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Jumia And Africa E-commerce (3): JumiaPay

JumiaPay is a very natural business choice as we see the success of Alipay, spun out of Alibaba.

This is also the reason MasterCard expanded collaboration and invested €50 million last year.

In Jumia’s 19Q2 press release:

… expanded the scope of JumiaPay beyond our physical goods marketplace. As of December 31, 2018, JumiaPay was only available within our physical goods marketplace. It is now also available within our on-demand services, Jumia Food, and hotel booking portals, Jumia Travel, in selected countries.

…we continued to expand the range of financial and digital services available from third parties, powered by JumiaPay, offering our consumers an increasing range of relevant every day services.

In Nigeria for instance, consumers can now access micro-loans offered
by a local fintech startup, alongside event tickets offered by a local event ticketing provider.

In Egypt, in the second quarter of 2019, we started distributing services from a local deals provider allowing consumers to purchase their vouchers on the Jumia platform, using JumiaPay.

Not surprisingly, 2019 has been a good year for JumiaPay, with quarterly TPV ( Total Payment Volume) growing constantly and annual TPV of ~€124 million.

TPV as a percentage of Jumia’s GMV,  grew from 8.6% in 19Q1 to 15.1% in 19Q4. (update: GMV before adjustment)

Meanwhile, the value per transaction on JumiaPay is lower than its value per order on Jumia, which makes sense as JumiaPay is more user in every day purchases.

In 19Q4, €19 per transaction is roughly half of the Jumia order value (€36).

JumiaPay provides a hyper-growth opportunity.

In the Q4 press release, it says “the ramp-up of JumiaPay on-platform is attributable to our continuous education efforts of consumers, the expanding range of digital services offered as part of our JumiaPay app as well as a number of newly introduced marketing initiatives. These include Mastercard Tuesdays discounts, cash-backs funded by card issuing banks or the possibility to pay for purchases in 12-month installments at no interest, offered by partner banks. “

「What’s News in China」

SoftBank invested $1 billion in Beike 贝壳, together with Hillhouse, Tencent, Sequoia China, in a round of $2.4 billion. The round, closed in November last year, valued Beike at ~$14 billion. Beike is a real-estate brokerage with an online tool to match buyers and sellers, as sites like Zillow and Redfin do in the U.S. It also offers real-estate financing, home décor and property management. SoftBanks has also invested in another $1 billion in Ziroom for the long-term apartment rental market. // WSJ | Sina

TikTok’s owner, ByteDance is launching Resso in India, which describes itself as a “social music streaming app”: users are encouraged to share lyrics, comments and other user-generated content with each other, alongside full-length tracks of music that they can consume and also share with others. It has secured licensing deals with Sony Music Entertainment, Warner Music Group as well as big publishers specifically in the Indian market. Resso’s pricing in India is in line with those of Apple Music, YouTube Music, Spotify, Times Internet-owned Gaana, and Reliance Jio’s JioSaavn. // TechCrunch

Bestore 良品铺子, a consumer brand in China with over 2,300 snack bars and online presence on Taobao and JD.com, etc., went public on the Shanghai Stock Exchange (SSE) with an online listing ceremony last Monday. The company livestreamed the 13-minute ceremony. Close to 50% of the company’s revenue comes from Hubei Province, the center of the epidemic. The stock has more than tripled, trading at ¥36.74 per share as of March 5 versus IPO price of ¥11.9. // kr-asia

Tesla delivered cars to customers in China with lower-performance Autopilot hardware than promised, because of supply chain issues caused by the coronavirus outbreak. According to the BBC, the new chip is up to 21 times faster at processing images than its predecessor. Tesla quickly apologized on Weibo 微博 for the decision and said it will offer free upgrades to affected Model 3 owners once supplies become available. // engadget | BBC

 

 

「News of the Week」Court Rules: Privately Operated Internet Platforms Free To Censor Content They Don’t Like.

WSJ – Tech Platforms Aren’t Bound by First Amendment, Appeals Court Rules

Despite YouTube’s ubiquity and its role as a public-facing platform, it remains a private forum, not a public forum subject to judicial scrutiny under the First Amendment

– Circuit Judge M. Margaret McKeown

Dots to connect: internet platforms’ products that operate like government, possible platforms with political views,  regulation vs. indirect influence on tech firms, etc.

Jumia And Africa E-commerce (2): GMV And Consumers’ Online Spending

Below is the chart for Jumia’s performance in terms of GMV.

    • A spike in 2018Q4 just before IPO is controversial..
    • Although with the “artificial” growth in 18Q4, the trend looks good
    • The more worrying part is the slowdown in GMV growth – especially when Jumia is still has a long way to go

Jumia’s full year 2019 GMV is €1.1 billion, up 33% compared to 2018.

Comparatively, Pinduoduo’s GMV in the twelve-month period ended December 31, 2018 was RMB471.6 billion (US$268.6 billion), an increase of 234% from RMB141.2 billion in the twelve-month period ended December 31, 2017.

