Yahoo Japan's CEO Discusses F3Q2013 Results - Earnings Call Transcript

| About: Yahoo Japan (YAHOF)

Yahoo Japan Corp. (OTCPK:YAHOF) F3Q2013 Results Earnings Call January 30, 2013 2:30 AM ET

Executives

Manabu Miyasaka - SVP, Smart Consumer Unit

Masatsugu Shidachi – Manager, Marketing Solution Company

Analysts

Yoshitaka Nagao - Nomura Securities

Yoneshima - Barclays Securities

Takayoshi Koike - Goldman Sachs

Taro Ishihara - Daiwa Securities

Yosuke Tomimatsu - Merrill Lynch

Shinsuke Iwasa - Mizuho Securities

Manabu Miyasaka

I’m Miyasaka. I would like to give you the presentation on the Third Quarter Business Results. We have changed the style of presentation. I will give the presentation at the outset and then afterward, from the head of each solution company, we will provide the highlights on that particular quarter's business.

Let me give you the financial highlights. Revenue, operating income, ordinary income and quarterly net income, all those four items we were able to register double-digit growth. This has been the numbers we were able to register after four and half years.

Let me give you the outline. In terms of the growth of the revenue listing advertisement wise, in the same quarter of the previous year we replaced the system and so the number actually declined during that time.

However, having said that, because of that situation a year ago quarter-on-quarter basis we were able to see a year-on-year growth. But even putting that aside all the employees put their very best effort and we were able to register double-digit growth for all these items.

And this is the quarterly revenue growth. We replace the system in the previous year and we are registering very high revenue number. What is our growth trend? We registered very high growth as compared to the Lehman shock era we were able to register double-digit growth for the first time.

If you compare the previous year with current year, you had the number for the previous year on the left hand and one for this year on the right hand, we grew by 15.8% registering to 1 billion yen and Marketing Solutions business rose 21% and consumer business 9.1% and other business was we registered 17.3%.

Now let’s take a look at advertisement related revenue, this is the breakdown. As compared to the previous year we were able to register growth of 15.2%, and in absolute figure it was 6.3 billion yen, and promotion advertising revenue grew by 24%.

I’ll repeat myself, but in the previous year we replace the system and so we did not aggressively conduct sales activities. And in terms of our any inherent capability we believe that we are in part with the second quarter.

And so in terms of the growth of 24% we should not be too optimistic, but try to continue putting our very best effort, of course some issues regarding premium or display advertisement and revenue was it was minus 2.8%, so we underperform as compared to the previous, there are different reasons. And in particular October we were very weak and we were able to recorporate in November and December.

And in terms of the sales force, in terms of December we were slow in taking actions and so in fourth wise, we were not want to repeat the same mistake and try to continue conducting sales activities aggressively.

And we plan Rich Ad and we should have taken this measure earlier and I will talk about different details of our Rich Ad later. But in terms of display it underperformed as compared to the previous year and this was the bigger in the negative that was part with the period right after the earthquake. And in terms of advertisement related revenue by mobile phone it was 4.3 billion yen and we grew the smartphone advertisement from 4.6% to 13.2%.

This is the advertisement related revenue year-on-year growth trend. As you can see, in the promotion advertisement is growing very rapidly and in terms of the premium advertisement it went below the previous year figure.

Now, what is the contributor in the promotion advertisement revenue? So we believe that all the segments contributed.

Now how about the premium advertisement revenue? What were the pros and cons? What are the good points? The government and organization very good because of the contribution being made by the election, we had the year end election and in Japan the internet is use for the election and slowly, and we believe that it contributed to our growth.

Now, in terms of e-commerce transaction value, we were able to register 6.7 billion and we have a new big sales day and other different campaigns that we have launched. And in terms of Shopping and smartphone ratio it increased, so it went more than 20% regarding the Auction and Shopping related transaction through the smartphone. And this shows the quarterly profit and this shows the actual operating income year-on-year growth and we were able to register a very high number.

Now, in terms of full year 2012, we may revision to the business outlook based on and the result of Q3 and this is the revised number and so please take a look at these numbers at your leisure. And this in comparison with the prior fiscal year and this is Q4 business outlook. Now please look at the numbers later.

Let’s talk about cash dividend in FY 2012, forecast for the cash dividend per stock we plan to have the cash dividend of 382 yen to 387 yen, which is 10.1% to 11.5% year-on-year. And in terms of the company’s target it is approximately 20% of the consolidated net income.

And we have the stock options exerciseable when profit target is reached. And by March of 201X we are holding and objective to double the operating income and this is the companywide ever and this is very high goal.

But we believe that the more effort you put and more contribution you make, you should try to be able to get the benefits out that and because of that, I know we came up with scheme of stock option exerciseable when profit target is reached. The operating income must be double in order to get the right to exercise this option.

In terms of our share buyback we have the plan to acquire maximum 20 billion yen and we plan to cancel all the shares that have being purchased, aiming at 201X March, the timing which we want to double the operating income we will put different measures to realize this.

