South Africa-based internet media and commerce specialist Naspers has agreed to transfer its two Russian online classified sales businesses to rival Avito.ru in return for an 18.6% stake in the enlarged entity. The deal would make Avito one of the largest e -commerce businesses in Russia, positioning it favourably to benefit from the forecast rapid growth in internet shopping in the country, a market that could be worth up to US$60bn by 2020. BMI believes the deal could also give Naspers the leverage needed to enter the Russian advertising and pay-TV markets, benefiting its other lines of business.
According to the Financial Times, Naspers will contribute its Slando.ru and OLX.ru platforms to privately owned Avito, as well as a US$50mn cash investment. Avito's existing shareholders - which include Kinnevik Investments of Sweden, Russia's Vostok Nafta and Northzone Ventures - will remain on board after the deal goes through. However, we expect Naspers to become directly involved in the running of the combined business, given its considerable experience and success in e- commerce , online advertising, pay-TV, social networking, online gaming and print media. Naspers is already a key investor in internet messaging company Mail.ru and we see considerable upside opportunities emerging from the integration of Mail.ru and Avito.
|Retail Therapy For Naspers|
|Russia E-commerce Market, 2010 Onwards (US$bn)|
The Financial Times believes that the combined entity could account for up to 25% of the traffic generated by Russian online classified users per annum and as much as 15% of all revenues associated with such business. A 2012 study carried out by Data Insight valued the Russian e- commerce market - which includes sales of physical goods, ticketing and couponing but excludes sales of virtual goods and business - to - business (B2B) transactions - at approximately US$10bn in 2011, up from US$8bn in 2010. The same study forecasts the value of the market to rise to between US$23bn and US$30bn by 2015 and to between US$40bn and US$60bn by 2020. In the long term, the market could be worth between US$100bn and US$150bn.
However, BMI cautions that much depends on the success of further consolidation in the market, the increased availability of fixed and mobile broadband infrastructure, the continued proliferation of affordable computers and smartphones and clarification of regulations relating to licensed e -commerce and online payment platforms. Venture capital and private equity investments in online commerce businesses in Russia boomed in 2011 and 2012 while a number of high - profile businesses were listed. I nvestment i nterest in the sector will inevitably cool as more competition leads to aggressive pricing, but we believe the enlarged Avito will continue to grow steadily for the foreseeable future .
Like its global counterpart eBay , Avito - which was only established in 2007 - is moving from its roots in serving private individual sellers to host large well-known retail brands on its platform through the use of dedicated virtual outlets. At the same time, the company is looking to grow its online advertising business and BMI considers it is likely only a matter of time before it moves into ancillary services such as social networking, online storage and online payment solutions for enterprises. We therefore expect the company to rapidly improve its annual sales from the US$30mn generated in 2012, although we await further details on the entity's future strateg y as a combined business.