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Announcements Mar 12, 2020 06:15 pm EqualOcean

58.com Reports Fourth Quarter and Fiscal Year 2019 Unaudited Financial Results

Analysis EO
Analysis · 2
report
Analysis EO
Aug 4, 2020 10:00 pm ·

58.com, a Sunken Aircraft Carrier

►Revenue and net profit growth rate are slowing down as the market share of each business segment is grabbed by newcomers like Boss Zhipin in the recruitment track, Xianyu in the second-hand trading market and Lalamove in the freight sector. ►With core problems unsolved, 58.com is planning to enter the e-sports industry, where China's largest RE developer Wanda Group failed. The future remains dim, in our view. Founded in 2005, 58.com (WUBA:NYSE) is the largest website in China providing local life information classification services, including real estate and rental business, recruitment, car trading, second-hand product trading and freight services. Since going public in 2013, 58.com gobbled up its competitor Ganji.com, winning 85% market share and growing up to be a king of information services through solving information asymmetry for users. However, unlike Meituan-Dianping (03690:HK), which intensively cultivated the mainline of catering and gradually expanded to local life services such as tourism and hotel business, 58.com blindly expanded its territory into recruitment, freight and other fields under the condition that the mainline of business had been blurred, forming an information service platform that is full of fake information. With the continuous expansion of 58.com, the greed for more fields has bred up-and-coming stars in subdivisions such as Beike, a house rental platform and Xianyu, a second-hand trading platform introduced by Alibaba (BABA: NASDAQ, 09988:HK). Eventually, 58.com chose to delist through privatization, stating that it had signed a merger agreement with Quantum Bloom Group Ltd. Revenue growth rate continually slowing down 58.com generates the most revenue from online marketing services and membership for additional assistance, accounting for over 90%. However, the revenue growth rate of the two segments was slowing down, dragging down the overall growth rate after 2016 from 63.60% to 18.60% even though revenue has been growing in the past five years. In terms of net profit, 58.com experienced losses in 2015 and 2016 and turned losses into profits in 2017. After a sharp decline in the growth rate of net profit in 2018, the company's net income soared 314% in 2019. However, among CNY 8.28 billion net profit in 2019, 74% are from investment income through selling shares of Chehaoduo, indicating that the growth rate of net income from operations didn't increase as investment income was not sustainable. Why did 58.com continue to go downhill? Laying out the structure of 58.com's business, it has been laid out on diversified tracks – but now all face potent enemies as the firm has been resting on past achievements instead of innovating. Real estate and rental business. In 2015, 58.com spent USD 260 million to acquire Anjuke, planning to achieve business integration in the fields of new housing, second-hand housing, and rental housing. 58.com leveraged Anjuke to enter the new housing market, while 58.com helped supplement rental business. However, after the acquisition, the company failed to go deep in the vertical chain. Instead, it used Anjuke as the traffic entrance to divert to other rental companies. Traffic was once the biggest weapon of 58.com. It uses high-frequency advertisements to attract C-end traffic, and then sells it to B-end enterprises at different levels of 'package.' In terms of charging methods, the firm adopts a model similar to Baidu's search engine; in other words, traffic will flow to whoever spends more money. This bidding model cannot fundamentally meet the needs of consumers and is full of a lot of false information, which gradually loses traffic. However, the rising star, Beike, better matches supply and demand through the 'Agent Cooperation Network.' In the offline market, there are 456,000 brokers and 42,000 brokerage stores, contributing a large amount of data, housing, services and transactions. On the other hand, Beike has built a data and technology-driven operation network, forming a real estate database of 226 million real estate information to digitalize and standardize data. Targeting the C-end has pushed Beike's valuation to USD 10 billion, leaving 58.com far behind. Recruitment. After 