By the year 201X, we don’t know what will be the landscape of the internet. But in terms of short-term, we plan to focus on these three domains to reach the double operating income. The first pillar is page search advertisement, second being internet page advertisement and the third being Yahoo! Premium.

From this page I would like to about the strategy, three strategies that you accelerate the profit growth. I would like to mention each one of them. The only one strategy is to enhance our own services Yahoo itself would like to be a provider of the best services. It should be not be number two and three, if we cannot do something, we should work with the partners or competitors, so that we can only provide the best service that is our only one strategy.

Now the strong tag team means that we started with the internet but aside from the internet, there are other partners that we work with, so that we can create the new businesses. So this is like collection of the new businesses.

Number three, is the Yahoo! Premium membership fee, this has not really become the business and I would like to also go into that and explore the frontier to enter into the new business areas.

Now let me talk about the only one strategy first. This is top 20 service daily unique browsers. Now those are the top 20 services. So each bar, there are some changes, from the second from the right is growing and it has going to come down slight. In June there was a poor weather and because of the poor weather, the access was very high in June. So we have being growing in those top 20 services.

More specifically, what measures have take -- have we taken, I’d like to give you some highlight. In the Advertising business, now we changed the product category, the category names, the Listing Advertising is now Promotion Advertising and Display Advertising is now Premium Advertising. So it’s not just changing names the content have also changed.

For the Promotion Advertising in the past we call this interest-based or interest match and this is now called Yahoo! Display Ad Network. And we have being trying to improve the interest match or IM and the performance have improved.

So the text based performance has improved. So if we use the image and video, the effectiveness of the advertiser will improve, so based on that we start the image and video distribution in addition to text. And also the when we said listing, it was, the image of the text was very strong, so we decided to change the name to Yahoo! Japan Display Ad Network.

As for the Premium Advertising, we use to call this display or banner ad, but we wanted to let the users recognize those text. We wanted to evolve this advertising. So we like to use for Rich Ads, so that’s we wanted to use the name Premium Advertising to make the more memorial ad. We started this in January, and Mouse Over Expand and Top Impact, those are the new products that we have. So as you can see the recognition rate and derivation rate are quite high.

I mentioned premium, which was flat and by the creating the new services we get a lot of reaction from the clients. So we need evolve the products all the time so that we would like to work further on the Premium Advertising.

Now moving to e-commerce. Now here we have exclusive Bargain Day campaign. This is new campaign we started and we have had point campaign, so that we can give additional points, so that we can increase the transactional value.

But this year we also made sure that we can generate the profit. So this is more efficient way of giving points. So we call this explosive Bargain Day and we’d like to have this type of event periodically.

That’s for the Auction and Shopping, as per Auction the December transaction value was quite high. And as I reported to you previously, the registration of the users was very easy but in order to prevent fraud it became more difficult to participant into Auctions.

But if you want to sell, if you want to buy, we want to make it possible so that people can participate into Auction easily. So through those efforts we have more new users and when we have a more items into Auctions there will be more buyers and this is the good beginning of the virtual cycle, so we would like to make it possible so that anyone can make a bid.

Now, in relation -- in related to Auction, Fukuoka Yahoo! Japan Dome, which is the home ground for the SoftBank Hawks, now we will change the name of this Dome to Fukuoka Yahoo! Hawk Dome and Yahoo! Fukuoka Auction is world recognize.

So why do we need to do this? Maybe we should just provide the new services that there has been that kind reaction, but we use is something that we like to let everyone to enjoy so that you, well, you don’t have to have everything be use, but if you have a one-item out of 10 to -- for the reused that very good.

So we would like to take advantage of this Dome stadium, so that we can let everybody share the joy of the reuse. So in that sense, the key word here is at the bottom, let everyone share the joy of the reuse via Yahoo! Auction.

More specifically in Fukuoka, the people in Fukuoka can now participate into Auction free of charge to bring their items. It’s not all the time. But if you bring something to the stadium, there will be able to have the Auction for their own item.

So by utilizing the Yahoo! Hawk Dome we would like for example have free market event. So, once again, we would like to let everyone share the joy of the reuse and as a result of this, we hope that our market share would increase. So this is one of the effort that we would like make to solve one of our challenges.

Now the new recruiting service, this is a Qlear Career change which was started. Until now, well, different from the other services is that, for example, you can directly send questions to the person in charge of HR. So we would make sure that there was mismatch between the employer and employees. So this is a new recruiting service. So, up till now I talked about the major important efforts that we are making.

In addition, we have some other efforts that we are making through the alliances. First, into finance, CyberAgent FX is now 100% so now we are in the financial services industry.

So now we are not providing the IT services for the financial institutions but we would like to provide financial services and we are currently working on the concept of the services. Now FX for example using the smartphone IT very easy to trade and FX I think has a close affinity to smartphone, so we’d like to start with FX.

Next is the gaming area, until now, over the PC, we provided the services, but this is a smartphone gaming that we would like to provide to the Yahoo customer. So from the 8th of November with Gree, we launched the tie-up gaming services. So this is -- Gree has become the first partner in the smartphone gaming area and we have been approaching other gaming companies.

