#1ValueAsia S Shopee Marketplace Businesses + Shopee (Sea Ltd) An Investment Case Study By Hayden Capital Value Asia October 19 - 21, 2018 | HAYDEN CAPITAL Hayden Capital 79 Madison Ave, 3rd Floor New York, NY. 10016#2Disclaimer The information and statistical data contained herein have been obtained from sources, which we believe to be reliable, but in no way are warranted by us to accuracy or completeness. We do not undertake to advise you as to any change in figures or our views. This report includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact. 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We disclaim any obligation to update or alter. any forward-looking statements, whether as a result of new information, future events or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate. Clients should let Hayden Capital know if financial situations or investment objectives have changed or whether they prefer to place any reasonable restrictions on the management of their account(s) or modify any existing restrictions. All investments contain risk. You should carefully consider y r your risk tolerance, time horizon, and financial objectives before making investment decisions. These materials shall not constitute an offer to sell or the solicitation of an offer to buy any interests in any account managed by Hayden Capital LLC ("Hayden Capital") or any of its affiliates. Such an offer to sell or solicitation of an offer to buy will only be made pursuant to definitive subscription documents between Hayden Capital and an investor. We, any officer, any member of their families, may have a position in and may from time to time purchase or sell any of the above mentioned or related securities. or HAYDEN CAPITAL Fred Liu, CFA | [email protected] 2#3Who Is Hayden Capital? Investment Strategy: We invest primarily via a long-biased, low-turnover, global equity strategy. Investments are under-written with a 10+ year view. The goal is to compound our capital in-line with these businesses' growth in earnings power. • • . We focus on underlying business unit economics, as opposed to market factors like sentiment or multiple expansion, as the source of our returns. Our typical portfolio comprises of 6 - 15 high-quality companies, that we have studied for an extensive period. We don't aim to "beta-hedge" our positions, as this typically results in sacrificing long-term gains for reducing short-term volatility. As long-term investors, we would rather have a superior (although lumpy) annual return, than a steady (but mediocre) return. In fact, we embrace volatility in most cases as it allows us to purchase companies we like for cheaper. Investment Objective: Achieve returns exceeding the broader Global Equity Markets (measured by the S&P 500 and MSCI World), over a full market cycle. Hayden Capital seeks to achieve these returns primarily through publicly traded, marketable securities of U.S. and non-U.S. companies. • No complex derivatives, “pair-trades", or significant use of leverage. All accounts are Separately Managed Accounts ("SMAs"), as opposed to a pooled structure. We think this is in the best interests of our clients, as it provides clients full ownership of their investments, daily liquidity, and transparency. HAYDEN CAPITAL Fred Liu, CFA | [email protected] 3#4About Me Fred Liu, CFA Managing Partner Fred Liu is Hayden Capital's founder and portfolio manager. He holds a B.S. in finance and international business from the Leonard N. Stern School of Business at New York University. He also holds the Chartered Financial Analyst (CFA) designation. Prior to founding Hayden Capital, Fred was a research analyst at New Street Research responsible for covering the cable and satellite industries. Before this, he was the industrials analyst on J.P. Morgan's Small Cap Equity fund, a five-star Morningstar ranked strategy that invested in securities under $2 Billion in market cap. Fred purchased his first stock at the age of 11, and has been an avid