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Briefing Sep 17, 2020 02:37 pm EqualOcean

Weimob Assigns Baidu Ex-VP Watson Yin the New COO

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Oct 9, 2020 07:00 am ·

Tencent-Supported Weimob Surges 200% So Far in 2020

Compared to the beginning of the year, Weimob saw a threefold increase in market cap HKD 22.3 billion (USD 2.9 billion) at the end of the third quarter in 2020, with a stock price increased from HKD 3.3 billion to HKD 9.9 in the same period. The price reached the peak of HKD 13.92 billion in early September and slipped below HKD 10 in three weeks since the US announced the WeChat banning order. The WeChat banning order has influenced the stock severely because the SaaS company is a significant partner within Tencent’s ecosystem – to be specific, the ecosystem of WeChat, the most-used app among Chinese users. Weimob is a Chinese SaaS company that resembles Shopify, but it differentiates from the latter because of the different environments in two markets. Unlike the US market, Tencent’s super-app WeChat dominates Chinese Internet users’ virtual lives, with over 1.2 billion MAUs. Weimob has a strong bond with WeChat and it is a significant marketing vendor inside the WeChat ecosystem. Being a supply-side platform that has more bargaining power in the digital marketing world, Weimob’s marketing business recognized CNY 745 million (USD million) in the first half, accounting for 77.8% of the total revenue. During the same period, target marketing advertisers increased to 26,084 with a YOY 33.5%; the average spend per advertiser was CNY176,772, nearly doubled the number amid the first half of 2019. The pandemic shattered brick-and-mortar business and forced companies to fully utilize the online marketing channel. The rapid growth in advertiser accounts and average marketing spending speak of the transition. As for Weimob's SaaS business, it experienced internal sabotage – an employee attacked the database and millions of merchants were affected by the severe outage. The incident burned around 1/3 of its SaaS half-year revenue to ash; the firm deducted CNY 92.9 million from its 6-month revenue of CNY 304.9 million. The SaaS business contributed 22.2% of the revenue, but it brought up the company’s overall gross margin to 44% (SaaS: 65.9%; Target marketing: 37.8%). In March, Weimob acquired Yazuo, a catering and dining SaaS company based in the Yangtze delta region. The acquisition set Weimob’s foot in the dining SaaS industry and absorbed Yazuo’s key accounts, most of which are top-tier restaurant chains in China. In a post-pandemic era, it is expected that expedited digitalization will be the norm. The acquisition of Yazu will accelerate the industry convergence process.

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Aug 18, 2020 08:04 pm ·

Weimob's Performance Is Anticipated Solid

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Aug 7, 2020 03:49 pm ·

Tencent Ecosystem Member WeiMob's Stock Experiences Roller Coaster Ride

After United States President Donald Trump signed the executive order of banning the China-based social media platform WeChat, the stock of the owner of the platform, Tencent (00700:HK), responded instantaneously with HKD 30 billion losses and is only slowing climbing back. Previously recommended with a buy by EqualOcean, the stock price of Weimob (02013:HKEX), the Chinese echo to Shopify (SHOP:NYSE), slumped 10% after the market opened with the WeChat banning order. Weimob being a WeChat ecosystem member company, its market performance was inevitably affected by the blow to Tencent. At the time of publication, Hang Seng Tech Index had dropped over 3% for the day. WeChat has over 1,100 million users worldwide but most of them are located in China. The instant message app is also a mega app that integrated functions like moment sharing, video chat, in-app games, e-marketplaces, e-payment, and so on. As a social media platform, WeChat creates an ecosystem for users and developers. The banning order’s influence on Tencent’s operation can be contained, as its biggest market is still China. From Huawei, TikTok to WeChat, the US leader has been widening his 'China Tech Attack.' Banning orders have come one after another – for many commentators, these were issued without solid evidence to support them. The uncertain geopolitical maneuvers rocked the tech market. Hong Kong tech shares started low following the recent news and are now fluctuating and slowly rising on a small slope.

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Analysis EO
Jul 26, 2020 08:11 pm ·

