Zozo Earnings: Undervalued Amid Concerns Over Conservative Guidance; Maintaining Fair Value

We maintain Zozo’s 3092 fair value estimate of JPY 3,500 after fine-tuning our fiscal year ending March 2024 and midterm projections. We believe that the share price decline following the announcement is likely due to concerns about the conservative gross merchandise value guidance from Yahoo Shopping (an online shopping mall on which Zozo is a merchant), that has been driving Zozo’s revenue growth recently. While we expect Yahoo Shopping’s GMV to be sluggish this year due to a reduction in promotion costs, we believe the impact on Zozo will be less than the market fears as Zozotown’s organic growth will offset some of the impact. Our view on the competitiveness of Zozo’s attractive platform remains unchanged and we think the stock is undervalued currently.

Zozo’s March-quarter revenue grew 10.7% from the previous year, in line with our expectations. Although Zozotown’s GMV growth of 8.8% was lower than our expectation of 11.1%, the shortfall was offset by higher-than-expected Yahoo Shopping GMV growth and advertising revenue growth. However, despite strong growth in the March quarter, Zozo guides flat GMV growth for Yahoo Shopping in the new fiscal year due to reduced promotional spending by its parent company Z Holdings. Meanwhile, we forecast 2.5% GMV growth, as Zozo’s store in the online Yahoo Shopping mall has constantly been outperforming the mall’s GMV growth. Moreover, we believe Zozotown will be able to absorb some of the demand loss from Yahoo Shopping, as Zozo users who temporarily switched to Yahoo for points campaigns are likely to come back to Zozotown when Yahoo cuts points rewards. Therefore, our 2023 growth forecast for the combined GMV of Zozotown and Yahoo Shopping remains broadly unchanged at 9.9%.