value investor ever since. He currently resides in New York City. HAYDEN CAPITAL Fred Liu, CFA | [email protected] 4#5Marketplace E-commerce (C2C) The gateway drug to an online shopping addiction... HAYDEN CAPITAL Fred Liu, CFA | [email protected] 5#6Southeast Asia - The Next Battleground Compared to other regions, Southeast Asia is still in the very nascent stages of e-commerce development. • Only ~3% of retail sales is conducted online, vs. ~9% - 18% for other Asian countries. Market shares tend to stabilize at ~10% e-commerce penetration, so there's still a lot of "white space" for market shares to shift among incremental customers. Southeast Asia Population From Sea Ltd Investor Presentation Thailand 69.1 million pop. Vietnam 93.6 million pop. Malaysia 32.1 million pop. Taiwan 23.6 million pop. Singapore Indonesia 5.6 million pop. 262.0 million pop. E-Commerce Penetration Rates - By Country For 2017-18 The Philippines 105.3 million pop. 18.0% 17.0% 12.7% 12.0% 11.5% 16.8% 9.1% 10.0% 9.0% Total Population: 591.3 million GDP: US$3.2 trillion HAYDEN CAPITAL 35.4% 9.0% 3.0% United States China Western Europe Korea Japan Southeast Asia Penetration Growth Rate Fred Liu, CFA | [email protected] 6#7If You Were To Start an Online Retail Platform, What Would it Look Like? When launching an online marketplace in Southeast Asia, most likely you'd want it to have the following qualities: Problem Southeast Asia is Mobile- oriented Lack of Trust Buying Online Solution Mobile-first Business Model Shopee Many Competitors Need to Offer Wide Selection of Products, With Limited Capital How Do You Offer Low Prices, When You Don't Control the Product? • • • • Focus on Cheap Categories (i.e. Fashion), where the purchase decision is easier (if it's a fake, it's not a huge deal). Build trust over time, as customers order more often. Make the product addictive. Fashion is a category where shopping is a form of entertainment, and has the highest order frequencies. Fashion marketplaces often have average engagement of >1 hour per day, and order rates of 3 - . 5x per month. This is especially true in emerging economies, with fewer entertainment options. The longer customers browse your store, they'll find something to buy. C2C Marketplace model. the more likely This is the quickest way to offer a wide selection of products, while remaining asset-light. Promote a robust seller ecosystem. With enough sellers competing against each other for the order, natural competition will result in the lowest price at equilibrium. Fashion is also a category where there's great diversity, and it's unlikely multiple sellers will have the same exact product. Small details design differences can justify pricing differences. HAYDEN CAPITAL Fred Liu, CFA | [email protected] 7#8Marketplaces Are Like Self-Regulating Ecosystems Imagine you are building a new city from scratch (think Abu Dhabi). How would you attract inhabitants & visitors to develop a robust economy? Starting a marketplace is very similar. It requires a large initial investment (subway systems vs. IT systems; tax breaks to encourage businesses to relocate there vs. free shipping for buyers to visit, etc), to hopefully create a self-sustaining economy in the future. In a marketplace, the company is like a King, determining the laws / rules of conduct, while also adding features that make it attractive to inhabitants vs. other ecosystems (free shipping, ease of listing, buyer data, etc). • . The sellers on the platform are inhabitants, interacting with each other and to maximize their own well-being, while staying within these rules. Buyers are like tourists, looking for the most diverse, dynamic, cheapest, and easiest cities to visit and spend their money. Once the ecosystem is self-sustaining, the company monetizes by "taxing" all transactions. The inhabitants stay, because despite the new taxes, the living standards are still better than elsewhere (it's better to collect $1,000 of tourist dollars and pay 10% tax, vs paying 