The largest Russian Internet retailer Ozon will carry out the public placement of American Depositary Shares (ADS) in the Nasdaq Global Select Market (USA). The company filed an F-1 project of the IPO to the SEC.
Ozon was founded in 1998. At that time, the Russian pioneer of Internet retailing used to sell books and VHS only. However, the business kept growing, and the assortment extended. The Internet was developing at an impressive speed, which gave the company several unique advantages. In the 2000s, Ozon temporarily stopped taking new orders to develop the infrastructure of the effective delivery of goods. Innovations helped the company preserve and extend its share of the e-commerce market.
What is the marketplace?
Ozon is developing in the form of a marketplace, which means it is a trading platform with goods of different sellers. The company processes and delivers orders all over Russia for them, while the sellers pay the company for executed orders. Also, Ozon charges additional fees for storing and delivering orders. Another service for sellers, apart from order management, is consulting on assortment analysis and the optimization of expenses. This forms the base for the revenue of the company.
In such a model, the driver of growth is the increase in the powers of storage and delivery facilities. This is what the company invests money in. Alongside storage facilities, Ozon is also increasing the number of postamats (automatic terminals for delivering packages and goods) that make for a third of all sales. The company signed an agreement with a retailing network Pyatyorochka and can now place its postamats in Pyatyorochka supermarkets on special terms.
Ozon offers a paid subscription to its clients, which gives the right for free delivery of orders on any sums. Moreover, the company credits its suppliers.
The Ozon Invest service attracts the money of individual investors, which is later used for crediting suppliers. The service provides individuals with a passive income higher than banks offer, while small and medium-sized businesses enjoy good faith loans. The money of an investor is distributed between several companies, which diversifies the risk of default. In this segment, Ozon competes with banks and brokers.
The ownership structure of the company looks as follows:
On the whole, the business model of the company is rather stable, which makes the speed of its growth expressed in two digits. This is thanks to the annual increase in the number of consumers of goods and services on the Internet. While at the birth of the company in the far-away 1998 a purchase over the Internet seemed like a trip to the moon and back, 22 years later this has become an ordinary thing. So, now is high time to talk about the perspectives of this market in Russia.
Perspectives of e-commerce in Russia
Russia is the main market for Ozon. This country is considered to be the 11th economy in the world, with a GDP of 1.7 trillion USD in 2019. The number of active Internet users amounts to 113 million people, which is one of the highest levels of Internet use in the world. Russian retail sales market is number 4 in Europe; 69% of Russians shop on the Internet every month.
The market volume in 2019 reached 33.6 trillion RUB (436 billion USD) and will reach 46.2 trillion RUB (595 billion USD) in 2025. The annual speed of growth is 6%. In the retail sales market, there are 10 leaders that sell goods and services off- and on-line. The part of online sales is about 25%; in Britain, it is 42%, in Germany – 40%, in the USA – 35%. This means that the speed of the growth of Internet retailing may be higher than that of the retail sales market on the whole.
Check below the achievements of Ozon in the e-commerce market:
The platform features over 9 million goods in 24 categories. In the system, there are registered 11.4 million active buyers and 18.1 million sellers. The overall area of storage facilities amounts to 200,000 square meters. Ozon delivers goods to over 13,500 localities all over Russia and holds over 16,000 customer pick-up points. According to Data Insight information, the company is number three in terms of the revenue among Russian Internet shops (after Yandex. Market and Wildberries). According to the PwC research, the share of the e-commerce market taken by Ozon will have amounted to 16% by 2023, with a larger share belonging to Yandex. Market only – 25%.
Now to the financial performance of the company that it demonstrates on the verge of an IPO.
IPO Ozon: financial performance
Let us start analyzing the financial performance of the tech company from the revenue from sales. In the F-1, we have the data for the 9 months of 2020 and 2019 and yearly reports for 2018 and 2019.
In the last 12 months, the revenue of the company reached 87.54 billion RUB (1.12 billion USD). The expected revenue for the end of 2020 is 102.22 billion RUB (1.31 billion USD). In the second quarter of 2020, the trade turnover increased by 188%, which is an unbeaten record in the segment (Wildberries increased its trade turnover by 123%).
In 2020, the company is growing by 70.07%, compared to 2019. In 2019, the company grew by 61.48%, compared to 2018. Hence, the speed is only increasing. The net loss after 9 months of 2020 reached 12.85 billion RUB (0.16 billion USD), which is 1.38% less than after the same period of 2019.
Currently, the company generates no net profit, investing all of its free money in various logistics structures. An American ventures company Princeville Capital invested in Ozon some 50 million USD. Ozon demonstrates quite an impressive speed of growth, which makes it attractive for investments.
Investment assessment and Ozon IPO details
The underwriters of the company are Morgan Stanley & Co. LLC, UBS Securities LLC, Goldman Sachs & Co. LLC, Citigroup Global Markets Inc., Sberbank CIB (UK) Limited, VTB Capital plc, and Renaissance Securities (Cyprus) Limited. Ozon applied for attracting 100 million USD, but various estimations promise from 500 to 750 million USD.
To estimate potential capitalization, we will use the P/S rate as the most relevant index – the price of the company to its earnings. The last 12 months brought the company 1.12 billion USD. If the P/S is 5 to 10 (which is normal for the e-commerce sector), the capitalization of Ozon may be between 5.6 and 11.2 billion USD.
The Road Show for investors begins on November 16th; then we will know the exact price of the placement and the number of the ADS offered. We take the capitalization of 5.6 billion USD as the minimum.
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