Combined with Jumia’s annual active customer base, we can see the GMV per AAC declining over time.

In its Q4 press release, Jumia says “we have reduced promotional intensity and consumer incentives on lower consumer lifetime value business. While most product categories experienced GMV growth in the 20 to 50% range, phones and consumer electronics contracted by approximately 20% on a year-over-year basis. This aspect of the business mix rebalancing will likely continue to negatively impact GMV development over the next two quarters.”

Source: Jumia 2019Q4 Presentation

“…we have increased our focus on everyday product categories such as Fast Moving Consumer Goods (“FMCG”), fashion, beauty and personal care as well as digital services which provide affordable entry points into the Jumia ecosystem…”

We could also see that Pinduoduo’s GMV per active buyer is a little bit insane..

approx. annual GMV per active buyer = $268.6 billion /  418.5 million = $641.8

Jumia is at ~€180 in 2019, using annual GMV divided by ending AAC.

To compare it with consumers’ e-commerce purchase across the globe..

    • World avg. $499
    • US $1,389
    • China $1,021
    • South Africa $109
    • Egypt $96
    • Ghana $59
    • Nigeria $44
    • Kenya $42
    • Morocco $41

Jumia And Africa E-commerce (1)

Pan-African e-commerce company Jumia listed on the New York Stock Exchange on April 2019, becoming the first startup from Africa to list on a major global exchange.

Jumia was offering 13,500,000 ADR shares with an IPO range of $13 to $16 per share and priced at $14.5 per share.

Mastercard Europe SA has agreed to purchase €50.0 million of shares in a concurrent private placement at the same price.

As of December 31, 2018, Mobile Telephone Networks Holdings (Pty) Ltd (“MTN”), Rocket Internet SE (“Rocket”) and Millicom International Cellular SA (“Millicom”) own respectively 31.28%, 21.74% and 10.15% of the Company.

Other shareholders are AEH New Africa eCommerce I GmbH (8.86%), AXA Africa Holding SAS (6.06%), Atlas Countries Support S.A. (6.06%), Chelsea Wharf Holdings S.à r.l. (5.51%), CDC Group (4.04%), Rocket Investment Funds (3.48%) and Goldman Sachs (2.83%).

Africa has one of the most digitally connected populations on the planet, with 400 million internet users.

Jumia said it has 4.0 million and 6.1 million annual active customers at the end of 2018 & 2019.

Comparatively, say China has three times the number of internet users (1.2bn), Jumia would have 12 million or 18.3 million respectively.

Pinduoduo, a relatively new e-commerce platform in China, said its Active buyers in the twelve-month period ended December 31, 2018 were 418.5 million, an increase of 71% from 244.8 million in the twelve-month period ended December 31, 2017.

We are talking about totally different stages of e-commerce. Low penetration means more education and infrastructure are needed while potential upside is large.

Prepare For A Future Where FinTech Firms Dominate: Buy & Be FinTech

In the future where Fintech firms dominate, established companies are reacting with three main strategies:

  1. Cut costs for legacy business lines – like what we said in a previous post Banking Headcount Cut
  2. Consolidate with other legacy companies to gain more market share and thus more say/power, further cutting expenses and trying to get more economy of scale – like what we said in the last post From TD Ameritrade To E-Trade: A Wave Of Consolidation
  3. Acquire Fintech startups or replicate what they are doing – like the title of this post Buy & Be FinTech

Visa x Plaid

In Jan 2020, Visa said it will acquire Plaid $5.3 billion. The deal includes a $4.9B cash consideration and $400M of Visa stock as retention equity and deferred equity consideration.

Plaid is a Fintech firm that enables a lot of other Fintech apps & digital transaction based businesses, providing underlying APIs. It counts Venmo, Robinhood, Coinbase, Acorns, etc. as customers.

Source: Visa Presentation

Previously in Dec 2018, Plaid raised $250 million Series C at a valuation of $2.65 billion, led by Mary Meeker with capital from Kleiner Perkins’ growth fund. The growth.

In its mid-2016 financing tho, Plaid was only valued at $200 million.

The growth of valuation is supported by the growing business, the network effect and the sticky/recurring nature.

Through the Plaid acquisition, Visa secured a very strong spot in the future of Fintech and can expand/build upon the Plaid’s platform.

In Visa’s presentation, there is a list of Fintechs with rapidly growing users, on the top of which is Credit Karma with 100 million users.

Intuit x Credit Karma

On Feb 24, Intuit (Nasdaq: INTU) announced that it has agreed to acquire Credit Karma for $7.1 billion in cash and stock. (50/50).

Credit Karma lets people check their credit scores, shop for credit cards and loans, file taxes and more. It had close to nearly $1 billion revenue in 2019, growing at 20%.

In 2018, Credit Karma was valued at $4 billion when Silver Lake purchase $500 million in the secondary market.