0% tax elsewhere, but only selling $10). Better yet, the "taxes” (i.e. take-rate) increases, as sellers to compete against each other to collect an even bigger share of "tourist dollars". • The more that seller pay for services like Advertising, Logistics, etc, the more likely they'll be at the front of the line. More sellers = more competition to be at the front = higher revenues for the company. Note: Similar to evolution, the larger an ecosystem, the more diversity of inhabitants (in this case SKUs). This is important for categories like fashion, where browsing is a fun experience, and variety is a main selling point of a platform. Imagine how boring it'd be going to a mall with just 5 stores, vs. one with 1,000's of stores. HAYDEN CAPITAL Fred Liu, CFA | [email protected] 8#9Marketplaces Are Like Self-Regulating Ecosystems Sellers: "Hey, look at all these Buyers showing up. Why would we go to Lazada or Tokopedia, when there's more customers in this ecosystem?" Shopee's External Funding: "We need to pump up this ecosystem large enough to be self-sustainable, and so it doesn't collapse. We'll then make our real money, once everyone's addicted to our platform, we can start "taxing" our inhabitants, and sellers compete with each other, and thus "bribe" us to put them at the front of the line." go to foote 46 46 4640 Shopee Buyers: "What is that rapidly growing ecosystem over there? It seems like there's a lot more variety in it versus the others... lets go check it out" Toko $ Lazada Blibli HAYDEN CAPITAL Fred Liu, CFA | [email protected] 9#10These Ecosystems Are Being Developed All Across Southeast Asia • • Southeast Asia is very diverse, with currently little cross-border transactions. Investors must think of each country as a separate subsidiary, each with their own odds at success. This makes it both more resilient (losing in one country won't affect its chances in another), while losing some of the natural benefits to scale a larger homogeneous consumer base would provide. Shopee's headquarters is in Singapore, and should be thought of as the "brains" behind this multi-legged model. HAYDEN CAPITAL Fred Liu, CFA | [email protected] 10#11Shopee Overview Shopee is a leading e-commerce platform (C2C) in Southeast Asia. The company was launched as a subsidiary of Sea Ltd (NASDAQ: SE) in 2015. • • Chris Feng (CEO) is ex-Zalora (Rocket Internet), and has staffed the firm with many ex-Zalora colleagues. - He was originally hired to be part of Garena (gaming business). It was only after they saw the amount of peer-to-peer selling taking place on their BeeTalk chat program, that Chris recognized the opportunity and ran with it. Conversations with employees indicate he's smart, drives his team hard, and now living almost full-time in Indonesia. Zalora was a specialized Fashion marketplace in the Southeast Asia, and has largely wound-down after Alibaba's purchase of Lazada and Rocket Internet subsequently moved their focus to other regions. Shopee should generate over $9BN GMV this year (growing ~120% y/y), equating to ~24% total e-commerce market share. The top categories are Fashion (~33%), Health & Beauty (~15%), and Baby Products (~12%). Indonesia and Taiwan comprise the majority of Shopee's GMV (~50% of GMV). The company also operates in Vietnam, Thailand, Philippines, Malaysia, and Singapore. Shopee GMV & Take-rates 2015-2021E Shopee Avg Basket Size & Monthly Order Frequency Estimates from Hayden Capital $32,543 $ 18.72 $ 17.40 $ 17.66 $17.93 $ 18.19 $ 16.80 $ 15.61 $22,983 3.2% $15,120 2.7% 2.2% $9,164 1.5% 4.2x 3.7x 3.7x 3.8x 3.8x 3.9x 2.5x $4,113 $1,150 $54 0.2% 2015 2016 2017 2018E 2015 2016 2017 2018E 2019E 2020E 2021E Shopee Take-Rates Avg Basket Size HAYDEN CAPITAL Fred Liu, CFA | [email protected] 2019E 2020E 2021E Monthly Order Frequency 11#12Mobile First In Asia, mobile usage vs. desktop is much higher than in the West. • In Asia, ~67% of internet usage is on Mobile, vs ~42% in the US and ~40% in Europe. . • A mobile-native interface