58.com acquired the veteran recruitment website ChinaHR in 2015, its market share in the field of recruitment has gradually increased to 37.60% of the industry in 2019, because the company penetrated tier-3 and tier-4 cities as well and 51.40% of job seekers prefer to choose the integrated service platform according to Analysys. However, with more emerging recruitment platforms focusing on vertical fields such as Zhaopin.com, 51job and Boss Zhipin, 58.com's MAU rate has been surpassed. From the perspective of user stickiness, 58.com ranks outside the top ten, implying that it is likely to be replaced by platforms which target more segmented business in the future. Car trading. Although 58.com's B2B model does not need to be promoted to users, the company is facing the problem of car sources. Most second-hand car dealers don't put the best quality car on the Internet, so attracting channels is getting more and more difficult. The fundamental reason why American brand Carmax can make money lies in the fact that cars are in the hands of institutions, and it is also related to the diversification of second-hand car operators, the diversification of transaction methods, and the simplicity of transaction procedures; while domestic vehicles are in the hands of individuals, and coupled with the constraints of objective conditions such as scattered vehicle sources, difficult cross-regional transportation, and high funding requirements, it is difficult to expand the scale. Affected by the epidemic, in February 2020, the second-hand car market transacted 71,100 vehicles, a month-on-month decrease of 92.78%. Coupled with the downturn in the automotive industry, 58.com's second-hand car trading business is struggling. Second-hand trading. The market share of Xianyu accounted for 70.7%, while Zhuanzhuan accounted for only 20.38% in 2019. Xianyu and Zhuanzhuan have similar MAU, but Xianyu's monthly usage times per capita and total monthly usage time per capita are nearly three times that of Zhuanzhuan. Zhuanzhuan, backed by 58.com, is doing decent traffic business and earning from advertising without intervening in transactions. Xianyu, backed by Alibaba, is positioned as a sharing economy community, paying more attention to transaction volume and order volume. Moreover, second-hand platforms not only need to solve the problems of payment, logistics but also need to deal with after-sales service of buyers and sellers and accurate product recommendations. As a traditional e-commerce giant, Alibaba is the industry leader in payment, such as Alipay and logistics Cainiao, providing strong support for Xianyu. Freight. In terms of transaction volume, Lalamove and Kuaigou Dache account for 54% and 25%, respectively. In the beginning, the driver resources of these two platforms were different. Lalamove targeted a high-end group of people, while Kuaigou Dache received orders mainly from the building materials market. However, as market competition becomes more intense, the user groups and driver resources of the two have gradually become consistent. Kuaigou Dache adopts a scoring system. The higher the service score, the easier it is to grab a large order. However, the policy stipulates that only making small orders increases service points, which encourages drivers to grab small orders, dragging down driver's profits. Lalamove allows drivers to grab orders regardless of their level. Besides, to transport products over the same distance, Kuaigou Dache is more expensive than Lalamove, gradually tilting the order toward the latter. As Didi Huoyun, which comes with a powerful flow entrance from Didi, invades the same track, grabbing c-end customers is more becoming strenuous for Kuaigou Dache. See more analysis on Kuaigou Dache, Lalamove and Didi Huoyun. The old problems have not been solved – yet 58.com is planning to enter a new field. On July 13, Yao Jinbo, 58.com's CEO, took the lead in exploring new recruitment channels for emerging industries such as e-sports. However, if 58.com still adheres to the stubbornness of traffic, the new field will most likely not bring significant benefits to the company. In conclusion, in the early stage of the mobile Internet, 58.com's classified information platform had first-mover advantages in every field. It should become a comprehensive aircraft carrier, but the company did not sufficiently dig deep into the vertical track, gradually being overtaken by rising stars. Privatization and delisting become doomed.

