Naspers pumped another R716 million into Takealot

JStrike

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Very interesting. Very, very interesting. That should put their valuation somewhere near R3b
 

MagicDude4Eva

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1.5bn Rand in cash blown in 2 years and not really much to show for - other than some warehouses and purchase of small e-commerce shops. valuation should be around 5bn based on all the funding runs done (most are not publicly known). monthly opex must be around 50-80m - ouch...
 

Swa

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Good. Give back some of those MC millions.
 

Swa

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1.5bn Rand in cash blown in 2 years and not really much to show for - other than some warehouses and purchase of small e-commerce shops. valuation should be around 5bn based on all the funding runs done (most are not publicly known). monthly opex must be around 50-80m - ouch...
Don't you think they are using a failing business model here? Their campaigns aren't resulting in customer loyalty and many people are looking to buy stuff at possibly below cost with free delivery on top of that. At the end of it all I don't think they'll having anything to show for it i.t.o. of capital investments or a customer base.
 

MagicDude4Eva

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Don't you think they are using a failing business model here? Their campaigns aren't resulting in customer loyalty and many people are looking to buy stuff at possibly below cost with free delivery on top of that. At the end of it all I don't think they'll having anything to show for it i.t.o. of capital investments or a customer base.
The business model is not failing, but the approach. Prior to the $100m fund run in 2014, the company has seen a number of "smaller" fund runs totalling more than R250m. Naspers now raised $50m and considering that Tiger Global and Naspers are equal shareholders it would either mean that Tiger would have to raise an equal $50m (or this was a split-raised fund).

With the Kalahari buy-out people were talking about how big the company would grow in customer numbers, but I always argued that 1+1=1.2 and not 1+1=2 as most customers of Kalahari would have shopped at Takelot and other websites already. The strategy of pushing out specials and burning through vouchers is just a very expensive shotgun approach of customer acquisition and will never guarantee customer retention. Online customers are typically not loyal and customer retention will only stick if the overall service (fulfilment, pricing, customer service, product quality, returns handling) is very good and substantially better than competitors.

Management of the company made the fundamental mistake of running an online business the same way as a regular business and the technical execution (not just the IT infrastructure, but also fulfilment/logistics) are just very poor. Even with my first funding run I would have implemented a proper, functioning search (search for "sandisk 16gb" and don't be surprised if you see iPhones, Samsung tablets etc among search results). With the acquisition of Kalahari, the company would now have a headcount of close to 400 staff in headoffice and it is obvious that there will be infighting between ex-Naspers staff who started Takealot and ex-Kalahari-staff who had no choice but to join the company.

At the moment, the company demonstrates "incredible growth" in customer acquisition (as people sign up with multiple accounts to redeem vouchers) and revenue (I would expect that their revenue would need to be at least R200m per month). I doubt that the company writes black numbers as most products are sold below/at cost, churns enormous amount of cash in vouchers and has high opex (think 400 staff, warehouses etc). I would guess that their current burn rate is easily R100m/pm and even if they pull back the aggressive marketing, the burn-rate would never be lower than R30m which requires a ton of cash in profit).

Lastly, I don't think that Takealot will get another funding run after this, as TGM will do the same as they are currently doing in India (http://timesofindia.indiatimes.com/...bal-is-changing-tack/articleshow/49855598.cms). This will put the company in a precarious position once cash runs out and ultimately Naspers will laugh it off as they will then bail out Takealot and win the Kalahari/Takealot battle in the end.

With the above you also forget the following: A large e-commerce player will enter the local market late Q1 and will be a direct competitors to Takealot. Walmart/Massmart will properly push e-commerce by Q3 and another European player will also enter the local market. The local retailers will equally push online and there will be a big shift with a local logistics company by Q3 which will turn things upside down for companies currently using their own fulfilment mechanisms.

IMO, the right approach would have been not to be a sell-out to Naspers and continue with the organic growth. While the old Take2 tech was okay for it's time, I would have aggressively changed IT within the first year and if you look at the current IT stack and architecture it seems to be "rubber-banded" together and highly fragmented without a concrete plan of taking it forward. There seems to be no focus on sorting out the small (but important) issues and you will find this all over their website and mobile app (on that note: with that much cash I would have implemented mobile apps on all platforms and I would have also formed JVs with all major service-providers and device manufacturers)

I highly doubt that Takealot will ever become a global e-commerce unicorn (https://www.cbinsights.com/research-future-unicorn-companies) and eventually cash will bleed out with customers churning to other businesses (Raru, Gumtree, bidorbuy, OLX, Rocket Internet, Mara Sokoni, Shopify) during Q3/Q4. I have yet to see an e-commerce company in the Naspers stable function and perform well - in most cases, a promising startup is cannibalised by corporate governance, red tape and politics and I don't think it will be any different for Takealot in the years to come.

The biggest evil in those large funding runs: A once "keep-it-lean-and-mean" company will throw all caution to the wind and forget about the KISS-principle and over-engineer and underperform.
 

rpm

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Thanks for this insightful post MagicDude4Eva. Takealot is certainly a long play, but sooner or later shareholders will start to demand profits.
 