gives Shopee an advantage (purchase friction is lower), with evidence of this in 90% of Shopee orders being made via mobile (vs. just ~60% for Lazada). This is also evidenced in 3rd party app rankings, with Shopee taking the #1 spot consistently in it major markets. Note: Mobile orders tend to have smaller basket sizes, but higher order frequency. The high frequency keeps Shopee "top of mind” for shoppers, but also results in higher shipping costs as a % of the order size. Indonesia Top Shopping Apps Taiwan Top Shopping Apps App Annie, as of September 27, 2018 1 App Annie, as of September 27, 2018 # Free 蝦皮購物: 花得更少,買得更好 1 S SHOPEE # Free Shopee: No.1 Belanja Online SHOPEE 2 LAZ Lazada Online Shopping &.... Lazada 2 UNI UNIQLO TW QLO UNIQLO 3 Tokopedia - Online Shopping ... Tokopedia 淘宝 3 淘 Taobao Vietnam Top Shopping Apps Thailand Top Shopping Apps App Annie, as of September 27, 2018 1 App Annie, as of September 27, 2018 # Free Shopee: ที่ 1 ออนไลน์ช็อปปิ้ง # Free Shopee: Mua và Bán trên Di -SHOPEE 1 SHOPEE LAZ Lazada - Online Shopping & ... Lazada Lazada #1 Online Shopping 2 Lazada 3 ي FPT Sendovn - Mua sắm trực.. JD CENTRAL 3 Sendo CENTRAL JD COMMERCE COMPANY LIMITED Tiki.vn - Shopping Happiness 4 S SHEIN Fashion Shopping Online Shein Tiki 4 BL 5 al -Akulaku OLX Jual Beli Online 6 OLX Bukalapak Jual Beli Online PT. Bukalapak.com Akulaku-Shop on Installme... mo momo購物網-行動購物第一站,全通路.. ▲ 2 4 ma Fubon Multimedia GOMAJI - 最大吃喝玩樂平台 5 Yi Chi Hsing Hsiao 6 S SHEIN-Fashion Shopping Online. Shein 7 SALE STOCK Sale Stock - Toko Baju Wanita... Sale Stock ▲ 1 淘寶Lite - 官方專為國際及港澳台用戶打造 7 淘 7 Taobao Blibli.com Belanja Online Sho... Blibli ▼ 1 天 露天拍賣 8 PChome eBay Kudo: Agen Pulsa & PPOB Ba... 9 Kudo 5 al Akulaku-Shop on Installme... -Akulaku Chilindo 5 Chilindo Cho Tot - Chuyên mua bán o... UNI UNIQLO TH 6 TOT 6 E Chợ Tốt QLO UNIQLO Quà tặng Galaxy 7 Kaidee Kaidee แหล่ง อขายของออนไลน์ SAMSUNG VIETNAM APPS C... DF Marketplace LOTTE.vn - Online Shopping.. Watsons TH 8 8 W Lotte Watson Yahoo奇摩拍賣-刊登免费 安心購物 ▲ 1 Check Scanner & Shopping Konvy Cosmetic Shopping 9 9 9 Καιν Yahool A Check Konvy 10 2 JD.id - Belanja Online #Dijami... PChome24h ▾ 1 iFind Khuyến mãi Giảm giá 2... Tesco Lotus 10 24 10 10 PChome Online e Find Tesco Lotus 10.6 JD.com Shopintar - Cicilan Online Tan... 生活 生活市集 11 A 1 11 SPEED L Sephora-Beauty Shopping 11 11 市集 SHOPINTAR Kuo Brothers FLOTTE Mart Vietnam Sephora ZALORA Fashion Shopping 12 Z 12 眼 Yahoo 奇摩購物中心-好的生活真的不貴 ▼ 1 The gioi di dong OP Society 12 12 Fleer in unire PanAV LITER Vand TAPila Wabella HAYDEN CAPITAL Fred Liu, CFA | [email protected] ▼ 1 12 12#13Focus on High Margin, Long-tail Categories • Shopee's strength is in the long-tail, high SKU categories of Fashion, Beauty & Home Décor. • These categories fit well with a C2C model, due to the diversity of supply-side offerings. Category margins tend to be much higher too (for example, Fashion and Beauty generally carry ~50-70% value chain margins). One evidence of this is Tmall's higher take-rates on these verticals, which we believe is a good Shopee proxy. Fashion and Beauty tend to have higher order frequency rates too, with Shopee at ~3.6x orders per month, Taobao at ~4-5x per month, etc. This compares to Electronics retailers, where order frequency can be as low as 0.2x orders per month (albeit on a much higher Average Order Value each time). "One of the ways we do that is we look for services that attract a lot of young female users initially. It's a service that could make sense for a whole lot of people, but for whatever reason, the initial user base is young and female. We think that young women are the early adopters of popular culture. They're kind of hit-makers for the rest of society." - Jeremy Liew, Lightspeed Venture Partners Potential Take-Rates At Maturity (Tmall) Tmall Commission Fee Schedule (Sept 2018) 3P Categories 5.0% 5.0% 5.0% 4.0% 1P Categories 2.0% 2.0% 2.0% Shopee vs. Lazada Shopee Seller Presentation (2018) SI → 7 markets Geographies → SG, ID, TH, VN, PH, MY, TW