In an anticipated move, Japanese internet company Softbank Corp (OTCMKTS:SFTBY) recently announced that it will increase its stake in Yahoo Japan (OCTMKTS:YAHOF). The deal, which involves approximately $2 billion, and U.S. firm Altaba (NASDAQ:AABA), sets into motion Softbank’s Japanese e-commerce strategies.
Before we dive into the details, a little background is in order. Altaba was once known by its more popular name Yahoo. However, the original Yahoo entity sold its internet businesses to Verizon Communications (NYSE:VZ). What remained after the sale became the Altaba firm we know today. Currently, Altaba has a significant stake in the Yahoo Japan brand, which it intends to reduce.
Specifically, Softbank wishes to increase its position in Yahoo Japan from approximately 43% to 48%. In turn, Altaba will reduce its position to 27%. Moreover, according to Reuters, “Two Altaba appointments to the Yahoo Japan board will step down as a result of the transaction announced on Tuesday.”
For all the parties involved, the deal makes logical sense. Earlier this year, Altaba sought options on how to reduce its exposure to Yahoo Japan. For the target company, its management team can start focusing on revamping its business for an emerging Japanese e-commerce market. Finally, Softbank becomes a closer partner to Yahoo Japan as it expands its online shopping and mobile-payment services.
I stated last year that Yahoo Japan’s platform was “anachronistic,” and that Alphabet Inc (NASDAQ:GOOG)(NASDAQ:GOOGL) could swoop in. That hasn’t happened, as the Japanese have shown loyalty to the Yahoo brand.
On another note, Softbank is gearing up for its initial public offering, where the internet company will list its domestic telecom business unit. Analysts predict that this could be the largest Japanese initial public offering in nearly two decades.
Don’t Ignore the Deal’s Undertones
Among the parties involved, Softbank should accrue the most benefits behind this deal. It’s the one with the vision, and it is executing its plan accordingly. In contrast, Altaba is a holding company. Its claim to fame is that it offers an indirect and inefficient exposure to Alibaba (NYSE:BABA).
As for Yahoo Japan, YAHOF stock jumped over 12% earlier this week. Other than that, YAHOF has gravely disappointed this year, down about 25% year-to-date.
But in my opinion, this deal is a lot bigger than picking individual stocks — although again, I like Softbank here. The real story is that we’ve experienced about a decade of changes in Japanese consumerism. Softbank’s eccentric CEO Masayoshi Son recognizes this, and is adapting his business structure accordingly.
Once more, a little background: although Japan historically earned a reputation as a technological powerhouse, its consumer behavior has lagged the times. As McKinsey Quarterly reported in 2010, Japanese e-commerce started well behind the curve compared to the U.S. and the U.K. The publication explored multiple explanatory causes, such as most Japanese not being at home often prior to the Great Recession.
I also argue that a cultural element exists. In my many trips to Japan, I’ve almost exclusively conducted cash transactions. In America, my experience is the exact opposite: I almost always use credit cards, and cash only when coerced.
But as economic pain filtered into the island nation earlier this decade, Japanese consumers changed their habits. A notable one is that the average Japanese spent more time at home browsing the internet. This led to e-commerce opportunities, and the numbers don’t lie.
Japan’s e-commerce sector has grown annually at a double-digit pace. At the end of this year, experts predict a total online-sales haul exceeding $122 billion.
Opportunity in the Unlikeliest of Places
It’s insane to think that the world’s third-largest economy can have an untapped consumer market, but that’s where Japan is. While almost every other developed nation embraced the new way of doing things, the Japanese stuck incredibly long to tradition.
However, both sociological and economic analyses have confirmed a decided shift to modernity, at least in consumerism. The Japanese have warmly embraced e-commerce, and they’ll probably continue on their newfound trek. Also consider that Japanese Millennials will further cement this collective change.
Which brings me back to the Yahoo Japan deal. As I said earlier, it’s not just about picking stocks. The more important and profitable concept here is that a hidden giant is suddenly open for business.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
