Yahoo Japan Corporation (

YAHOF.PK

)

F3Q 2011 Earnings Call

January 25, 2012 2:30 AM ET

Executives

Masahiro Inoue – President and CEO

Hidetsugu Tonomura – SVP, Business Service Unit

Manabu Miyasaka – SVP, Smart Consumer Unit

Analysts

Keiichi Yoneshima – Barclays Securities

Takayoshi Koike – Goldman Sachs

Yoshitaka Nagao – Nomura Securities

Masato Araki – Morgan Stanley

Presentation

Interpreter

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Thank you very much for waiting. Now we would like to start the presentation of the Business Results for the Third Quarter of FY2011. In front of you, I think, you have at the time sheet the summary of the consolidated business results and the profit and loss trend list, and also the survey questionnaire. We would welcome your feedback. Now we would like to use the presentation document and Mr. Inoue will present for about 20 minutes and then take questions. Thank you.

Masahiro Inoue

Thank you very much, good afternoon. First of all, the highlights of the financial data. Revenues ¥75 billion – ¥76.5 billion sorry operating income is ¥41.8 billion, ordinary income ¥42.3 billion, quarterly net income ¥25.3 billion. So year-over-year change, as you can see, is 2%, 1.6%, 2.4% and 2.7% increases. As a summary, the advertising and game-related services were strong and the revenue operating income both increased year-on-year and quarter-on-quarter.

Now let’s look at each segment, starting with the media business. The page search advertising or sponsored search has declined year-on-year. This was unfortunate, but as you can see on this page, there have been growing industries, there are flash marketing, there is Internet information services advertising. This industry has decreased at advertising year-on-year and that was one of the major reasons behind the decline.

As for the display advertising, this has grown steadily. Cosmetics, toiletry, real estate and transportation and leisure, those industries are increased substantially. And as for the flash marketing or automobile-related industry has been weaker and discount situation continues, but other strong growing areas have offset the declines of those. As for the topic, the smartphone version of the Brand Panel advertising was started. Now the revenue was ¥28 billion, so slightly down from the year before.

As for the Business Service business, or BS business, the flash marketing companies were the major ones, and it was the advertising agency and distinct advertising in the BS business was not affected, therefore steadily increased. And of course, we have made our efforts to increase our businesses in this segment.

As for the data center-related revenue, IDC Frontier Inc., together with Yahoo!, have been providing cloud computing services and we have been focused on the sale of this service, and this has increased in terms of the revenues.

Information listing revenues, temporarily we saw some decline and has not yet recovered to the past peak level, but gradually recovering, the Rikunabi Real Estate – Rikunabi’s recruitment services and both of them grew. So revenue was 20.3% ¥20.3 billion that is 5.9% year-on-year growth.

Now turning to consumer business, starting with the e-Commerce-related revenues. Mobage and gaming services have been very strong – Mobage and Sengoku IXA. And as for the topic, with the SQUARE ENIX we started MONSTER DRAGON. And we had the holiday season in the third quarter, and the auction has also grown. And especially in the e-Commerce, the smartphone transaction value substantially increased. As for the membership services, the Premium membership IDs total 7.82 million, revenue was ¥28 billion, 1.9% growth over the previous year.

Now, compared with our forecast of three months ago, what were the results? Overall, the revenue down to the net income, we were within the expected range. And as I mentioned in the summary, or highlight, I think that similar explanations are shown here. As for the listing sales or revenue, as I said, the flash marketing sector was weak, so the growth was very limited and that was unfortunate.

And in November, as you know, the system for the paid search advertising distribution was changed from Overture to Google system. And we have completed the transfer successfully to the Google system. But thus in terms of cost, because of this change, there has been some temporary cost increase and also toward the end of the year, we spent more for the sales promotion, including the Yahoo! Points expenses, so this affected our numbers.

Now looking at the fourth quarter and business outlook, the paid search advertising and digital content, we will target the sales growth. And also, as for the expenses, we would try to reduce the sales promotion cost increase and our C&A expenses increases. So, together with all those factors, the revenue range forecast is ¥77.6 billion to ¥82.4 billion; operating income expected range is ¥42.1 billion to ¥45.4 billion; ordinary income, ¥42.6 billion to ¥45.9 billion; net income ¥24.2 billion to ¥26.2 billion, that is our forecast for the fourth quarter.

So based on that fourth quarter business outlook, this shows the business outlook for the full year, in terms of the full year forecast in FY 2011. Revenue-wise, it will be between ¥299.7 billion to ¥304.5 billion. Operating income, ¥163.3 billion to ¥166.6 billion, ordinary income between ¥165.2 billion to ¥168.5 billion, net income within the range of ¥97.1 billion to ¥99.1 billion.

There are some special notes this fiscal term-wise, so we have business tie-up with Credit Saison Company Ltd. using the local information related site, we would like to reinforce O2O. So there will be linkage between the real and the virtual, so that the information in the virtual world can be linked to the real world sales.

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