There is, so Yahoo would introduce this to our users and Gree will create the high quality games, so that our users can enjoy the Gree games. So we would like to also have the core development of the social games and also we would like to work on the investment into digital movie content, so this is currently being discussed.

Another effort being made in the gaming area is the alliance with the DeNA. We have only had the PC gaming, but we would like to also go into the smartphone gaming, so this is one example.

Now the corporation with the DeNA, for example, is the Yahoo! Mobage, we have been working with DeNA and now the user count number exceeded to 10 million by the end of the year. So in the area of the PC gaming I think we are already a number one.

Now next is the advertising, the Mediamind, this is U.S.-based very powerful distribution -- distributor of the advertising. And we wanted to have, this has, company has Rich Ad technology and we have already started providing services.

If you look at the top page of the GyaO, you will be able see this. Now the as for the Rich creative, we wanted -- we did the live testing Yahoo! Comic. This is a comic book, Uchuu Kyoudai and for that we actually distributed the ad, so we check the performance compared with the original normal banner. The reaction was 2.2 times better and it’s not just a click Windows, users who click, go to the link and the conversation rate is quite high in the sense. So it’s for the branding this is very effective and also the number of the click was higher and also the conversation could be higher.

Maybe you are seeing is more telling then me talking so please take a look at this. This is a top page of GyaO. So page and content are united and integrated like this and you can click and expand.

So you can enjoy into active manipulation over the advertisement of the sponsors. So this is expression that has not been leverage in the past and so we would like to further pursue the potential of the premium advertisement.

I have another announcement to make. We made Carview our subsidiary company and we want to provide smart car life. Automobiles will be deemed as smartphones with wheels.

Having said that, we want to link the internet and automobiles, and that it is quite exciting and to try different endeavors in this domain. And so we want to be and continue maintaining the position of number one in the area of automobiles.

Now let’s talk about the powerful tag team, the alliance that we have with not internet companies. So first one is related to SoftBank. At the storefront we collaborated to acquire premium members, Yahoo Japan was the only site that we tried to capture premium members but now we jointly work with the store brand of SoftBank Cellphone Stores.

And on the 21st of September, iPhone 5 was launched and many people visited SoftBank stores. And before opening this channel, we only had few people coming into the premium membership but that grew by four-fold.

And this shows the growth rate and maybe you might be very surprised to see such a growth. And in December, where we started to capture the premium members at the store brand, you see a dramatic growth as indicated over here.

Now, let me explain to you about the effective customer leads platform. As though they are different online to offline marketing and if you come to the online site and have the coupon, then you can go offline and use that coupon and conduct your shopping. And we have been conducting this with SoftBank Telecom. And in terms of these companies, we have collaborated to conduct O2O business.

Now, let me explain to you about the endeavor with Askul. As we opened the Lohaco in November and we use the different device and now we are on PC. So in three domains, we are conducting our Lohaco Services. And in terms of Lohaco, we started on November 11, and this is the daily product that we handle. But with Lawson, we try to focus on the perishables and we will be providing food and we will have about 23,000 items and as of February 1st, we can have a periodic delivery of these products to the subscribers of this service.

Now, let me explain to you about the smartphone group initiatives. In terms of DUB, you’re seeing continuous steady growth. In terms of the cumulative application download as a group, we have about more than 65 million and the growth rate is being accelerated.

In particular, Decopic which is the application for the photograph, we totaled the cumulative downloads of 12 million and we have alliance with Kakao Japan and this has already been launched. And You’ve seen the commercial at the outset and we are trying to promote at Kakao Japan.

More specifically five people can talk at the same time and there is a campaign for the lottery and also you can use the application such as Talk Plus. So we are trying to launch those services to provide good services. So I quickly went through the third quarter measures that we have taken. And this is a summary of our gross strategies and progress.

This we believe is easier for you to understand so we have been engaged in all of those activities. So I have just given you the overview of the business and now we have Mr. Shidachi to talk about the advertising business.

So next, Mr. Shidachi of our Marketing Solutions Company will present the Yahoo! Display Ad Network.

Shidachi Masatsugu

I’m Shidachi of Marketing Solutions Company. I will like to give you the explanation about YDN, which stands for Display Ad Network of Yahoo! And we have interest of matching in the past and now it is referred to as Yahoo! Display Ad Network as Yahoo! Matching rather, excuse me.

And in terms of the listing has been renamed to promotion advertisement and in terms of sponsor research, we still have it as the paid search. And in terms of interest matching and the function will be inherited and we have Yahoo! Display Ad Network. So that’s the new naming for interest matching. And now let me explain to you about the content of what this YDN is all about.

Last year, we conducted a preparation for YDN in August, we have a new matching platform and in October, we have the announcement for Criteo. And in the previous quarter, we started distributing out the images and as a result, what did we find.

This compares the three quarters of the previous year and this fiscal year and in terms of revenue per impression, it grew by 1.3% or rather 1.3 times. And interest on that and promotion, advertisement performance increased therefore revenue per impression increased by 1.3 times. Now, in terms of the revenue, year-on-year, it increased by 1.6 fold.

