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Japan-Update

Yahoo Japan appoints a new chief to drive innovation

Company lacks novel services to compete with global rivals

Incoming CEO Kentaro Kawabe, right, shakes hands with current chief Manabu Miyasaka.

TOKYO -- Yahoo Japan's business model may be stuck in the 1990s, but the company hopes that a leadership shakeup later this year will spark innovation to spur higher stock prices and compete against U.S. internet giants.

"There is still growth potential in the internet. I want to create a company that takes the lead on new ideas," said Kentaro Kawabe, senior executive vice president, who was introduced as Yahoo Japan's next CEO at a press conference in Tokyo on Wednesday. His appointment will be confirmed at the company's general shareholders meeting in June.

Outgoing CEO Manabu Miyasaka is hoping Kawabe will transform Yahoo Japan into a company that utilizes massive amounts of data to provide a wide array of services such as e-commerce. When Miyasaka took the reins from Masahiro Inoue in 2012, he promoted the catchphrase "explosive speed" to encourage a rapid shift from computers to smartphone-based news and searches.

Currently, two-thirds of Yahoo Japan's daily users come from smartphones. Although sales have nearly tripled since fiscal 2011, investors seem to hold few expectations for the company's future.

Yahoo Japan has grown along with the domestic internet market, but the ride has been bumpy. Its market capitalization topped 4 trillion yen ($36.6 billion) at one point in 2000, despite a net profit of just 1.1 billion yen -- a hundredth of its current figure -- for fiscal 1999, as investors opened their eyes to the nascent internet's revolutionary potential.

Although the company's market cap plunged to less than a tenth of its peak value after the internet bubble burst, it recovered to 3 trillion yen in October 2003 when it moved from the Jasdaq to the Tokyo Stock Exchange's first section and has hovered in that range since.

The issue is that the company's value has barely budged from 2015 levels. Sales from fiscal 2002 to fiscal 2016 grew 14-fold while net profit increased 11-fold, but investors remain uninterested.

"They need to cultivate a new field outside of online ads, e-commerce and auctions," said Hiroshi Naya, an internet research fellow at the Ichiyoshi Research Institute.

Yahoo Japan's main revenue source has remained essentially unchanged since the 1990s. The last six years have been spent simply making computer services available for smartphone. Even Miyasaka has recognized that the company "has not been able to create new services for the smartphone era."

Yahoo Japan's growth potential is also constrained by a contract with the former U.S.-based Yahoo that prevents it from using the brand to expand abroad. Internet giants like Google, Facebook and Amazon.com, meanwhile, are now valued at hundreds of billions of dollars. Young Japanese companies like flea-market app Mercari are also providing new competition.

"We have the ability to break through, even forcefully," Kawabe reckons. "We will beat global giants using data collected from people living in Japan."

But the idea is not particularly fresh, with Google, Amazon and a host of others similarly utilizing data. "It's unclear how much Yahoo Japan can improve earnings," commented one domestic analyst.

After stepping down, Miyasaka will work as the representative of a new subsidiary charged with developing new business. "I am looking for things I could not do at Yahoo Japan," he said.

The new company has a blank slate but is likely to focus on expanding abroad, among other endeavors. Yahoo Japan needs to accelerate change while incorporating the latest technology.

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