Yahoo Japan (4689): The Road to a Brighter Future

Born in the PC era in 1996, Yahoo Japan (YJ) was quick to initiate a ‘’Smartphone First’’ policy in FY12 against the backdrop of the disruption presented by the arrival of smartphones. Back in FY12, over 60% of the company’s revenues were derived from the advertising business, of which about two-thirds were generated by paid search advertising sales. Such heavy reliance on paid search advertising in particular and in advertising in general proved detrimental in the smartphone era, where click-through rates dropped, due to the smaller screens of smartphones. YJ therefore saw the need for a more balanced business portfolio, in which advertising business would play a less crucial role. In FY13, it announced a new e-commerce strategy whereby almost all the fees it charged were eliminated, to entice more customers and merchants to its virtual shopping mall and auction site in order to increase its advertising income from online shopping and its system-use fee from the auction site.  
Positive results have started to show following the implementation of the two above-mentioned strategies. In this report, we examine the current status of each of YJ’s business segments and discuss the company’s growth prospects. Upon request, we also provide a complimentary presentation which illustrates YJ’s business strategies and prospects. 

Key Points 

• The Marketing Solution Business should benefit from a slowdown in paid search ad revenue decline and an ongoing expansion of display ad sales  
• The Consumer Business has started to see the new e-commerce strategy come to fruition  
• The settlement business should continue to grow thanks to synergies with the e-commerce business  
• While projected top line growth in FY17-18 is moderate, profitability should improve owing to reduced promotion expenses and economies of scale  
• Valuations are undemanding; FY17 EV/OPe is 9.8x – some 10% discount to the sector