What are the technologies being used in YDN. We have interest match and we have audience targeting and we have by device distribution and all these function have been developed by Yahoo! Japan and other than that we have external parties such as Criteo and BrightTag, and their technologies are being leveraged so that YDN can be further promoted.

I will like to explain to you about the growth strategies. They are two important components, one being data and another being reach. First let’s talk about data. I believe that there are three data types. First type is data held by Yahoo! Japan and another one is data being held by advertising network partners and the third one is the data being held by the advertisers.

And we should try to aggressively utilize these data types so that we can provide pertinent advertisement to the internet users. And this metric shows that. In the past, we used Yahoo! Japan’s data but from now onward we would like to be more aggressive. We have searched data and we had quick look related data and also we had EC site at purchasing data and they are of different behavior related data that we can capture by the internet.

And we would like to utilize those data pieces to further improve the performance of YDN and also we want to use the data of advertising network partners. They can gather information by using our net. And we want to further leverage on that as well. And also advertisers have their own set of data and we will use those data sets so that we can improve the accuracy of the information and that is being provided to the users.

And especially in terms of the data that we have, we have EC, ecommerce and we have a search data and we have different behavior data of services and we are incomparable amongst the competitors in the world. So we want to maximize the data that we have.

Also that we will be able to do superb activities as compared to competitors. So those are specific measures now that we are working on in the area of data. So first of all, we’re trying to enhance aggressively utilize the data utilization we have out there. A lot of our search data so we would start these search targeting advertising in summer by utilizing those data.

The second example is that we would enhance utilization of the data held by the advertising network partners and also the third area is to retargeting. For example in cooperation with the Criteo, we would enhance our partnership with them and for the small-sized advertisers, which is outside the focus of the Criterio, we would also start to provide the retargeting ad. This is going to be something that we would develop on our plan and we plan to launch this in the spring this year. And also in area of the tag management, we would continue to enhance the tag management tools.

Next is about the reach, using the multi devices, we are expanding our services. So I’d like to expand the reach capability of our media network. Now, concerning reach, now the devices are becoming more diverse, so as I -- Yahoo! itself end up advertisers we can both see some growth.

And as for the smartphones for example, our partners, advertising network partners, last year saw the increase of the traffic but it was still in the process of evolution. So by enhancing the monetization, we will be able to improve the business and also for the advertising network partners, there are some partners who are unable to utilize, take advantage of the tablets and others.

So we would like to make sure that we can take advantage of those opportunities to monetize possibilities or the potentials. As for the specific measures to expand at the reach as we did in the past, we have our own Yahoo! Japan’s media power and we’ve continued to do so and also we would try to obtain the high quality partners in the area of the smartphones.

And we would also like to work with the partners who has a very effective channels and towards the spring we are trying to enhance our partnership with the high quality partners. And also we would provide support for the advertisers so that they can optimize the website. So we would like to package that to our offering and that is something that we would like to provide in the spring.

That is the support for that adverstisers in optimization over the website. So there are two major changes that we see in the future. Previously, we were more conservative than other internet companies tried something to do and we tried to follow up on the efforts. I think that is what we did at the Yahoo! Japan advertising business.

So in the future, we would be more aggressively introducing the latest technology so that we can be the front runner. And at the same time, we have so far focused on the technologies developed internally.

And from now on, in addition to the internal development, we would like to also work closely with the third parties. Now to enhance the partnership alliances, first we would work with the Criterio in the area of personalized retargeting ads. Also with BrighTag, this is the tag solution for the advertisers.

So together with the BrighTag we would like to provide search solution so that we can offer easy to handle tag management system for the effective measurement of the listing ads. So I briefly gave you the presentation on the two wheels that we would like to utilize that is the R&D at ultimate speedings internally as far as to strengthen the business making alliances and with that, I’d like to end my presentation on the Yahoo! Japan Display Ad Network YDN.

Question-and-Answer Session

Operator

(Operator Instructions) That person sitting at the front.

Yoshitaka Nagao - Nomura Securities

Thank you very much for your presentation. I’m Nagao of Nomura Securities. I have your questions. Firstly, you have the listing advertisement and you have a different promotion capability and it is growing very well. But in terms of display, after January you have YDN and I'm sure that there are different enquiries from the customers.

And you've conducted different experiments and 1.4 times increase in the impression revenue and 1.6 time-fold revenue increase. And do you think in the actual world you will be able to recreate the situation that you have experienced in the experiment? And the second question.

Unidentified Speaker

Okay. Let's go one at a time.

Yoshitaka Nagao - Nomura Securities

Okay.

Unidentified Speaker

In terms of premium advertisement, we launched the reach ad in January in full-fledged manner and in terms of the brand panel, there are different enquiries and we are taking orders and it is quite robust in terms of the business. In October, it was weak and in November and December, we did on par as far compared to the previous year.

And in terms of January, because of the impact of new YDN, we are on par, we are after doing the previous years of January and we believe that we will follow that trend and in terms of January to March, we will be able to do on par with previous years same quarter or how to do that number. Thank you.

