Message from President
To Our Shareholders
Launched in 1996 as the first commercial Web site to offer Japanese-language Internet search services, Yahoo! JAPAN celebrated its 20th anniversary in April 2016. At this important juncture, we would like to express our sincere thanks and deepest appreciation to all of our stakeholders for their support to date.
Over the past two decades, Yahoo Japan Corporation (the Company) and its consolidated subsidiaries and affiliates (the Yahoo Japan Group) have tirelessly provided new Internet services tailored to the changing needs of society and, as a result, contributed to the enrichment of users' daily lives. As an example, in response to the recent proliferation of smartphones and concomitant surge in Internet access the Yahoo Japan Group deftly optimized its services for smartphones, thereby boosting Yahoo! JAPAN user numbers, usage times, and access frequency.
In observance of Yahoo! JAPAN's 20-year operational milestone, the entire Yahoo Japan Group hereby reaffirms its commitment to ensuring that Yahoo! JAPAN remain the Japanese Internet market's problem-solving engine. Leveraging information technology to solve the problems facing Japanese society has facilitated the creation of new services, which in turn have helped to fuel the Yahoo Japan Group's business growth to date. We believe that our success over the past 20 years is largely the result of unceasing innovation. Over the next 20 years, we will strive not only to solve contemporary problems but also to inspire hope for a better Japanese society moving forward. With that in mind, we have formulated UPDATE JAPAN as our new guiding vision.
While pursuing continuous innovation in our core businesses, which function as current revenue pillars, we will carry out forward-looking investments in our shopping and credit card businesses, which we view as core revenue drivers. In addition, we will collect and analyze the vast amounts of data gleaned during the course of providing Yahoo! JAPAN services with the expectation that in doing so we will be able to provide improved services to users and further expand revenue. Committed to ensuring Yahoo! JAPAN's future evolution, the Yahoo Japan Group looks to the next 20 years with confident determination and hope in a better future for all.
Review of Fiscal 2015 Results
Fiscal 2015, the year ended March 31, 2016, marked the Yahoo Japan Group's 19th consecutive year of record-high revenue and profit since the commencement of operations. Consolidated revenue jumped 52.2% year on year, to ¥652.3 billion; consolidated operating income climbed 14.1%, to ¥224.9 billion; consolidated profit before tax was up 8.8%, to ¥226.5 billion; and consolidated profit for the year attributable to owners of the parent rose 29.0%, to ¥171.6 billion.
The robust year-on-year growth in consolidated revenue primarily reflected the consolidation of ASKUL Corporation in August 2015 and a strong performance by our advertising-related business. The gain from remeasurement relating to business combinations stemming from the consolidation of ASKUL, moreover, was largely responsible for the upturn in consolidated profits, despite significant expenditures on applications usage promotion, aggressive sales promotion activities aimed at accelerating growth of the shopping and credit card businesses, and investments in infrastructure technology development.
Successful campaigns targeting Yahoo! Premium members supported rapidly accelerating growth in Yahoo! Shopping's transaction value, which in turn contributed to higher total domestic e-commerce related transaction value in fiscal 2015. The number of valid credit card holders and the transaction value of consolidated subsidiary YJ Card Corporation (formerly KC Co., Ltd.) recorded explosive growth, owing largely to the launch of Yahoo! JAPAN Card at the start of the period. The total number of monthly paid membership IDs, including those of Yahoo! Premium members, Yahoo! BB subscribers, and others, stood at 16.73 million at March 31, 2016, up from 15.46 million at the previous fiscal year-end.
Overview of the Advertising-related Business
Fiscal 2015 advertising-related revenue was up 6.8%, to ¥266.9 billion.