Briefing
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Briefing
Jul 31, 2020 11:04 am · 58.com

China's Job Market Began Warm Up in Second Quarter

Briefing
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Briefing
Jul 27, 2020 11:13 am · Sina

Renren Appoints VP of 58.com as New Independent Director

Briefing
Briefing · 1
Briefing
Jul 22, 2020 05:03 pm · East Money

58.com Released a Consumer Survey Report on Cleaning

Analysis EO
Analysis · 2
report
Analysis EO
Jul 22, 2020 10:10 am ·

Beike, China's Answer to Zillow + MLS: Long-Termism of a Pioneering RE Platform

► Beike, born out of China's local RE brokerage Lianjia, aims to change the Chinese real estate brokerage industry by leveraging the network effects of its RE broker platform.   ► Compared with Beike’s Chinese peers, Beike provides fundamentally better products and more comprehensive services, including 1) a Real Estate Dictionary, benchmarking Zillow and MLS 2) far-sighted tech inputs in AR/VR back in 2019. ► Building trust from brokerage agents is another big challenge. The RE industry in China earns revenues from information asymmetry and Beike's efforts may wreak damage where the current margins are made. Potential IPO in the US After Luckin Coffee's revenue fraud and delisting, many giant Chinese companies listed on US exchanges, such as NetEase and JD.com, were seeking to return to Hong Kong for listing. However, one of the giant Chinese real estate platforms, Beike, chose to go against the trend and selected the US market for its IPO process. On July 9, an informed source released Beike's plan for an IPO in the US in the coming months, looking to raise at most 3 billion dollars. At the same time, it revealed Beike looked for more than 20 billion USD in its valuation and had already secretly submitted an application to SEC. If Beike were to receive a 20 billion USD valuation after its IPO, it would be the largest Chinese IPO in the US in 2020. The team behind Lianjia.com launched Beike. With its fast growth in recent years, each of its four consecutive years of transaction volume broke a ‘trillion’ target. Since 2014, it has received four rounds of funding, raising almost 30 billion CNY. After the Series D+ funding finished in March 2020, the market estimated Beike's valuation to have exceeded 14 billion USD – Beike's value increased nine times in 8 years, making it another legend in the industry. When Beike launched its series D funding, 22 investors withdrew their investments from Lianjia.com. Beike announced that its previous investors' shares would be mirrored under Beike, which gives further hints for the market's guessing game around Beike's IPO plan. However, it is not an ideal time for Chinese companies to go for an IPO in the US, especially as the capital market there previously seemed not to have a lot of interest in Chinese RE brokerage companies. For companies such as 58.com (WUBA:NYSE) and Fangdd (DUO:NASDAQ), the trade volume has been below average and with a low PB ratio. Fangdd's plan to raise at most 150 million USD ended up only reaching half of its target. Even though the different concepts backed Beike and its products can give Beike a significant premium, the 20 billion USD valuation target is still many times more than its peers (e.g., DUO valued at 727mn, WUBA at 8 bn). Beike's rush decision seems to be related to Lianjia.com's Valuation Adjustment Mechanism (VAM) with investors in series B funding. The agreement stipulated that if the company cannot go public before 2021, its financing will be repurchased with additional interests. The logic behind Lianjia.com’s transformation to Beike Before establishing Beike, Lianjia.com had already covered 32 cities in China, serving as one of the largest RE brokers. But Beike has an entirely different positioning – building up an industry platform with public information. The motivation behind the transformation from Lianjia.com to Beike is not hard to interpret. If we take a look at chairman Zuo Hui's ambition – changing the status quo in the current disordered Chinese real estate brokerage industry by 1) setting a higher standard for quality, 2) helping the industry practitioners receive more respect. Most RE brokerages in China have a low reputation because some agents practice reckless sales and even fraud, striving always to finish the deal in a shorter time and gain more price difference. Businesswise, this motivation makes sense as well – until the clients have built trust for the real estate brokerage services, the service margin will be limited and never able to reach the level as it is in developed countries like the US. To achieve such a goal, Lianjia.com needs to increase its influence. A good parallel would be the difference between Taobao (BABA:NYSE) and JD.com (JD:NASDAQ). Taobao, with more franchised companies joining the platform, can expand at a much quicker rate and reach many more players in the field, while JD's leveraging self-operation business makes the business balloon slower. Beike can help Zuo Hui achieve his goal of transforming the industry much quicker than using pure direct operations like Lianjia. Also, the management pressure will be much less when the scale of the influences increases. As the biggest real estate brokerage in China, and the one with most resources and information regarding the market, Lianjia.com/Beike is looking like the best choice to break the rule and leverage the market, and they are willing to do so. Brief Analysis of Merit and Risk Merit Building the 1st Chinese MLS – A multiple listing service (MLS) is a database established by cooperating real estate brokers to provide data about available properties. Currently, in the US, giant brokerage platforms like Zillow and Realtor.com purchase access to the database to calculate the price for each property better