Yoshitaka Nagao - Nomura Securities

Going to the second question, you have ecommerce and it is quite weak still. And what is your strategy for the fourth quarter?

Unidentified Speaker

In terms of the auction as mentioned before, we have new buyers and new sellers. And we want to increase that and we started doing that as last four and we will try to have new buyers and sellers coming into the net. And I think that will invigorate the market even there might be quite time consuming. We have the reuse of promotion and there are only limited number of people who go for reuse.

There is auction is the way to go and that is the way that we won’t to promote more people to take part in our business. We have Lohaco and it’s very difficult to come up with any measures that will be a winning card so to speak, so easy to search and distribution and logistics, settlement and number of assortments. Those are the areas that we will put effort in.

And in terms of the assortment, it’s about the same as other competitors. So we want to improve the usability of the EC side. So this is not a fabulous measure so to speak. But we would like to put day-to-day effort.

Yoshitaka Nagao - Nomura Securities

One last question, maybe this is a conceptual question. About the performance, Criteo is added and now you are much stronger and how do you measure the advertising effect -- effect of advertising. Now you’re working with the right attack. So creative I think is something that you have been missing and which is going to be more important. So what is the strategy on the Criteo. What is the part? Is there a potential partnership because you comment on the creative side?

Unidentified Speaker

As I showed you earlier, as a format of advertising, I think we are now -- we have a leeway to work under creative so internet, creation of the internet ad, we have to have –foster the creatives. So there are two things, Yahoo! Japan, we have created by what and we have just finished once. So we would like to have that more actively and Yahoo! Japan itself I think is the biggest ad advertiser. So we also provide advertising to other company. So we can be our own guinea pig.

So how can we create leading edgy creative on our own. So as a first party that internet advertising creative, we try to pursue the new potentials. We have to prove that to other clients. So we can do it on our own to force (inaudible) creative, okay. I’d like to now move on to the second person.

Yoneshima - Barclays Securities

Yoneshima from Barclays Securities. First question is about advertising, page seven, you have revenue graph on the advertising so ValueCommerce is not including that one point of clarification and the third quarter advertising trend was very good. And the previously the second quarter meeting I think that your tone was quite different, so two, the second quarter was quite tough, but this time was very good. So for example you mentioned election, is it because of the very temporary factors or is it because of the promotion advertising? Is it as a result of the organic growth? Could you elaborate on that? That’s the first point I would like to ask.

Unidentified Speaker

Yeah, about the ValueCommerce, ValueCommerce is not included in the revenue of advertising. If you differentiate the special factor from the organic, the promotion advertising is more product and the sales activities.

As a result, we have better numbers and also the smartphone advertising revenue which rose. So those were effective. And as for the premium advertising, yeah, the election was one special factor and yen 230 million to yen 300 million was the effect of the election.

Yoneshima - Barclays Securities

I see. The second point is about your forecast. You revised your forecast and if you calculate this or if you make a deduction from the third quarter to fourth quarter, the increase of (inaudible) revenue and the increased profit. The increased revenue is due to the Cyber FX -- CyberAgent FX and so forth.

As for the lower profit from the Q3 to Q4, is it because of the fact that you had profit which was high in the third quarter or in Kakao Japan, you have been selling a lot of Kakao Japan commercials. So, is this because of the higher cost, the lower profit forecast.

Unidentified Speaker

Well, as you said the operating income per year or the full year is something that we are focused on, so double digit growth is one of our targets. So we came up with this third quarter number as a cumulative number. So as a result of the good number in the third quarter in comparison, the fourth quarter looks lower. But the reason behind the lower profit is e-commerce, is usually good in the third quarter.

Option and shopping come down in the fourth quarter and also recruiting services. The partnerships we recruit was dissolved. So this is almost yen 1 billion profit decline. In other words in terms of the advertisement between Q3 and Q4 you will see a better number in Q4. And I think that is the historical reality and you incorporate that in the figure. Yeah, of course there are some risks. So we did not fully incorporate that. But there is no contiguous negative factor.

Yoneshima - Barclays Securities

Now, my last question is related to YDN. You have given us very detailed presentation and that was very easy to understand and in terms of the revenue size and the share, what will be your share and in terms of Interest Match Display Ad, what do you think will be the market size? We want to know, what is the current market size, and what will be its future growth rate and how much that will contribute to your companies revenue and what kind of concrete plan you have to leverage on that market growth?

In terms of the current market of that size, promotional advertisement is a little bit less than 20% of the total revenue that we have. And in terms of the share, we do have the number internally but we don’t disclose this number. In terms of the future business volume, can you give us the answer?

Unidentified Speaker

Well, we just started YDN. So we do have the objective and so instead of just enjoying 10% to 20%, we want to further grow our business. But I think time is not right to provide you with any definitive number. So, I hope that we will be able to grow rapidly to provide you the number.

Now in terms of the potential, you have the internet and you have PV. And especially in terms of P.C. you search and you have a search query. You have the real time and you have Yahoo! Finance search where you get the results and you have now result type of search.