Our May 2015 introduction of a new scrolling timeline design on the top page of the Yahoo! JAPAN smartphone version proved to be the period's most significant development in the advertising-related business. In addition to offering greater convenience in viewing contents on small-screen smartphones, the scrolling timeline design facilitates distribution not only of personalized contents matched to the interests of specific users but also of new in-feed type advertising such as Yahoo! Display Ad Network (YDN). With YDN driving advertising revenue growth during the period, we believe that we are closing in on a potential solution to the long-standing problem of monetizing display advertising on small-screen smartphones. Fiscal 2015 smartphone-based advertising revenue was strong, accounting for more than 40% of total advertising revenue for the period. Because the bulk of smartphone-based advertising revenue is still generated by traffic on browser-based services, we are now focused on encouraging a usage shift to applications, particularly as applications-based services tend to engage and retain users for longer time periods than do browser-based services. Of the more than 100 applications currently offered by the Yahoo Japan Group, we are planning to eliminate those which no longer meet the needs of current user lifestyles and consolidate the others into several flagship applications, each capable of attracting a critical mass of users. The leading portal site on the Japanese-language Internet, Yahoo! JAPAN aims to be No. 1 in applications, as well.
Overview of the e-Commerce Related Business
The Yahoo Japan Group's total domestic e-commerce related transaction value in fiscal 2015 rose 26.5% year on year, to ¥1.5 trillion.
Ever since eliminating monthly store tenant fees and transaction-based system-use fees in October 2013, Yahoo! Shopping has attracted a steadily rising number of sellers offering an ever-expanding range of item listings as well as improved service quality. Today, Yahoo! Shopping is Japan's No. 1 site in terms of the number of items listed for sale1. Recent sales promotion campaigns have succeeded in boosting the conversion rate from site views. As a result, the transaction value of Yahoo! Shopping, which includes ASKUL-operated LOHACO transaction value, in the fourth quarter of fiscal 2015 increased 61.8% year on year, to ¥112.8 billion, far outpacing the overall market growth rate. Shopping-related advertising revenue in the fourth quarter of 2015, meanwhile, increased 2.3 times year on year, to ¥2.6 billion. By continuing to focus on highly cost-effective sales promotion activities, we expect to achieve further gains in shopping-related transaction value in fiscal 2016.
In our YAHUOKU! auction business, we waived the fee previously paid by buyers making auction payments via Yahoo! ezPay in an effort to stimulate buying activity. To compensate for the lost revenue resulting from this move, we implemented an upward revision to the system-usage fee paid by individual sellers on YAHUOKU! In addition, we debuted Yahuneko! Pack, an economical shipping service offered in collaboration with Yamato Transport Co., Ltd.
The Japanese market for used goods is currently about ¥1.5 trillion2 annually, and the combined market for non-brokered real estate sold directly by owners, used cars, and potential used goods is estimated to be ¥11 trillion3 annually. Leveraging its unassailable dominance of the e-commerce related market in Japan, Yahoo! JAPAN is intent on exploiting this vast potential market for used goods as Japan increasingly moves toward becoming a recycling-oriented society in which a growing number of persons choose to independently buy and sell on the Internet.
1. Study conducted by Yahoo Japan Corporation (As of March 31, 2016)
2. Second-Hand Business Data Book 2015 (Reuse Business Journal)
3. FY2009 Survey on the State of Distribution & Disposal of Electric, Electronic and Other Equipment (Ministry of the Environment, March 2010);
Scale estimated by Yahoo Japan Corporation with reference to New Growth Strategy (National Policy Unit, Cabinet Secretariat, June 18, 2010)
Overview of Financial and Payment-related Services
Significant forward-looking investments made in fiscal 2014 in banking and credit card businesses, including a stake increase in The Japan Net Bank, Limited, and the consolidation of YJ Card Corporation, have prepared the ground for strong growth in financial and payment-related services, the Yahoo Japan Group's third business pillar after advertising and domestic e-commerce. Currently, the usage ratio of Yahoo! Wallet, our safe and secure payment platform for Yahoo! JAPAN ID holders, is approximately 50% of the Yahoo Japan Group's total domestic e-commerce transaction value, implying further growth moving forward. By continuing to offer generous loyalty reward point systems and other attractive incentives, we intend to generate user interest in an increasing range of Yahoo Japan Group services.
