EUR 850.00 For Business Accounts Only

Morningstar | Mixed Impression of Yahoo Japan's June Quarter Results, Paymt Alliance for Mobile Payment Positive

We have a mixed impression of Yahoo Japan's June quarter results. On the positive side: 1) its paid search advertising revenue increased 13.8% from the previous year, which is the largest growth in the past five years; and 2) the transaction value of its e-commerce business increased 25% from the previous year, exceeding our forecast of 20%. Meanwhile, on the negative side, we are concerned that: 3) excluding the one-time profit of selling shares of IDC Frontier, its organic operating income fell to JPY 40.8 billion from JPY 48.2 billion, owing to the larger investing expense. Overall, we believe the company's June quarter results numbers are in line with our forecasts, and reiterate our view that Yahoo Japan's focus to establish an ecosystem on e-commerce and mobile payment may continue to drag down its profitability in the midterm, even though we expect a steady growth on its ad business. We retain our fair value estimate of JPY 420, as well as our narrow moat rating.

Meanwhile, we consider that Yahoo Japan's strategy to enhance the relationship with SoftBank Group (which currently holds approximately 43% of Yahoo Japan's share capital) is reasonable, as it not only induces SoftBank mobile phone users to Yahoo Japan's premium memberships, but also can cooperate with companies in which SoftBank Group invests through its Vision Fund. In fact, we believe that Yahoo Japan's alliance with Paytm, the largest mobile payment provider in India with more than 300 million users, will accelerate the development of mobile payments, where it has been behind competitors, and help reduce future R&D costs. We consider that Yahoo Japan's past management teams had been reluctant to catch up with new Internet businesses, as the company has already established a strong position in advertising business.  However, we believe that the new management team is trying to accelerate the momentum, which might give us a slight upside on our fair value estimate in the future.