For example, you look at the blog, you look at the commodities and you have social related access and there is a timeline. And volume wise, the second static page access is the highest. In the past, we have very limited PV based on under a search result. And in the Internet, we have majority social, aesthetic and monetization of that was not doing very well.

And of course, we cannot draw your rosy picture but we believe that there is some potential to monetize the static page. And they are different to internet accompanies and they have static pages. So as the industry as a whole, we can come up with a networking which we can monetize the static pages. It will be a win-win situation.

Well, I cannot give you the total picture but in terms of the growth of potential, I had mentioned that we can increase by 60% or 1.6 fold. And we believe that in the next coming year, we will be able to at least gain that increase. Thank you.

Operator

Thank you. Any other questions? The person sitting in the first row.

Takayoshi Koike - Goldman Sachs

Thank you for the presentation. Koike from Goldman Sachs. I have two questions. First question is, there are several newly added companies or acquired companies. So third quarter results and plan that’s for the revenue, profit and also the number of the customers, how do you incorporate those? Are you talking about third quarter? Yes, if you have changed the plan for the fourth quarter, could you also talk about the fourth quarter?

Unidentified Speaker

As for the third quarter, Value Commerce was included in the consolidated subsidiaries, so that’s incorporated or included. But because of the schedule of the settlement, there's a delay of three month. So the second quarter Value Commerce revenue and the profit was consolidated from the third quarter.

Takayoshi Koike - Goldman Sachs

As for the fourth quarter, especially about the sales of revenue in addition to Value Commerce, Cyber FX and Carview revenues were included. So in terms of operating income, what are the positives and negatives?

Unidentified Speaker

Yeah. This will be positive impact, but it's not going to be a big number. There's a impact of the goodwill.

Takayoshi Koike - Goldman Sachs

Thank you. The second question is about the premium numbers. In December, you saw the growth, significant increase. So from now on, what would be the pace or the speed of the increase? Do you think that the similar trend would continue growth or there would be a churn or a cancellation, how do you see that?

Unidentified Speaker

We just started this channel. So the numbers are volatile. So the fact is that the reaction was very good. So we have extended the fee of our membership. So we would start the bill or charge. So some people would leave. Some people probably stayed because it was free of charge until now.

So we don't know that and the acquisition through the Softbank channel, those number of the customers of the Softbank, if it declines our revenue it would be down. So iPhone 5 launch was a very good timing, so we're not going to be too optimistic about the number of the premium members. Thank you.

Takayoshi Koike - Goldman Sachs

Another question about the search advertising. I think that you have seen that major growth and their different factors, but technologically or system wise by changing their system, conversion click through rate or revenue per search. What’s the contribution of that? Is it because of the system change, if you are able to analyze or quantify that?

Unidentified Speaker

Maybe I can explain by device this time. PC, SS and smartphone SS, both of them grew and PC, SS growth, the number of the search has not grown so much. So engine improvement, tuning RPS or CTR RPS improvement was significant and also the sales measures that we took. As for the smartphones, the more of the query was up RPS, also increased. So smartphone growth is because of the created queries. So that's the sense of it.

Operator

Thank you very much. The person sitting at the back.

Taro Ishihara - Daiwa Securities

I’m Ishihara of Daiwa Securities. Thank you very much for your presentation. I have three questions altogether. You mentioned that you have the plan to have share buyback. So, I will like you to further elaborate on that scheme and also I want to know whether you have any future, further plan and to conduct a share buyback and please tell me your philosophy, what you are thinking about share buyback?

Unidentified Speaker

This fiscal year wise, cash flow wise, we’ve conducted a different investments and we can have cash flow of about yen 100 billion and yen 65 billion is for investment, and yen 15 billion is for CapEx. And we have the dividends and we have the share buyback scheme, and that’s the allocation of the cash flow that we have for this fiscal year.

We want to invest for future growth and that’s the top priority, and we want to realize two digit growth. And we want to provide the dividend to the shareholders as well of course. And in terms of dividend propensity, it will be about 20% of the consolidated net income and in terms of the share buyback company. We will do it when cash flow wise we are allowed to have such a leeway.

Taro Ishihara - Daiwa Securities

Thank you. Let’s move on to the second question. You have M&A and other alliances with different partners and you are quite aggressive, and you have defendant players at hand. And by 21x you want to double all the operating income.

And you have different contributors. You have PC advertisement and you have financial services and other businesses that you conduct. And so what is the generator of the profit that will, at the end of the day lead you to 201X. And if you have any concrete ideas about the source of that extra revenue, can you elaborate on that?

Unidentified Speaker

By 201X meaning maximum wise, 2019, we want to double the operating income and the interest of Yahoo and the landscape of Internet that we cannot give you any definitive picture. But upon conducting a plan, we have the Internet and we have e-commerce and we have game and we have that billable services.

And that will be very large industry and market was able to further grow. So in terms of the search and as well as the e-commerce, we conduct a steady growth. We will be able to attain our goal and on top of that, we have the third domain, the fourth domain and tried to expand our domains. And then we will be able to definitively attain our goal.