Top Categories Customer Demographics 天猫 TMALL 5 markets CN, HK, TW, SG, MY Fashion Health & Beauty -80% female Fashion Health & Beauty LAZADA Effortless Shopping → 6 markets SG, ID, TH, VN, PH, MY Electronics-Mobile/ Laptops Electronic accessories -55% female 70% between 24-32 yrs. -50% female <30% 25 yrs and younger >40% 25 yrs and younger old Social Features In-app chat "Follow" feature → In-app chat → None Fashion Beauty & Makeup Home Décor & Furniture Household Goods Food & Electronics Appliances Beverage Free Shipping for Sellers → YES (full or partial subsidy after min spend) No No 0% commission in SEA markets Commission and Fees 5% in TW ■Tmall Take-Rate % Channel No fees Mobile first 90% mobile orders. Localized apps 2-5% commission -US$7,000-45,000 security deposit required Annual service fee Website first Single app for all markets 4% commission on all products, except some electronics (1%) 2% payment fee Website first -60% mobile orders Single app for all markets HAYDEN CAPITAL Fred Liu, CFA | [email protected] 13#14High Margin Category + Leading Engagement + Asset-light C2C Model = $$ Given the higher margins in Fashion and Beauty, it's crucial to note that Shopee has the highest exposure to these categories out of all its competitors. - Of Shopee's GMV, ~30-55% is in the Fashion and Beauty categories (varies by country). For example, in Indonesia, this is ~8% higher than Lazada, and ~11% higher than Tokopedia. Relatively cheap and discretionary items (like $2 dresses) are great for markets that are new to E-commerce. The lower order values lower the barrier to trusting online purchases, and the discretionary nature means urgency (i.e. shipping times) isn't as crucial. Reasons For Shopping on Platforms Survey of Indonesian shoppers by ecommerceIQ Top Categories by Platform Survey of Indonesian shoppers by ecommerceIQ com blibli.com Bukalapak JD.ID LAZADA Shopee tokopedia blibli Bukalapak JD.ID LAZADA Shopee tokopedia Effortless Shopping Effortless Shopping Mobile & Electronics 21% 25% 15% 20% 13% 22% Good reputation 14.8% 13.0% 12.9% 13.7% 10.9% 14.3% Fashion 17% 16% 11% 19% 24% 12% Cheaper product price 6.5% 15.1% 11.0% 13.5% 18.0% 13.3% More product selection 6.5% 14.6% 5.2% 11.3% 13.0% 16.8% Beauty 4% 4% 11% 9% 12% 5% Authentic products 13.9% 3.9% 19.5% 7.2% 4.2% 4.3% Health & Wellness 3% 2% 3% 3% 5% 5% Good customer service 12.0% 8.9% 5.2% 6.5% 7.7% 8.8% Mom & baby 8% 4% 10% 8% 8% 4% Fast delivery 7.4% 6.0% 8.6% 10.0% 7.6% 5.8% Toys 5% 5% 5% 5% 5% 9% Free delivery 13.0% 6.8% 14.8% 10.6% 18.4% 3.2% Groceries 17% 9% 19% 10% 11% 11% Easy return policy 6.5% 5.7% 2.9% 5.4% 4.5% 5.3% Lifestyle and Hobby 8% 10% 7% 7% 8% 10% Easy navigation on site 4.6% 7.0% 3.3% 3.8% 3.5% 9.3% Home & Living 7% 8% 10% 9% 8% 9% More payment options 9.3% 8.9% 11.0% 13.4% 5.3% 8.4% Sports 4% 6% 3% 4% 3% 4% Better mobile app 4.6% 9.6% 5.7% 4.4% 6.8% 9.4% Travel 5% 3% 3% 2% 2% 3% Loyalty program 0.0% 0.3% 0.0% 0.0% 0.1% 0.0% Automotive 0% 7% 2% 3% 1% 4% More promo 0.9% 0.0% 0.0% 0.0% 0.2% 0.9% Others 0% 1% 0% 1% 1% 2% More secure 0.0% 0.3% 0.0% 0.1% 0.0% 0.2% Figure 4: Reasons why shoppers prefer certain online platforms over others; ecommerceIQ E-Marketplace Indonesia Survey HAYDEN CAPITAL Fred Liu, CFA | [email protected] Figure 7: The most popular product categories on ecommerce platforms in Indonesia; ecommercelQ E-Marketplace Indonesia Survey 14#15Shopee's Fashion GMV • As of December 2017, Shopee had ~31% Fashion GMV. - Of this, 42% was apparel, 32% was bags, and 13% was shoes. Also note that fashion orders have smaller than average order sizes, as indicated by 36% of orders but only 31% of GMV. Shopee's GMV Breakout Source from private Shopee marketing presenation, for a Southeast Asian retailer Shopee Category Breakout Fashion Others Source: Company data, Dec 2017 64% 69% HAYDEN CAPITAL Orders GMV Fashion Category Breakout Apparel 15% Bags Shoes 36% Others 16% Orders 49% Apparel and Bags make 20% up -70% of Fashion orders and 13% 31% 13% 42% GMV