and, at the same time, consolidate and share information between agents. In China, such an MLS has not been established. However, since 2008, Lianjia.com has continuously been developing its ‘Real Estate Dictionary’ – this includes information about the up-to-date real estate price. With Beike, the collection of data will be much quicker. Thus, the platform will be able to provide the most accurate calculation of Chinese property prices. With the first player advantage, the difference will deepen the peer-gap with Beike in the long term. Building trust from clients – Beike and Lianjia.com is known for the consistency of agents’ qualities compared to other companies. High variance in agents’ professions will limit high-quality agents’ profit margin and thus their motivation, but also leave a negative impression to clients. To solve this problem, Beike invests heavily in its brokers and training them to make sure everyone is at least an 80/100 standard. Also, a big differentiator Beike has is its “authentic listing”. With consistent strict regulation on its house resources, 98% of the house resources are authentic, compared to 60%~70% industry average. Advance technology innovation – Beike has invested heavily in its online platform and has incorporated more advanced techniques like VR/AI. “The traditional process of signing a contract was very complicated and usually took a long time, like two to three hours. Now, clients use less than 20 min on the online platform, which is an innovation in the industry,” said CEO Stanley Peng. In 2019, Beike gradually launched VR sales, second-hand house signing, online loans, and fund depository functions. These investments show their advantage in COVID-19 services as they operate without further human contact, helping to ensure the safety of clients, and further protecting real estate agents’ business from being heavily influenced by offline activity. Risk After Lianjia.com announced their plan for building a transparent platform Beike, real estate brokerage giants like 58.com, 5I5J (000560:SZ), and Century 21 Real Estate gathered other brokerage companies and formed an anti-Beike alliance. They doubted Beike's ability to be equal to every franchised company since itself has a direct operations brand, Lianjia.com. However, in recent years, Beike has shown its sincerity by sharing its invaluable information - RE dictionary – to its platform users and bringing its own acquired real estate property - Deyou Real Estate, as another shared resource for other franchised agents to use. The strong will to bring transformation in the area has always been shown in the management team's presentation, whether from Zuohui or Stanley Peng. April 2019, Century 21 Real Estate, a previous participant of the anti-Beike alliance, announced its business cooperation with Beike, which further showed competitor's approval of Beike's operation models. They believe the platform can create value for the franchised companies in both the short and long term. Building trust from brokerage agents can be another big challenge, since information exclusivity is crucial to the survival of real estate broker agents. If any dishonest agent steals the information that is shared on the platform, without sharing any of the resources, it could be a tremendous loss for other agents. To prevent such cheating activities from happening, Beike launched Beike Credit to better record agents' credit rating. Agents with higher credit can get more exposure on the platform as a return; thus, similar rules build a win-win scenario for both Beike and agents. Besides, Beike uses ACN (Agent Cooperation Network) for distributing compensation. ACN divides the profit into different segments so that the whole transaction process can be divided into separate tasks. All agents who participate will get compensation proportional to their task difficulties. Such a mechanism lowers agents' motives to cheat in the process, compared to a traditional brokerage, where one agent takes the full credit. However, whether or not Beike will be able to bring those companies in as partners in the platform and manage to keep its strict regulation even as its scale grows, following its expectation, is still hard to tell. Competitive Landscape Beike has three crucial elements to its services: a platform for house buyers, a brokerage SaaS for agents, and a giant database aiming to build Chinese MLS. It is hard to find perfectly comparable public info, so we select companies within similar verticals to their most important service. As shown in the graph, investors still have high expectations for companies like Zillow and Redfin, even with constant negative earnings – their PB ratios are still as high as 4.15 and 11.52, respectively, while the average in real estate industry is around 2. Also, neither Zillow nor Redfin have direct mode operations like Beike with Lianjia.com, so that the potential margin projection for Beike in the future will be even more optimistic. Compared with Beike’s Chinese peers, we also believe Beike provides fundamentally better products, more comprehensive services, and a more dominant influence. Several differentiators can help Beike stand out in the competition, such as its strong tech background and a giant first-hand database for the Chinese real estate landscape. These time-consuming projects set the barrier for entry higher and challenge newcomers. Besides, Beike’s recent partnerships with other giants, like Baidu Map and WeChat, can boost its popularity and increase its speed of taking the market share, which is also another factor that its peers with lower cash flow cannot achieve.

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May 26, 2020 11:31 pm · 36Kr

Former Vice President of 58.com Joined Kuaishou

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