And so it's not that we are looking at extra domains, but we will focus on the two major domains and that we have a very strong foothold in, so that those two current existing businesses will be the major contributor to our growing operating profit.

Taro Ishihara - Daiwa Securities

Well, you have Amazon and Rakuten, your e-commerce competitors and they are using tablet to actually come out with a more businesses with the users and they are providing very inexpensive tablets, so that they can sell or conduct via those tablets. Having said that, do you have any plan to capture uses of audio of the tablet? What kind of policy or a way of thinking do you have regarding this matter?

Unidentified Speaker

Well, they are hardware pieces that will link directly you with the users. But in the world of the Internet, one click you are everywhere. So, I don’t think that you can have a closed user group so to speak. It all boils down to the quality of the service, no matter what kind of incentive you have, no matter what kind of hardware you have. It uses a free to go anywhere just by a click.

So you should come up with a very surprising service, so that no matter what kind of device there is the customer will follow you. All the questions are what kind of service you have. So far, Yahoo Japan has been providing different services and once you actually activate your browser, you can go to any site other than Yahoo. Why did we succeed?

We were able to create services that were awesome as compared to other competitors. So, whether it be smartphone or tablet, we should try to just focus on the services that are awesome as compared to other competitors. And so once we succeed in that, no matter how our competitors tried to have “closed user group” using different tactics, I'm sure that we will be able to have users, followers. So we would just focus on coming up with awesome services. Thank you.

Operator

Any other questions. The person on that side.

Yosuke Tomimatsu - Merrill Lynch

Tomimatsu from Merill Lynch. I have four, two about the advertising. Third is about Kakao and the fourth is about buyback of shares. The first question is about Android. To increased the search share, in your case the search advertising has grown. In Google Japan, for example, has probably grown more than you did with the Android.

So in the case of Google, they have spent a lot of R&D budget for the Android. So the competitive landscape, do you think you can change it or even despite this very severe competition, do you think that it's possible to increase the market share as a concept. Talking about detail strategy is not possible here, but maybe you can give me some concept or the hints.

Unidentified Speaker

Yeah. Of course using Android or if you do the Google search, great service can be obtained. As I said to increase our market share, promotion, distribution are important. But to provide a better search result is the best way. This is something that we must to and of course Google is a very important partner for us in area of the search. But tuning, for example was done lot in the case of PCs, so that they can increase their share.

But using the Android, they also do the tuning and addition of the content. So at least our 6,000 employees on a consolidated basis and we can use that to cover 120 million people. So about Japan, we would do everything. We cannot to about the world, but we can use our 6,000 employees to work with 120 million people -- to work for 120 million people. So the quality of the search, I think is not yet sufficient. So to provide better service or surprising service, it is something that we would focus upon.

Yosuke Tomimatsu - Merrill Lynch

The second question is about YDN. My understanding is that interest match to monetize it, you have a lot of page view that you could not monetize. So using that is the purpose of the interest match. So, how to allocate the advertisers?

Of course, if you use your own media, it will be more profitable. But YDN, the name indicates the Google, it’s GDN. So it’s a more client network focus and now if you name it as YDN and also you talked about the partners.

Rather than monetizing your own page view, maybe you want to -- you think that the advertising network partners are more important. So, how do you intend to enhance your areas as well as the advertising network partners?

Masatsugu Shidachi

Yeah. I would like to answer to that. I’m Shidachi and actually both of them are important. We are a marketing solution company. So we actually buy the inventory from the media company. So the biggest media actually from our perspective is Yahoo. So as Yahoo grows, YDN grows. So this is something that we need to enhance and that’s the way it should be.

But that is not the end of it. Other media rather than Yahoo, there are important engines and we would like to provide a platform for that. So, as I said we would like to enhance that even more than before. I’d like to clarify one point. So in the long-term, your own impact has a more impact. Yeah, as for the profit or monetization, yeah, that is the case.

Yeah, for the earning, yeah that is the case -- but partner we have to create a good surface as a network as a whole. So it’s not just Yahoo alone that we try to provide surfaces, which would satisfy all the internet users.

So some one has to respond to those users. So supporting the monetization of the companies is something that we can do, so if you are unable to respond to or satisfied with some needs, some other companies, we would be able to do so that we can increase the value of the network. So it’s not just Yahoo alone but we don’t -- we like to work with the partners.

So you might say that it’s more profitable to do it alone, but in the long term we believe that the increasing the value of the network as a whole is important.

Yosuke Tomimatsu - Merrill Lynch

The third question is about the Kakao. And you have been doing aggressive of promotion of Kakao, so what is the purpose of it and what kind of media are you targeting?

Unidentified Speaker

So in terms of profit in the case of Kakao or DeNA, taking people to the gaming is their purpose but you don’t have your own games. You work with the gaming company. So as for the different media, lines are having a problem and DeNA probably is thinking that they can probably win some -- in some country. So I think if you can provide with as with some perspective in that sense. And Murakami, I would like to respond to the Kakao.

Unidentified Speaker

In terms of the way of thinking, why is line growing right now and amidst that backdrop, why we are conducting this scheme already explained to you and maybe you might get the impression that we are lagging behind but in terms of smartphone penetration rate it is about 30% here in Japan.