The company started out originally in 2007 providing free credit scores, later extending that to full credit reports. Credit Karma’s launch of a financial planning tool in 2013 drew a direct comparison to Intuit’s Mint. And since then, Credit Karma has launched other products that directly rival Intuit, for example a free tool to help people file their taxes. These not only represented direct competition, but a disruptive threat, since Credit Karma’s products skewed younger and were built on a “free” premise (offering the products at no charge and instead making money off showing users and selling relevant, related products). The fact that Credit Karma partners with so many other financial services providers also means it’s sitting on a huge data trove that it leverages to build and personalize products, representing a data science angle for Intuit here, too. [TechCrunch]

Meanwhile, besides the notable acquisitions of Fintechs, companies are building similar services by themselves.

In Jan 2020, Goldman Sachs launched a long-awaited app of its online bank Marcus for customers . The bank launched Marcus in 2016.

And BofA’s AI-powered assistant Erica has pulled in more than 10 million users. Zelle peer-to-peer (P2P) payments increased 76 percent year-over-year in the fourth quarter of 2019.

While JP Morgan has closed its experimental mobile banking app Finn last year, its own branded mobile app is ranked one of the best. The idea was for Finn to reach locations—St. Louis among them—where it didn’t have branches.

By mimicking the experiences/apps offered by startups, established players are essentially becoming Fintechs themselves, thus evolving internally and embracing the future more positively.

From TD Ameritrade To E-Trade: A Wave Of Consolidation

Following the underlying trend of growing Fintech companies grabbing more customers & market shares (also discussed in a previous post about job cuts in banks), traditional financial service providers such as brokerage firms are thinking about their future.

And one answer is to consolidate the industry with mega M&As.

Charles Schwab x TD Ameritrade

In November 2019, Charles Schwab agreed to buy smaller rival TD Ameritrade in a stock-swap transaction valued at about $26 billion. Schwab will issue 1.0837 shares for each TD Ameritrade share.

The deal will create a company with more than $5 trillion in assets under management. TD Ameritrade will contribute approximately 12 million client accounts, $1.3 trillion in client assets.

The press release also says, “on expenses, current estimates are for approximately $1.8 to $2 billion run-rate expense synergies, which represents approximately 18-20% of the combined cost base” – a $2 billion cut in headcount and operating budget.

TD Ameritrade had a LTM revenue of $5.665B as of 2019Q3, thus receiving a roughly 4.6x revenue multiple. Or taking the revenue declines into account, it represents a 5.0x NTM revenue ($5.2 billion) multiple. Also, it’s around $2,167 per client account.

Morgan Stanley x E*Trade

On Feb 20, 2020, Morgan Stanley said it agreed to buy discount brokerage pioneer E*Trade for $13 billion. Also an all stock deal, E*Trade stockholders will receive 1.0432 Morgan Stanley shares for each E*Trade share, which represents per share consideration of $58.74.

Combined platforms will have $3.1tn client assets, 8.2 million retail client relationships and accounts, and 4.6 million stock plan participants. E*TRADE has over 5.2 million client accounts with over $360 billion of retail client assets.

Similarly, the acquisition price represents a 4.5x LTM revenue multiple. Also, it’s $2,500 per retail client account.

「What’s News in China」

China’s EV maker NIO (NYSE: NIO) 蔚来汽车 signed framework agreements with Hefei’s city government on a fundraising of more than 10 billion yuan ($1.42 billion) and new manufacturing facilities. NIO plans to establish NIO China headquarters, further expand its operations and deepen its relationship with local ecosystem partners in Hefei. NIO’s stock surged more than 30% on Tuesday morning. // NIO | Reuters

Naixue’s Tea, one of the biggest bubble tea chains in China, has filed IPO in the US to raise as much as $400 million. Naixue has over 230 stores in China. The fast growing coffee chain Luckin Coffee (NASDAQ: LK) with over 4,500 locations is valued at around $10bn. Naixue was valued at over ¥6bn in its March 2018 financing round. // Bloomberg | STCN

PepsiCo Inc (NASDAQ: PEP) has agreed to buy Chinese snack brand Be & Cheery (百草味) for $705 million from local jujube maker Haoxiangni (SHE: 002582). Be& Cheery sells snacks from nuts to dried fruits mainly on Chinese e-commerce platforms. // Reuters | Pepsico

Hillhouse Capital 高瓴资本 just launched its independent venture capital fund of ¥10bn. The new fund, called GL Ventures, will invest in both U.S. dollars and yuan in chunks ranging from 3 million yuan to $30 million. GL Ventures will focus on four areas: biomedicine and medical devices, software services and initiatives in tech innovations, consumer internet and technology, and emerging consumer brands and services. // 36Kr | Caixin

On Feb 24, ByteDance’s Feishu (飞书) announces free access to all organizations. Feishu is a Slack-like remote collaboration platform developed by ByteDance, with features including video conferencing, online shared doc, group chats, calendar & other team management tools, etc. // Feishu | cntechpost