Private & Confidential Fred Liu, CFA | [email protected] 32% GMV 15#16Higher User Engagement... Compared to competitors, Shopee has among the highest user engagement. For discretionary / “want” categories like fashion or makeup, it's important to keep customers coming back. The more they browse, the more likely they'll find something to buy. • On an average session basis, Shopee customers spend 19% more time on the platform vs. Lazada, and 77% more time vs. Tokopedia. They also visit 25% more pages vs. Lazada and 94% more than Tokopedia. This indicates stronger "browsing” behavior, as consumers "window shop" across products. Note: These statistics are for desktop usage only, and we don't have data for mobile app usage behavior. However given Shopee's stronger dominance on mobile, we'd expect these behavioral characteristics to be even stronger on mobile than desktop. Avg. Pages per Visit (Desktop Only) From Similarweb Data 10.01 8.59 8.58 7.91 Zalando Poshmark Amazon Shopee.co.id HAYDEN CAPITAL 7.22 6.32 5.49 4.37 4.07 Tmall Lazada.co.id Taobao JD Tokopedia Avg. Session Duration (Desktop Only) From Similarweb Data 6:49 6:42 6:36 6:15 5:48 5:15 Zalando Poshmark Taobao Shopee.co.id Amazon Lazada.co.id Fred Liu, CFA | [email protected] 3:47 3:32 3:01 Tokopedia Tmall JD 16#17Leads to a Stronger Platform Damai Fashion is one of the leading clothing sellers on both Shopee and Lazada Indonesia • • Not only are prices on Shopee are -21% cheaper than Lazada (Rp 31,160 vs. 39,600), but also include free shipping at a lower minimum spend. Importantly, Damai has almost ~6x the number of followers on Shopee vs. Lazada (59,255 Shopee vs 10,396 Lazada) The number of ratings is also lower, at 1,291 ratings on Shopee vs. 74 ratings for Lazada. Note: If there are promotional prices, ~2/3 are subsidized by Shopee and 1/3 by the seller. Damai Fashion - Shopee Shopee Indonedia, September 2018 (LINK) ShopeeOuterwear > Women's Clothing Fashion Peaceful Jackets BLACK AND WHITE MOSCHI SWEATER JACKETS > > > Peaceful Fashion - BLACK AND WHITE MOSCHI SWEATER JACKET Rp 3000 Rp. 31,160 **** 4.4 out of 5 (1291 Hatings) 267 Sold Every Month SMO CHICHI Free Ongkir with shopping min. IDR 50,000 from the Damaifashion store Delivery to MENTENG, KOTA JAKARTA PUSAT Postal Fee Rp: 0-Rp 10,000 Likes: 3483 Share to Watiation White Black Quantity 1 1 4 remaining 305 pieces Chat Now Enter The Basket Buy Now Shopee Guarantee Get your Ordered items or money back OFF damalfashion Active 11 Minutes Ago 日 27% 339 Product 46 Count Of Hours 8 13 months ago Assment Visit The Store Follow it The Percentage Of Chat Reply Chat Time Reply Join HAYDEN CAPITAL Damai Fashion - Lazada Lazada Indonedia, September 2018 (LINK) Fashion Fashion Wanita > Pakaian > Hoodie & Sweatshirt Wanita > DAMAI FASHION JAKARTA sweater wanita MOSCHI hoody HITAM DAMAI FASHION JAKARTA - sweater wanita MOSCHI hoody HITAM ASMOCHI SMO CHICHI 74 Penilaian 521 Pertanyaan yang dijawab Merken Lebih banyak Fashion Wanita dari Ven Rp39.600 R-4.000 -40% Fred Liu, CFA | [email protected] Pilhan pengiriman @ DKI Jakarta Kota Jakarta Barat Cengkareng UBAH <♡ Standar 2-6 Rp6.100 Nikmati gratis ongkir hingga Rp30,000 dengan belanja minimum Rp120.000. Bayar di tempat berlaku Promosi Spend Ra199.000 gut Pp 19.900 off Cicilan Sampai dengan 12 bulan, dengan pembayaran Rp3 300 per bulan Pengembalian & Garansi 0 14 hari pengembalian barang Color Family Hitam Size Int L Berubah pandak Tidak ada garansi Dijual oleh Damai Fashion Penilaian positif seller Pengiriman tepat waktu Chat Kelompok Seller Kuantitas 1 60% 94% Bali Sekarang Tambah ke Troli KUNJUNGI TOKO 17#18... Leads to a Stronger Platform (continued) This case isn't unique to Damai or Lazada. We looked at number sellers across the fashion and beauty categories, for Shopee vs. Tokopedia also... . Shopee consistently had lower prices and higher number of reviews / volume per seller. Versus Tokopedia especially, Shopee's Ratings count was ~10x higher. • The site aesthetics were also much better