UPDATE JAPAN: The Next 20 Years
In the space of just two decades, advances in information and communications technology and the rapid proliferation of Internet access have profoundly transformed people's lives. The sheer convenience and relative ease of daily life today is such that many people in Japan prefer to envision their lives 20 years into the future as being essentially unchanged from today. In a very real sense, envisioning a future that differs little from the present is tantamount to foreswearing all hope for progressive change and a brighter future for all. For our part, we prefer to envision a Japanese society that enthusiastically embraces the transformative potential of information technology and remains ever hopeful of better things to come. In that spirit, we have formulated UPDATE JAPAN as our guiding vision for taking on the next 20 years.
Currently, the Yahoo Japan Group is developing advertising-related services, e-commerce related services, and financial and payment-related services as its three business pillars. While striving to achieve continuous innovation in existing businesses, we also recognize the importance of broadening our corporate perspective. In order to leverage the power of the Internet and make a meaningful contribution to Japanese society in the coming years, the Yahoo Japan Group itself must first evolve. Today, 20 years after its inaugural launch, Yahoo! JAPAN retains its overwhelmingly dominant position in the Japanese Internet market and continues to achieve record-breaking business results. We must not, however, rest on our laurels and slip into complacency. Instead, each and every Yahoo Japan Group corporate officer and employee must consciously commit to rising to the challenge of creating new value and eschew resigned acceptance of the status quo. For management's part, we will strive to unleash the specific talents and passions of each and every employee and guide their individual efforts toward the realization of worthwhile collective goals.
In order to make further progress in technologically advanced fields and realize ever-higher levels of innovation, it is essential that we possess outstanding technological capabilities suited to the challenges ahead. To that end, the Yahoo Japan Group opened a new technology development facility in California's Silicon Valley in March 2016. Yahoo! JAPAN's massive volume of user traffic is one of its major assets. Having provided over the past 20 years an expansive array of services, including search, news, e-commerce, and many others, Yahoo! JAPAN has accumulated an enormous amount of information. By leveraging newly refined technologies, the Yahoo Japan Group intends to exploit the potential value of its huge data trove in an effort to update Japanese society with a renewed sense of hope for a brighter future.
A principled, proactive management stance that prioritizes good corporate governance is essential to enhancing the Company's corporate value over the medium to long term.
Japan's new corporate governance code, which took effect on June 1, 2015, establishes fundamental principles of good corporate governance, including transparent, fair, timely, and decisive decision-making as well as proactive management. Given that timely and decisive decision-making is a key governance principle among companies in the Internet industry, management believes that the Yahoo Japan Group's basic stance on corporate governance is in broad alignment with that outlined in the new corporate governance code. Bearing in mind the intent of the new code, we concluded that an organizational structure based on an audit and supervisory committee was most appropriate for the Company, and on June 18, 2015, we formally adopted said organizational structure. In further compliance with the new corporate governance code, we also appointed two outside directors in order to ensure independent perspectives and to enhance transparent and fair decision-making. In addition, we have clearly separated the monitoring function of the Board of Directors from the business execution function of corporate officers, in addition to granting the Board of Directors an additional role as a discussion forum for the Company's medium- to long-term business trajectory. Moreover, by delegating broad authority to corporate officers we have reinforced the Company's proactive management stance. The Board of Directors comprises eight members, three of whom are concurrently members of the Audit and Supervisory Committee.
In a further effort to sustainably enhance corporate value over the medium to long term, the Company will maintain significant forward-looking investments in services, facilities, and capital alliances, all with an eye to future growth. As a publicly listed company, Yahoo Japan Corporation also intends to fulfill its obligation to return profits to shareholders on an ongoing basis. Accordingly, management has resolved to pay a fiscal 2015 year-end cash dividend of ¥8.86 per share, unchanged from the previous period, resulting in a total cash dividend payout of ¥50.4 billion for fiscal 2015. The fiscal 2016 year-end cash dividend per share is in turn also expected to remain unchanged from fiscal 2015.
Yahoo! JAPAN's first two decades reveal a history of transformation and continuous striving to create something new. With UPDATE JAPAN as our guiding vision, we will build upon our history of transformation and creation as we work to achieve another 20 years of continuous growth for the Yahoo Japan Group. Once again, we respectfully request your continued understanding and support.
President and CEO
Yahoo Japan Corporation
June 22, 2016