Strong Revenue Growth Potential Presents A Sizable Upside For Yahoo! Japan

Yahoo! Japan (OTC:YAHOY) reported its Q4 and fiscal 2018 results late last week. The company’s media and commerce business saw sizable growth in Q4, although competitive pressures have had a negative impact on margins. The top line growth was aided by the fact that PayPay’s active user base increased to 6 million thanks to Softbank’s backing.

Our price estimate of $6.50 per share for Yahoo! Japan is 30% higher than the current market price. Our interactive dashboard on Yahoo! Japan’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation. Also, you can see more Trefis technology company data here.

Q4 and Fiscal 2018 Highlights:

• Media Business: This segment generates revenue from advertising, including paid search and display advertising. For Q4, the segment’s revenues grew to JPY 80 billion (+3% y-o-y), but operating income declined to JPY 33 billion (-23% y-o-y). For fiscal 2018, segment revenue grew to JPY 303 billion (+4% y-o-y), with operating income declining to JPY 141 billion (-10% y-o-y).
• Commerce Business: The revenue in this segment is derived from e-commerce and payments businesses. The segment includes ASKUL Group (sale of office-related goods to small corporates and individuals), YAHUOKU! (online auction services), Yahoo! Premium (membership privileges for services), credit card and other financial and payment-related services. For Q4, the segment’s revenues grew to JPY 167 billion (+6% y-o-y), while operating income fell to JPY 9 billion (-42% y-o-y). For fiscal 2018, segment revenue grew to JPY 650 billion (+10% y-o-y), with operating income declining to JPY 56 billion (-33% y-o-y).
• Others: The revenue in this segment is derived from cloud-related services, etc. For Q4, segment revenue declined to JPY 2.1 billion (-61% y-o-y), with operating income declining to JPY 293 million (-45% y-o-y). For fiscal 2018, segment revenue declined to JPY 8.2 billion (-58% y-o-y), with operating income growing to JPY 10 billion (+168% y-o-y).
• For fiscal 2018, total revenue grew to JPY 955 billion (+6% y-o-y), with operating income declining to JPY 141 billion (-24% y-o-y).

Yahoo! Japan’s management provided a revenue guidance of JPY 1 – JPY 1.02 trillion (+5%-7% y-o-y) for fiscal 2019, and expect net income to be JPY 79 – JPY 85 billion. We expect the company to report earnings of $0.47 per ADR for fiscal 2019, which coupled with our forward P/E multiple figure of 13.8 works out to a price estimate of $6.50 for Yahoo! Japan.

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