Yahoo! Japan's strategy To Remove Listing Fee Is Not A Bad Idea

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Yahoo! Japan Corporation ( YAHOY ) is aggressively pursuing the Japanese online shopping space for revenue growth. However, one of the key challenges plaguing Yahoo! Japan is its inability to ramp up store and product offerings, and compete with incumbents Amazon and Rakuten. Recently, the company removed listing fees for online retail outlets on its shopping site. The company also announced that the monthly store tenant fee for YAFUOKU!, Japan's largest auction site, will be scrapped. (( Press release Yahoo Japan , October 7 2013)) In addition to these fee revisions, Yahoo! JAPAN also plans to stimulate growth in online buyers by introducing a 'free of charge' campaign for YAFUOKU!, which lets a buyer bid for high-priced items without paying a premium membership fee.

The fee cuts seem to have worked as registrations for new stores surged. The company said that it received around 10,000 applications from outlets and 16,000 from individuals so far. Before the announcement, Yahoo! Japan site had around 20,000 stores that paid an initial fee of ¥21,000 (£134, $215) and a monthly fee of ¥25,000. However, the market reacted negatively to the announcement, and the stock price declined by 44%. We believe that this strategy is a step in the right direction as Yahoo! Japan can now challenge the online shopping industry incumbents and gain market share. In this article, we will discuss Yahoo! Japan's strategy for its online shopping and auction business.

See our complete analysis of Yahoo! JAPAN here

Fee Cuts To Have Marginal Impact On Stock Valuation

While some may argue that Yahoo! Japan's revenues will suffer due to the loss of listing revenue stream, we believe that this move will positively impact the company's revenue in the long term. Based on 20,000 stores listed on Yahoo! Japan, the company generates close to JPY 6 billion per year from store listing. Additionally, according to Trefis estimates, the company generates close to JPY 40 billion from membership fees. Assuming that revenues from these two streams were to decline by 80%, this will only impact our stock price estimate by 5%. You can adjust the following driver to study the impact of lower membership and information listing fee on the Trefs price estimate.

Online Store Revenues Can Improve

According to our estimates, online shopping and auction contributes 15% to Yahoo! Japan's total value. The transaction value at Yahoo! Japan's shopping division has failed to gain traction in recent years. However, with more Japanese purchasing goods online, online shopping can be a key revenue driver for Yahoo! Japan going ahead. According to e-marketer, Japan's business to consumer (B2C) e-commerce sales can grow from $127 billion in 2012 to $144 billion in 2016.

However, 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. In order to compete in this space, Yahoo! Japan needs to add more products and services. The only way Yahoo! Japan can compete is by forging strong partnerships with brick and mortar companies as well as third-party vendors, and encourage them into listing with it. By scraping the listing fee, it has managed to engage these sellers and get them on-board its shopping web portal.

Listed sellers are important for Yahoo! Japan's shopping division because as the listings grow, more users are likely to find and buy products on its site. Currently, Yahoo! Japan's sites have the highest unique visitor count in Japan at 60 million, which accounts for 50% of the total population and 70% of digital buyers in Japan. The company can leverage this user base to grow its online sales, which will also increase transaction value across Yahoo! Japan's websites. Currently, we estimate transaction value from shopping to increase slowly from JPY300 billion in 2012 to JPY 400 billion by the end of our forecast period. However, if the transaction value at the shopping division were to double by the end of our forecast period due to more listings, our stock price estimate would increase by 12%.

We have not made any changes to our model as we await guidance from Yahoo! Japan's management in the upcoming earnings announcement. We currently have a $14 price estimate for Yahoo! Japan, which is around 35% above the current market price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMZN , EBAY , YAHOY , YHOO

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