Yahoo! Japan Q1 Earnings Preview: What We Are Watching?

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Yahoo! JAPAN Corporation (OTC:YAHOY) is set to announce its Q1 FY2016  results on July 30th. [1] (Fiscal years end with March.)   The company continues to expand its services for core businesses to the mobile platform, which is bolstering its revenues. Recently, it announced that it was tying up with Skyscanner to extend flight search facility on its websites and cater to the multi-billion dollar Japanese travel industry. We expect the company will continue to make headway in the Japanese e-commerce industry as it expands beyond selling consumer products. Additionally, we will continue to closely monitor both the transaction value across the online shopping and auction division, and the growth in ads through mobile devices. Furthermore, the penetration of Internet-connected mobile devices, both  smartphones and tablets, is increasing.  And we expect penetration 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.

See our complete analysis of Yahoo! JAPAN here

Mobile To Boost Revenues

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According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. The smartphone growth is now gaining traction in Japan, and eMarketer estimates that smartphone penetration will grow to over 58% in 2015. [2] We believe that revenues from this division will account for almost 27% of the total by 2021 as ad budgets increasingly shift to mobile users. In Q4 FY2015 (Q1 CY14), the unique visitor count for the company increased to 46 million. Furthermore, its advertising revenues from smartphones grew to ¥24.8 billion ($210 million) in Q4. Additionally, e-commerce transaction value through smartphones amounts to 36% of total transaction value, and stood at ¥110.8 billion ($920 million) in Q4. We expect this trend continued in Q1 (Q2CY2015) as well and forecast the ads revenue per 1,000 page views (RPM) to improve for the quarter. Currently, we project RPM to increase from ¥250 to around ¥380 ($2.11 to around $3.55) by the end of our forecast period. We also expect that there was significant improvement in e-commerce transaction value through smartphones during Q1. However, we will be closely monitoring the RPM metrics, which gives us a fair indication of smartphone usage by users in Japan, in the quarter.

Transaction Revenues To Grow

While the search and listings ads division contributes 16.7% of Yahoo! Japan’s total value, the online shopping and auction division contributes 14.5%, according to our estimates. We expect total revenues from this division to increase slowly to around ¥74 billion ($690 million), by the end of our forecast period. According to Go-Globe.com, Japan’s business to consumer (B2C) e-commerce sales could grow to $143 billion in 2016. [3]

Yahoo! Japan’s online shopping division continues to lag due to intense competition from incumbents such as Amazon and Rakuten that list more products on their sites. 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. This in turn will increase the transaction value across Yahoo! Japan’s shopping websites. As a result of this new strategy, the company has added over 200,000 store IDs for its shopping portal in the last year, 39, 000 of these were added in Q4. With this increase in store IDs, the number of products listed across its shopping website increased by 68% year over year to nearly 160 million. The transactions value, across shopping, auction and listing divisions, grew to ¥305 billion ($2.55 billion). 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 2021 the transaction value from shopping and auction will grow to ¥402 billion ($3.71 billion) and ¥787 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

According to our model, the search and listings ads division contributes 17% of Yahoo! Japan’s estimated value and display ads division contributes 14%.  We expect total revenues from these divisions to increase slowly to around ¥180 billion ($1.67 billion) by the end of our forecast period. In Q4 FY 2015 (Q3 CY14), Yahoo! Japan announced a number of partnerships with a host of developers for offering their content on its website and mobile platform. Additionally, the company announced its strategic partnership Skyscanner to offer travel search and listing services in July. [4] We expect Yahoo! Japan to share more details for these 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. Once we review the earnings report and associatted materials, however, we will reconsider our position.

At present, we have a $8.29 price estimate for Yahoo! Japan, which is 5% above the current market price.

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Notes:
  1. Investor Meeting, Yahoo!Japan []
  2. 2 Billion Consumers Worldwide to Get Smart(phones) by 2016, December 11 2014 []
  3. E-commerce in Asia – Statistics and Trends, March 11 2014 []
  4. Skyscanner, Yahoo! Japan establish joint venture, July 19 2015, www.japantoday.com []