To:Logon 12. The following is some of my research on the Japanese Internet and my views of Softbank and Yahoo Japan which is publicly listed on the OCT market in Japan. In full disclosure, I am long both Softbank and Yahoo Japan (4689 J).
First, there are about 12 million on-line users in Japan. By the end of this year, there are expected to be 14 million on-line users. Users in Japan do not stay on-line for very long. This is not a result of ISP's (ISP's charge about US$40 per month for unlimited useage), but local telecommunication charges (a local phone call) are 200 yen per hour (US$1.66 per hour). However, analysts expect the telecommunication charges will be deregulated sometime over the next two years.
Second, on-line users in Japan are at the first inning of what may eventually one of the most hooked-up countries in the world. Once a critical mass of Japanese people come on-line, a whole mass of new on-line users will come on-line within three or four years. The business analogy is DoCoMo (the Japanese cellular company)which grew from a $1 billion company in the early 1990's to over a $50 billion company, primarily taking advantage of cellular penetration from less than 5% in the early 1990's to over 33% today.
Third, while one can buy both Softbank and Yahoo Japan, the purer play - if you believe in the Japanese internet is Yahoo Japan. The bulk of Softbanks assets (80%?) are in US assets such as Yahoo, E-trade, Geocities. Yahoo Japan is purely a Japanese internet play.
Fourth, there have only been two research reports I have found on Yahoo Japan. Both of them were done last year in Jan. and Nov. of 1998 by Daiwa and Commerzbank. This stock because of high intial costs, relatively low trading volume and lack of research coverage has almost no institutional investors.
With 6,900 shares outstanding, a share price of 61 million yen (US$508,000 per share), the total market cap is approximately $3.5 billion.
Fifth, Yahoo Japan seems to be nine yards ahead of every other major internet brand, AOL, Excite, Infoseek. Currently, according to the Commerzbank report, Yahoo Japan is used by over 80% of the online users, the closest portel is Nikkei Net.
Sixth, the stock has run-up over 500% since Jan. Looking over the long-term 3 to 5 years, a $3 billion market cap. for Yahoo Japan is cheap relative to the cost of Yahoo US (US$44+ billion).
The following represents some of the risks of the stock:
o after the recent high run-up in the stock, the stock may pull-back slightly to consolidate
o the weakness of the yen relative to the US dollar. With the central bank of Japan printing money, the yen will continue to be relatively weak
o the telecommunication industry in Japan does not deregulate as quickly as anticipated
o Competition - for example, if AOL buys a big internet company in Japan, even so, Yahoo Japan has a more dominanting presence in Japan, than Yahoo US does in the US.
Would like to hear your thoughts. |