Weimob: No Pain, No Gain – Maintain Buy

Weimob's share prices were hit heavily by two events in the first half of 2020 – one concerned the ‘sabotage’ issue back on Feb 23, and the other concerned Tencent's launch of WeStore. Now Weimob’s shares are trading at HKD 11.02 (as of July 24, 2020). Share prices picked up rapidly after the company announced a compensation plan days after the first issue, solving the investors' worries around customer leakage and attrition. However, some are still worried that Tencent will march into the massive SaaS for merchants living on its biggest social network, WeChat.  We see can clearly see the two pains that Weimob has, or has been going through. It is likely that these will prove the business’ resistance and the company’s values. This can be attributed to two reasons: 1. merchants have become more loyal since the sabotage issue, finding more issues arising when switching to another provider. 2. Tencent's move on WeStore serves long-tail customers while Weimob is in the direction of Key Accounts (KAs). We thus believe that Tencent will remain a strong partner for Weimob – and will not become an enemy at this stage.    We believe Weimob is shaping up to be an unstoppable leader in the niche of social e-commerce. 1. It is dominant in targeted marketing, thriving as a WeChat-based third-party provider. 2. It adds input in SaaS solutions (e.g., increasing cloud services procurement, expanding sales teams). 3. The cross-sell opportunity that its two main business divisions create is massive. Our target price of HKD 14.9 is based on an SOTP approach: 21x P/S for 2021E SaaS sales, and 17x P/E for 2021E targeted marketing net income. Maintain Buy. As investors may grow concerned about the two issues mentioned above, along with macroeconomic uncertainties/hype in investing in SaaS/tech, we assume its stock price will hover around HKD 9-12 in the short term.  Highlights in FY19 and our forecast Growing ARPU in the SaaS business. Weimob is expanding its KA merchant share and keeping the pace of serving large-sized merchants. In 2019, the ARPU rose by 19% to CNY 6,373.0 from last year's CNY 5,365.0. Back in 2019, the ARPU is still lagging ~CNY 3,000 compared to Youzan. Weimob established a new product pipeline in 2019 for new verticals such as premium marketing cloud and sales packages. As such, we believe Weimob has gained traction from focusing on increasing ARPU, instead of adding more users like it did in the previous years. As such, Weimob's number of merchants only rose 23% compared to 26% in 2018.  Opportunities in cross-selling and upselling. The company's conversion rates of registered merchants to paying merchants of SaaS products were 2.0%, 2.7%, 3.3%. The number of paying users increased by 23% vs. 26% in 2018. We think it is partly attributable to currently the cross-sell between the two businesses is still very low, and the company focuses on larger clients. We see huge potential for Weimob to convert SaaS product merchants into advertisers, which usually pays higher, while also paying premium users. We expect more product innovations like visualized modules, marketing plug-ins, and business intelligence (BI) to lift up the SaaS ARPU in the next three years.  Rising average spend per merchants for targeted marketing (CNY 154,680 vs. CNY 87,185 in 2018). As explained in the initiation coverage article, Weimob's success in targeted marketing relies on Tencent and Supply Side Platform (SSP). Tencent's act of issuing a marketing service provider in its ecosystem a license defined by the provinces and industries they operate in. The license model gives providers like Weimob an edge over unlicensed parties with higher rebates and thus to establish their strength. We believe the policy will continue favoring Weimob in the coming years. At the same time, Weimob is likely to explore new traffic partnerships represented by ByteDance and its affiliates, Zhuhu and Baidu.  Short-term uncertainties will prove Weimob's resistance – and also lead Weimob in a better direction The sabotage event has made Weimob stronger and, more importantly, has raised customer retention, according to our investigations. Weimob reacted fast to the issue by releasing a fair compensation plan that involves CNY 150 million cash and traffic compensation options. Though there are still merchants like Haoshiduoduo suing the firm, we think it won't affect the top-line much. Positives factors like higher ARPU will offset negatives, and higher average spend per merchant, and also higher Martech/SaaS penetration. Besides, Weimob's competitor China Youzan ramped up a marketing campaign trying to acquire customers from Weimob after the sabotage. The activity incurred more resentment from the Internet, with users complaining about the firm charging commission fee when merchants cash their revenues out, suggesting the firm is too eager to commercialize and neglects merchants' interests. Merchants with Weimob will stay with Weimob, according to industry insiders. As Weimob keeps expanding its service and sales team across the country to acquire the new ones and retain old ones, its product innovations will improve customer switching costs. We see the issue, and the afterward unveil Weimob's competence in the industry. To protect the same problem from happing, Weimob is likely to improve inputs in hardware, could servers and R&D. We expect gross margins to drop to 71% in 2020 to factor in these moves.  SaaS or PaaS? Tencent goes for the latter. Tencent's WeStore is a mini-program for product sales and has been considered a big threat to standalone providers like Weimob. In the short term, it should not have a negative impact. Like its passive strategic investment style, Tencent usually helps brands and merchants grow their digital assets and expand in the ecosystem (think of how PDD grew from it). We believe that Tencent's utmost interest remains unchanged – it seeks to build a social e-commerce ecosystem along with third-party 2B SaaS product providers in Martech, customer service, and others, instead of framing itself as a direct competitor. PaaS will remain the future of WeChat, a viable path that Salesforce (CRM:NYSE) also chose – correctly, in our view. WeStore providing basic functions to long-tail merchants will accelerate SaaS adoption, social e-commerce penetration and merchants' willingness to pay more. This will further help to speed up the overall market volume ramp-up.  SOTP valuation We expect to see SaaS revenues to grow to CNY 740.22 mn/ CNY 1,058.51 mn/CNY 1,535.23 mn in 2020/21/22. We foresee the number of paying merchants reaching 97,046/117,426/140,911 in 20/21/22, representing 22%/21.0%/20% YoY growth, respectively. Based on a forecast mix of targeted marketing revenues booked on gross and net bases, we see the targeted marketing revenue increasing to CNY 1,627.50 mn/ CNY 2,376.15 mn/CNY 3,207.80 mn 20/21/22. We use a flat net margin estimate of 20% to reflect the firm's advantages in the niche. We derive our price target of HKD 14.9 from SOTP given the business spilt: For the SaaS business, we apply a target 2021E P/S of 21x, which is the average multiple of Shopify, Square, ServiceNow and Salesforce. For the targeted marketing business, we apply a target 2021E P/E multiple of 17x, deriving from the average multiple of four Chinese advertisement comparables. We apply a high discount to stay conservative here as the business net margin is exposed to higher risks than the SaaS business.  Upside risks: more partnerships with major social media platforms, adding M&As, better-than-expected business growth of targeted marketing. Downside risks mainly lie in rising competition, worse-than-expected net margins of targeted marketing business and macroeconomic slowdown.  

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Oct 26, 2020 11:08 am · ITjuzi

Retail AI Startup ImageDT Completes USD 10 Mn Series B

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