Yahoo Japan Seen Chasing Smartphone Ad Deals: Real M&A

Yahoo Japan Corp., armed with $4 billion in cash, is putting the nation’s smartphone advertising and online shopping companies on alert as it searches for growth at home.

In the past five years, its sales growth was a third of the average among peers, according to data compiled by Bloomberg, as the operator of Japan’s most-visited Web portal failed to extend its dominance to smartphone services. Japan’s ad sales on those devices are projected to almost triple by 2017.

Yahoo Japan may find a logical target in blogging service CyberAgent Inc. as its smartphone ad sales surge, said Iwai Cosmo Holdings Inc. Buying the rest of Japan Net Bank Ltd. would add online banking services to help catch up with Rakuten Inc. in Internet shopping, said Ichiyoshi Research Institute Inc.

“The future is mobile,” Amir Anvarzadeh, a manager for Japanese equity sales at BGC Partners Inc. in Singapore, said in a phone interview. “If they’re looking to expand into any area within their own realm, it has to be mobile.”

The company this month hired Ryu Hirayama, former vice president of investment banking at Goldman Sachs Group Inc. in Tokyo. He advised on mergers and acquisitions at the bank, according to a person with knowledge of the matter.

Smartphone Advertising

Yahoo Japan rose 1 percent to 51,100 yen in Tokyo trading. CyberAgent added 1.1 percent to 245,500 yen.

Yahoo Japan, whose biggest shareholders are SoftBank Corp. and Yahoo! Inc., is targeting a 77 percent jump in operating profit within six years by expanding in e-commerce and offering more smartphone and tablet-computer services. Ad revenue from those devices made up just 9 percent of sales last quarter.

Acquiring CyberAgent, owner of the Ameba blogging service, and Start Today Co., a $2.3 billion operator of online clothing shops, would help Yahoo Japan attract users, said Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo.

CyberAgent, Japan’s biggest smartphone advertising agency by volume, last quarter generated 60 percent of its revenue from smartphones and services such as gaming that are tied to the devices. It has a market value of $1.6 billion.

Start Today rose 0.8 percent to 2,103 yen.

Yahoo Japan’s “target areas should be somewhere on the smartphone,” said Naoshi Nema, an analyst at Cantor Fitzgerald LP in Hong Kong. “Their online shopping is not as strong as Rakuten’s. They may want to enforce that area because it has very good synergies with smartphones.”

Mobile Supremacy

Selling more goods online drives up Web visitors and swells ad sales. Portal owners such as Yahoo Japan typically take a cut of transactions executed through their sites.

Boosting Yahoo Japan’s 41 percent stake in Japan Net Bank may accelerate online expansion, said Hiroshi Naya, an analyst at Ichiyoshi Research. The Internet bank, Japan’s first, boosted profit more than fourfold last quarter. Sumitomo Mitsui Banking Corp. also owns a 41 percent stake.

Kimihiko Sato, a spokesman for Yahoo Japan, declined to comment. Representatives for Start Today and Japan Net Bank also declined to comment. CyberAgent spokeswoman Sonoko Miyakawa said the company has no plan to sell its advertising business.

Within two years, mobile devices will surpass personal computers as the primary method of accessing Yahoo Japan’s services, the company said in June. Currently, less than a quarter of users tap its shopping services with smartphones.

Yahoo! Takeovers

“Screen sizes on mobiles are getting bigger,” said Anvarzadeh at BGC Partners. “This is super important because that paves the way for PC-type content to finally migrate towards mobile content.”

Japan’s smartphone advertising market will almost triple from 2012 to 221.3 billion yen ($2.2 billion) in 2017, according to CyberZ Inc., a unit of CyberAgent.

Yahoo Japan’s quest for growth mirrors that at Yahoo! Inc., which owns 35 percent of the Tokyo-based company. Led by Chief Executive Officer Marissa Mayer, Sunnyvale, California-based Yahoo agreed to buy blogging platform Tumblr Inc. for $1.1 billion in May. Yahoo Chief Financial Officer Kenneth Goldman sits on Yahoo Japan’s board.

Yahoo Japan is bound by an agreement with Yahoo against doing business outside Japan with the Yahoo brand, spokesman Junji Miyahara said earlier this month.

The addition of Hirayama from Goldman Sachs indicates Yahoo Japan plans to make deals a higher priority, said Justin Weiss, an analyst at JI Asia in Tokyo.

Takeover History

“This new hire suggests they’re becoming even more serious and certainly more systematic,” Weiss said. “Having someone help identify promising targets could be an important step.”

Yahoo Japan, 43 percent-owned by billionaire Masayoshi Son’s SoftBank, didn’t specify Hirayama’s role.

The company has made 13 acquisitions since the beginning of 2012 totaling $671 million, according to data compiled by Bloomberg. The largest was the purchase of a 42 percent stake in office supplier Askul Corp. for $410 million, followed by the acquisition of CyberAgent’s foreign-exchange unit.

Yahoo Japan isn’t under pressure to do more deals, according to Weiss at JI Asia. The company’s ad sales from smartphones almost doubled to 8 billion yen last quarter from a year earlier.

Even so, Yahoo Japan hasn’t expanded at the pace of online competitors.

Its average sales growth in the past five years was 7.3 percent, lower than the 27 percent average among Internet media peers valued at more than $1 billion, data compiled by Bloomberg show. Rakuten’s average was 16 percent while Start Today delivered 30 percent, the data show.

Tokyo-based Rakuten, led by billionaire Hiroshi Mikitani, said it had 29 percent of Japan’s e-commerce market last year, higher than Inc.’s 12 percent and 6.2 percent at Yahoo Japan. Rakuten started as an online shopping mall and expanded into brokerage, insurance and credit card services.

Past acquisitions at Yahoo Japan may not be enough to catch up, said Naya at Ichiyoshi Research Institute.

Yahoo Japan “has only done small deals, not major ones,” Naya said. “The company needs to focus on Japan and make bold moves.”

Before it's here, it's on the Bloomberg Terminal.