUB) to 39.43 million. As a result, the number of monthly smartphone pageviews grew by 66.5% year over year to 29.90 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.

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 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 new strategy, the company added over 193,000 store ids for its shopping portal in the last twelve months. 60, 000 of new ids were added in Q2. With this increase in store ids, the number of products listed across its shopping website increased by 50% year over year to nearly 120 million. The transactions value, across shopping, auction and listing divisions, grew by 11.9% year-over-year to ¥281.1 billion. However, the company reported 8.3% year-over-year decline in revenue to ¥23.6 billion ($220 million) as it had to forgo listing fees and cut down its take rate for transaction across its shopping sites. We expect that as this strategy gains traction, Yahoo! Japan’s revenues will increase due to higher transaction value across its sites. 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.

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