on Shopee, with professional / stock photos, vs. self-taken photos on Tokopedia. Shopee's Superior App Aesthetics Shopee on top left, Tokopedia on bottom right MENTHOL DINGIN Cetaphil CCTANG Skin Cleanser d Matte Lap Grea Wardah Ma FOCALLURE SP Wer wild nush Part 1 CHAD) Pal Brashy f Tony Moly Date Tony POCALLURE FOUN W T C Rekons monomol Lp Fatter Lips Ismas WOW MONOMORA KOREA T HAYDEN CAPITAL Number of Ratings by Platform Shopee vs. Tokopedia Store Category Ranking Ratings toko womens fashion top sales 1,550 [1.40% Briginal Band .000.00 toko womens fashion top rated 1,765 toko beauty top sales 3,157 toko beauty top rated 3,780 toko electronics top sales 2,173 toko electronics top rated 2,128 toko comp/acc top sales 2,322 toko comp/acc top rated 2,271 shopee womens fashion best-selling 15,727 shopee womens fashion popular 13,635 MAGIE GLOW EXTRA NOW PROOF MATTE ME WHITENING NIGHT NEWSH NOW IS PROOF SOFT LIPSTICK 45.500 shopee beauty best-selling 18,358 shopee beauty popular 11,794 shopee electronics best-selling 22,447 shopee electronics popular 15,082 shopee comp/acc BACsire and Delicate a Than A C shopee comp/acc CHAMN 30g best-selling popular 2,304 1,766 Cushion FU-49.000 Fred Liu, CFA | [email protected] 18#19The Race To #1 • We estimate that Shopee is currently neck-to-neck with Lazada in terms of GMV (although Lazada doesn't operate in Taiwan, while Shopee does). - - Given the stickiness of Shopee's categories, we expect Shopee to widen its lead over the next few years. However, these estimates are VERY rough. Market share data is hard to come by, almost all competitors are private or subsidiaries and don't disclose KPIs, and even market sizing data is often widely different depending on source. - "I have a kind of a secondary career in trying to measure these [market sizes] and understand them” – Alan Hellawell, Sea Chief Strategy Officer Indonesia and Taiwan markets have the highest share of Fashion & Beauty categories, as a result of their higher concentration of female customers. - Note the high electronics share in Thailand. One can infer this is why Shopee recently launched "Shopee for Men" in the country last month (LINK). HAYDEN CAPITAL Shopee vs. Lazada vs. Tokopedia GMV's Data is very rough, for directional purposes only; From private conversations on funding round valuations 54 9,164 8,800 5,400 4,1134,100 1,9002,200 1,024 1,150 2015 2016 2017 2018E Shopee | Lazada Tokopedia Fred Liu, CFA | [email protected] 19#20SO WHAT'S THE PROBLEM? HAYDEN CAPITAL Fred Liu, CFA | [email protected] 20#21Unit Economics - Hope vs. Reality • The big issue is that Shopee is currently “buying revenues". They're subsidizing shipping costs, with no commissions in most of its countries. They're essentially "pumping up the ecosystem" with external funding, trying to attract a diversity of sellers & buyers. - Due to this, they lose money on every customer they acquire - not just on the initial CAC, but also on a recurring basis. The more their customers order, the more they lose. Since there's no profits on a per customer level today, its almost impossible to do a valuation or IRR on customer acquisition spend. Such an analysis involves too many moving parts, and estimates on future take-rates and timing. Competition is fierce, so the ability to suffer / being able to withstand more pain than your competitors / having access to funding can be a differentiator in winning. Shopee thinks they can break-even by 2020, and achieve the unit economics highlighted below. However this will depend upon the actions of the competitors, and there is a level of game theory involved. Hopeful Unit Economics Based on Nick Nash, January 2018 CNBC interview (LINK) Profit per Customer - Hopeful Basket Size × Order Frequency per Month = Monthly Transaction Value x Shopee Take Rate = Shopee Monthly Customer Revenue x Op Margin = Shopee Op Profit, per Customer per Month x 12 months x Retention Ratio Customer Acq Cost = Year 1, Return on CAC memo: Payback Period (months) $ 