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Japan-Update

Yahoo Japan's profit falls as e-commerce investments weigh

Lifting margins will be urgent task for incoming chief

Incoming CEO Kentaro Kawabe, right, with current chief Manabu Miyasaka at a news conference Jan. 24.

TOKYO -- Improving the profitability of Yahoo Japan's e-commerce business will be one challenge facing incoming CEO Kentaro Kawabe when he takes the job in June.

The subsidiary of Japan's SoftBank Group reported Friday that net profit dipped 2% on the year to 103.1 billion yen ($935 million) in the nine months to December.

The online advertising business offered a bright spot, with ad-related operating profit rising 3% to 123.4 billion yen, excluding adjustment for internal transactions, as the company shifted focus from computers to smartphones.

But operating profit in the e-commerce segment declined 5% to 61.9 billion yen. Its operating margin came to 14%, a far cry from the 58% for the ad business.

Yahoo Japan has significantly increased e-commerce volumes by turning office supplies vendor Askul into a subsidiary in 2015 and bolstering collaboration with SoftBank last year. But the company has been generous in offering rewards points -- essentially discounts -- amid pressure from competitors Amazon.com and Rakuten. This strategy has eaten into profitability. Yahoo Japan's nine-month net profit represents a minimal increase from three years earlier, even as consolidated sales more than doubled over the same period.

Yahoo Japan's total assets have grown nearly 180% since 2012 following investments in e-commerce operations and expansion of the online banking business. But profit is not keeping pace. Return on assets fell to 6% as of the end of December, down 1 percentage point from a year earlier.

These investments were "necessary to broaden the scope of the operations," Chief Financial Officer Toshiki Oya said.

Outgoing CEO Manabu Miyasaka, who took the post in 2012, spearheaded the efforts to adapt the company's online news service and search platform to the smartphone era, and he is credited for the growth in advertising.

Yet in e-commerce, Yahoo Japan's mainstay online shopping business continues to struggle. The company is trying to tap financial services like credit cards and digital payments to build up e-commerce earnings.

Kawabe, now chief operating officer, is slated to release details Tuesday of Yahoo Japan's plans to crunch the massive amounts of search and e-commerce data to understand customer preferences in order to deliver targeted ads and product suggestions.

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