Rising Smartphone Usage In Japan Will Lift Yahoo! Japan's Mobile Ad Revenues

Yahoo! JAPAN ( YAHOY ) is one of the largest Internet companies in Japan with a diversified product portfolio which includes search, a mobile platform and eCommerce. Mobile internet users constitutes 80% of total mobile subscriber base in Japan. Additionally, smartphone users constitutes 38% of total subscriber base.

Increasing mobile internet usage and high smartphone penetration will augur well for the company and its revenues. Yahoo! Japan has increased its focus on developing content and advertisements for mobile devices and smartphones. The company recently formed alliances with a number of smartphone value-added service providers. Moreover, it has a strong association with Softbank Corp. that has 23% market share in mobile internet subscriber base in Japan. We think that the firm's growth will come from revenue streams directly related to Internet-enabled mobile devices such as smartphones over the next few years as users substitute PCs for mobile devices for much of their content consumption.

See our complete analysis of Yahoo! JAPAN here

Alliances with smartphone service providers to boost the company's presence and revenues

Yahoo! Japan has formed a host of partnerships with mobile internet providers and smartphone service providers. Some of them are:

  • A tie-up with SoftBank Corp which has resulted in quadrupling premium membership acquisitions at SoftBank mobile phone stores.
  • A partnership with Kakao Talk to release a host of services such as Talk plus, Kakao Game, etc.
  • An alliance with GREE to develop entertainment content particularly in the smartphone gaming space.
  • The acquisition of CyberAgent FX, a retail foreign exchange platform focusing on smartphone trading, which will help boost Yahoo Japan's mobile transaction business.
  • A joint venture with convenience store chain operator Lawson to form Smart Kitchen Inc, an online shopping site.

Some of these initiatives have resulted in an increase in daily unique browsers (DUB) for smartphones. DUB has increased from sub 5 million levels in April 2011 to over 15 million in December 2012. According to our estimates, mobile advertising contributes approximately 20% to Yahoo! JAPAN's total value, even though it made up only around 6.5% of advertising revenues in 2012. We think that this division will be the biggest growth driver for Yahoo! JAPAN and estimate that around 15% of total revenues will come from mobile advertising by 2015.

Higher page views, mobile ad spending, and smartphone penetration to drive mobile ad revenues

In our opinion, the primary growth driver in mobile ad revenues will be the increase in the number of page views on Yahoo! JAPAN's mobile ad platform. We think that monthly page views per unique visitor will increase from around 230 to approximately 390, driven by an increase in smartphone penetration in Japan which currently stands at 38%. As this figure increases, more users will access web services via mobile phones - a trend that will benefit Yahoo! Japan.

Another factor that will drive mobile ad revenues is the increase in mobile ad spending. According to research firm eMarketer, mobile ad spending in Japan is expected to double and reach $2.6 billion by 2016. Due to this trend, we expect revenue per 1,000 page views ( RPM ) to increase from approximately JPY 220 in 2012 to around JPY 355 by the end of our forecast period.

Rising smartphone penetration will provide easy access to Yahoo! Japan's content on these devices which in turn will boost the consumption and value of its content. This will help Yahoo! Japan to monetize its content through display advertisements and online shopping. We expect that the introduction of smartphone services will improve the take rate for Yahoo! Japan from 6.4% to 6.7%.

Currently, the online shopping division contributes 17% to Yahoo! Japan's value. The division generated revenues of approximately JPY 60 billion in 2011, and we expect total revenues from this division to increase slowly to around JPY 75 billion by the end of our forecast period. Yahoo!'s eCommerce segment faces stiff competition from another Japanese eCommerce giant Rakuten.

Depreciatingyen to lower dollar denominated valuation

A weak yen has resulted in a lower dollar valuation for the company. A decline in the yen has made Yahoo! JAPAN's earnings less valuable in dollar terms. A further decline in yen may impact its US stock price further. We will continue to follow the currency movements as the Bank of Japan's quantitative easing proposal will increase the supply of Japanese Yen and create downward pressure on the currency.

We currently have a $13 price estimate for Yahoo! JAPAN , which is around 10% below 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 Nasdaq, Inc.

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

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