Alibaba-owned Southeast Asian e-commerce firm Lazada showed a decline in revenues in the quarter ended March 31, 2019, as it tries to shift from a direct sales model to a core marketplace.
Alibaba reported the revenue decline for Lazada during its own Q4 and full year 2019 update. The Chinese firm itself reported a resounding set of numbers, with total revenues for the quarter rising 51 per cent year-over-year (YoY) to RMB 93.5 billion ($13.93 billion). For the full year, its total revenues stood at RMB 376.84 billion ($56.15 billion), up 51 per cent YoY.
According to Alibaba’s filing with the SEC on May 15, 2019, “Lazada’s revenue decreased by 4% in the quarter ended March 31, 2019 primarily due to a decrease in revenue generated from its direct sales business (where revenue is recorded on a gross basis including the cost of inventory). Last quarter, Lazada strengthened its core marketplace businesses and reduced exposure to direct sales in select merchandise categories. This business model shift continued to drive third-party marketplace GMV growth, although direct sales revenue declined during the same period.”
Revenue from our [Alibaba’s] international commerce retail business in the quarter ended March 31, 2019 was RMB4,944 million (US$737 million), an increase of 25% compared to RMB3,967 million in the same quarter of 2018. The increase was primarily due to our consolidation of Trendyol, Turkey’s leading e-commerce platform, and to a lesser extent an increase in revenue from AliExpress, per the filing.
In FY 2019, Lazada and AliExpress (both segments being classified under Alibaba’s International Commerce Retail segment) had a total of more than 120 million annual active customers.
Lazada has been focusing on strengthening its marketplace business, management team and technology infrastructure while reducing its exposure to direct product sales of low margin categories like electronics, Alibaba noted.
Going forward, the company said this shift in its business model will better position it for sustainable, scalable and less capital-intensive long-term growth. “Lazada will continue to invest in logistics infrastructure in order to improve user experience and reduce delivery cost, as factors such as delivery speed and convenience have become key competitive advantages in the SEA market,” Alibaba said in a statement.
A closer look at Lazada numbers
Source: Company’s financials
Alibaba made an initial investment of $1 billion in Lazada in April 2016, followed by two more rounds to take its funding total to about $4 billion by March 2018. During this period, Lazada’s revenue has shown growth on a quarterly basis. However, on a YoY basis, it has fallen from triple-digit growth rates to 24.6 per cent in Q4 FY 2019. (Note: Lazada’s earnings results, together with AliExpress numbers, are classified under the International Commerce Retail segment).
During Alibaba’s earnings conference call on Wednesday, the management said that its core commerce division — which includes local consumer services, Lazada, new retail and direct import, and Cainiao — had combined losses worth RMB 7.2 billion during Q4 FY 2019. However, after incorporating the losses, the core commerce adjusted EBITDA grew 24 per cent YoY to RMB 27.5 billion.
In comparison, for Q3 FY 2019 ending December 31, 2018, the combined losses for the core commerce division were RMB 8.22 billion, and adjusted EBITDA was RMB 46.08 billion.
The management also noted that local services, Lazada’s international business, new retail, and logistics had shown positive business progress.
Lazada seeks higher daily user engagement in Indonesia
Lazada continues to lag in web traffic despite rising MAUs
Lazada had a commanding lead in terms of monthly active users (MAUs) in the Philippines, Malaysia, Thailand, and Singapore, according to a Q1 2019 report by iPrice and App Annie. However, rival Shopee received the most web traffic in 1Q2019 across SEA, while most of its peers faced web traffic decline during the same period.
According to iPrice data, Shopee received 184.4 million monthly visits on average in Q1 2019, registering a 5 per cent increase. However, Lazada saw a 12 per cent QoQ decline in monthly average visits to 179.7 million hits.
Tokopedia, Bukalapak, and Tiki, too, witnessed a decline in web traffic in Q1 2019.
iPrice analysts attributed the possible drop in Lazada’s web traffic on desktop and mobile web due to the differences in marketing initiatives between the two periods (1Q 2019 – Lunar New Year Sale and Lazada Birthday Sale; 4Q 2018 – Singles Day Sale, Black Friday, Cyber Monday, 12.12 Sale, Christmas and Year-End Sales).
Shopee’s rise in overall web traffic was primarily driven by increased visits in Indonesia and Thailand. This indicates that Shopee was able to maintain its growth momentum from Q4 2018 although the first quarter of the year is generally considered a leaner period.
In the Indonesia market, Shopee continues to lead Lazada in terms of web traffic, with close to 75 million visits compared to approximately 52 million visits for Lazada.
Lazada poised to hit $25-30 billion valuation, says Baird Equity Research
In a research note published by US-based Baird Equity Research on March 28, 2019, technology sector analyst Colin Sebastian pointed out that Lazada is currently the largest e-commerce platform in Southeast Asia (SEA) including merchandise volume, the amount of product fulfilled over its proprietary fulfilment network, and significantly larger in terms of revenues.
He forecast that Lazada will generate about $14-15 billion in general merchandise volume (GMV) in 2019 and $3 billion in revenues. For comparison purposes, he pointed out that Flipkart was acquired by Walmart for $21 billion in 2018 on GMV of $7.5 billion (2.8x GMV) and revenues of $4.6 billion (4.6x revenues), while in Latin America, the e-commerce leader MercadoLibre has an enterprise value (EV) of roughly $22 billion on GMV of $13 billion (1.8x GMV) and revenues of $2 billion (11x revenues).
As such, a $25-30 billion valuation is reasonable for a subsidiary that Baird expects to generate $13 plus billion in GMV over the next twelve months, and the local market leadership, synergies with Alibaba, and a total addressable market (TAM) as large as India, Latin America, and eastern Europe.
If one were to use Baird’s $25-30 billion valuation and $3-billion revenue estimate for Lazada in FY 2019 and compare against its SEA peers, it will outrank most of its SEA rivals.
|Full-Year E-commerce Revenues (US$'mllions)||Full-Year e-commerce GMV (US$'millions)||Market Captalisation (US$'millions)||Remarks|
|Sea Ltd (Shopee)||270||10,279||11,431||As per FY 2018 earnings results|
|Alibaba Holding Limited (Lazada)||3,000||14,500||27,500||As per Baird Equity Research report (March 28, 2019)|
|Bukalapak||20.73||1,200||As per Q4FY2018 earnings results|
Source: DealStreetAsia estimates, and public data