17.38 3.6x $62.59 1000+ Today's Unit Economics Hayden Capital estimates Profit per Customer - Today Basket Size x Order Frequency per Month = Monthly Transaction Value x Shopee Take Rate 5.0% $3.13 = Shopee Monthly Customer Revenue 40.0% $1.25 x Op Margin x 12 months 100.0% x Retention Ratio / Customer Acq Cost $ 17.38 = Shopee Op Profit, per Customer per Month 3.6x $ 62.59 (6.2)% $ (3.89) (48.3)% $ (5.77) 12 30.0% $ 8.00 (359.5)% N/A $ 6.00 150.3% 4.8 = Year 1, Return on CAC memo: Payback Period (months) HAYDEN CAPITAL Fred Liu, CFA | [email protected] 21#22It's Still Very Early... Compared to its competitors' private rounds, Shopee is being valued extremely conservatively by the market. Sell-side firms are currently valuing Garena (the gaming business) at ~$2BN. Given Sea's ~$4.3BN total market cap, this implies ~$2.3BN (0.25x 2018E GMV) for Shopee, assuming the Airpay business is worth zero. - Comparatively, Lazada in its previous rounds were valued at ~0.7x GMV, and Tokopedia we've heard is in the process of raising $1.5BN at 1x GMV. However, it's still extremely early in the industry lifecycle, and valuations are almost meaningless given the ample "white-space" for competitors to gain a toehold + the lack of monetization on a customer level. - There are a lot of variables necessary to underwrite in the meantime (future take-rates, user order metrics, competitive reaction, etc). The early less mature the industry, the more access to capital / funding can be a differentiator in eventual success. LAUNCH $ HAYDEN CAPITAL Shopee GROWTH 0:0 天猫 THALLCOm 淘 amazon SHAKE -OUT MATURITY DECLINE Life cycle extension Sales Cash Profit Time (years) Fred Liu, CFA | [email protected] 22 22#23Crucial Questions: TBD This company isn't a “slam-dunk” just yet... there are still a lot of remaining questions to be answered. However, it does offer an interesting case study of an early-stage marketplace, that has all the early signs of being on the track towards “winning”. Will Shopee Remain the Leader? • • At only ~3% e-commerce penetration, there's still a lot of "white space" in the industry. Historically, market shares in e- commerce don't stability until ~10%. Despite Shopee being the leader now, there's still room for competitors to take share from “greenfield" customers. Access to almost unlimited capital can do a lot (Alibaba & Softbank). How much does access to funding vs localization matter (Taobao vs Ebay in early 2000's). Lazada is going through a management / culture shake-up right now, having recently taken full control over the company earlier this year. Early signs indicate there's a lot of tension between Rocket Internet ex-employees, and Alibaba's “imported" Chinese employees. For example, Lucy Peng just took over as CEO, and it remains to be seen what impact this will have. How Sustainable is the Moat? Is it Based Upon Better Technology (defensible), or Simply Being Larger / Network Effects (less defensible, especially in early stages)? • If based on having better data analysis / technology, how is the comparative ability to attract talent? Supply of tech talent in Southeast Asia is scarce, hence why Shopee is courting engineers from India, and recently opened an office in Shenzhen. However, Lazada also has access to Alibaba's resources, which may give them an advantage. Given These Dynamics, What Do You Do? How do you think about position sizing? • . Do you size it small, and think of it as a late-stage VC investment? The company is post product-market fit, but pre- monetization. Add based on milestones (definitive leader in key markets > gain share in Fashion & Beauty categories > ability to monetize > ramp up of take-rates towards 5% > expand into adjacent categories, etc)? HAYDEN CAPITAL Fred Liu, CFA | [email protected] 23#24Contact Information For More Information Contact Us: Fred Liu Managing Partner Hayden Capital 79 Madison Ave, 3rd Floor New York, NY. 10016 Email: [email protected] HAYDEN CAPITAL Fred Liu, CFA | [email protected] 24