And if it is over 50% or 70% say if 70% of the Japanese have smartphone it might be too late for us to come in the market but now it’s only 30% amidst that 70% is the feature phone users is that they will be shifting to smartphone and we can actually target them. And so it’s too early to give up and I’m sure that there is potential for us to win the game.

So what is our thought? We had smartphone messenger and at the duration of the usage will increase that means that the users will stay in that page for a long time. And so in terms of Yahoo’s browser we have about 78% and in terms of applicable growth and in terms of the browser we will continue the strategy as is and in terms of the application, if the duration is long then have we need to get the messenger. Interest of the monetizing, I believe that again we’ll play the pivotal role.

And how does it contribute to Yahoo as a whole and what will be the impact of games. Right now I can not tell you any clear picture and I cannot respond to your question definitively and but we will try to pursue our strategy and try to look at the numbers and play accordingly.

Yosuke Tomimatsu - Merrill Lynch

Last question about the share buyback. There are some positive impacts but in terms of your share there are not many floating stocks and if you conduct that share buyback and cancel them. What do you think about it because there will be some shareholders who might sell the stocks in magnitude. And I don’t know where they make sense for you to conduct share buyback at this point in time that’s one way to look at your scheme. What is view on this?

Unidentified Speaker

In terms of the timing of share buyback, we would be issuing stock option as well and there is some issue related to dilution. So in order to do away with such a concern, who are the existing shareholders we try to go for the share buyback.

In terms of liquidity, I take your point. In terms of dividend, we don’t plan to increase dividend payout the ratio because its impact would be short-lived and we want to have at least stable to dividend payout but in terms of other no ways to be enjoyed by the shareholders we believe that buyback is way to go. Thank you.

Operator

The person sitting in the front?

Shinsuke Iwasa - Mizuho Securities

Iwasa from Mizuho Securities, I have two questions. First, is about your business results. Frankly speaking, you made some revision and I’m interesting in further revision that you might be making in the future. This time but the third quarter, the operating income has increase started less on 20% as grown a lot but fourth quarter 0% to 6%.

So it’s seems that it’s going to be decelerate all of a sudden. So if it is just based on the fully year revision then it might again increase the forecast for the four year. So fourth quarter cost do you think that the there will be a -- sorry the third quarter cost, do you think that the cost of the third quarter was deferred or postponed to the fourth quarter or margin temporary might worsen in the fourth quarter is that one of the factors or last year's promotion budget was very, the budget it’s self was low. So in comparison to that when you look at the growth rate, you expect that to be tough therefore you are being conservative?

Unidentified Speaker

Well, about the Q3 high growth the previous year was very low. So it’s seems high because of the low number in the third quarter last year. So whether we can expect the same growth in to fourth quarter as the third quarter that is not the case.

As for cost, the deferment, the postponement of the cost, no, there is no such cost. But toward the next year some strategic investment or spend is possible. So both revenue and income we are being conservative.

Shinsuke Iwasa - Mizuho Securities

Thank you. One another question, as somebody also asked, the Auction and Shopping growth. To double the operating income as you said auction and shopping, you have to increase your shares, the third quarter still the share came down. Auction was negative. So for example, turn to time frame that we want to turn positive in the area of the auction or shopping. If you have a kind of minimum target that you would like to achieve?

Unidentified Speaker

Yeah. of course, we do know think the current status is good enough, so we would like to improve and we would like to increase e-commerce. Our plan is to increase the market share or increase the revenue but it’s not appropriate for me to give you the numerical targets. So I'm not going to do that.

Operator

Any other question? yes, person sitting in the back.

Unidentified Analyst

I’m from the research company. I have two questions. In terms of the advertisement revenue, you did not do well in October but recover in November. So between October and November, I’m sure that the President conducted different measures and do you think that those measures begin to show some results between this time frame. So can you tell me why you’re able to make an improvement between October and November?

Unidentified Speaker

Most probably they are different factors. Firstly, as regards to YDN it was just the time that I was in R&D. We came up with a new platform and that was implemented. And we were able to enjoy the function as expected and also another factor is related to the sales force. We have changed the organization and for the agencies and for the users, we try to listen to their voices and came up with the sales force organization structure that can cater to the needs. So, those are the two contributing factors. Thank you.

Unidentified Analyst

Another question, you have the O2O business in which you can sell this at more customers. And maybe in a few years time what will be the size of this business in the past year. I’m sure that the impact for your overall business might be growing or do you think that you will not able to see any tangible result only within a year but we should have more long-term perspective?

Unidentified Speaker

Well frankly speaking globally speaking, and there is no definitive definition for O2O. So we are still groping in the dark and we are in the trial and error stage. And maybe we can look at different performance and different potentials. So it’s very difficult to tell you the timing in which we can get definitive result on this business. But we do believe that is inherent business potential. Thank you.

Operator

Thank you very much. Any other questions. No other questions. Okay. That’s concludes today’s meeting thank you very much indeed for coming today.

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