MagicDude4Eva

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Thanks for this insightful post MagicDude4Eva. Takealot is certainly a long play, but sooner or later shareholders will start to demand profits.
No problem, I actually think Tiger put up another $50m at the same time - otherwise the following makes no sense:

Annual report - June 2015
During February 2015 the group acquired a 46,5% interest in Takealot Online (RF) Proprietary Limited (“Takealot”) in exchange for the contribution
of its South African etail business, Kalahari.com, and the issue of 612 977 Naspers N ordinary shares. The aggregate purchase consideration in
the transaction amounted to R1,2bn and the acquisition gave rise to a deemed disposal gain of R154m, which has been recognised in Gains on
acquisitions and disposals in the income statement. The group’s interest in Takealot is accounted for as an investment in an associate. The group
has a 41,86% interest in Takealot on a fully diluted basis.
Interim results-September 2015 (http://www.naspers.com/int-results.html):
The group invested R716m as part of a funding round of its associate Takealot Online (RF) Proprietary Limited (“Takealot”) during August 2015.
The group now has a 42,2% interest in Takealot on a fully diluted basis.
 

McT

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@MagicDude4Eva, a very insightful and informative post. Really appreciated your views. For their sake, let's hope they heed your sage warning.
 

Toothless

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The business model is not failing, but the approach. /snip.
Very nice summary indeed!

Looking at recent personal events, this comment, complaints on Hellopeter, tomorrow morning I am dumping 11 years of shares purchased in Naspers. The risk is way too big for me. Gonna have a hell of a holiday come end December.
 

PostmanPot

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When I've compared order numbers on the same day within a few hours of each other, Takealot receives about 2,500 orders per hour.

They also have a brand new modern 30,000m2 warehouse in Cape Town with private security.
 

Swa

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At the moment, the company demonstrates "incredible growth" in customer acquisition (as people sign up with multiple accounts to redeem vouchers) and revenue (I would expect that their revenue would need to be at least R200m per month). I doubt that the company writes black numbers as most products are sold below/at cost, churns enormous amount of cash in vouchers and has high opex (think 400 staff, warehouses etc). I would guess that their current burn rate is easily R100m/pm and even if they pull back the aggressive marketing, the burn-rate would never be lower than R30m which requires a ton of cash in profit).
Yeah this is my biggest concern. As it's not turning a profit between below cost goods and delivery the vouchers are largely funded by the funding runs. They don't result in it turning a profit at the end of the day. I don't expect them to continue after this funding so the question is how are they going to turn a profit?
 

d0b33

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Amazon has not made much of a profit for years either and that's considered fine. Growth before profit.
 

Swa

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Amazon has not made much of a profit for years either and that's considered fine. Growth before profit.
But it is making a profit. It's not investing to make a future profit. Walmart as well isn't turning much of a profit which is fine with their low inflation.
 

MagicDude4Eva

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When I've compared order numbers on the same day within a few hours of each other, Takealot receives about 2,500 orders per hour.

They also have a brand new modern 30,000m2 warehouse in Cape Town with private security.
I would guess that about 30% of orders result in non-payment - you can place an order and then just not pay - so the order number itself is not a good indicator about company performance. After I think 48 hours the order gets cancelled. I am not sure about Takealot, but I know that Zalando used to have a 60% return-rate on shoes (this was in late 2013/early 2014). A state-of-the-art warehouse (with robotics, ERP system and real-time fulfilment/stock management) will not cost more than R300m (add R300m stock to it and you can then work out the opex burn).

Amazon has not made much of a profit for years either and that's considered fine. Growth before profit.
Amazon posted close to $30bn in revenue for the year in October. I know that Naspers and Takealot like to compare themselves to Amazon, but the fact is that they do not have AWS, do not run a marketplace (well Kalahari did, but failed with the implementation). Many might not know that Amazon owns brands like Zappos, Twitch.tv, Audible, Goodreads. Amazon posts losses as they heavily invest into disruptive innovation (Amazon Prime, Amazon Locker, Amazon Dash, Amazon Fresh) and is one of the few companies which have been very progressive over the years. AWS for example doubled their revenue in the last 12 months. Amazon could very well post profits if they decided to stop innovation but would then very quickly face competition from Alibaba (which is already becoming very dominant in the US).

Either way, difficult to say what challenges the company has in the inside, I just see many CVs coming out from Cape Town and a lot of LinkedIn updates which seem to indicate that the sudden growth and obviously red-tape with Naspers on board is introducing corporate politics which will eventually slow down any progressive company.
 

Toothless

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In addition to all this, online shopping has not yet matured in SA. Ordering online and having to wait 5-7 until stock is received and another 2-3 days for delivery is crazy. Best is to pay more, drive off to a brick & mortar store, buy your product and use it immediately.

In places such as the UK and the US, most of the time you order your product today and will have it delivered before you get home the afternoon.
 

JStrike

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Naspers really are a brilliant company. And Takealot is a great investment
 

Garson007

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The problem is really that no e-retailer seems to do the basics right. Proper database design. I have no idea why it's so difficult for these companies not to just hire a few monkeys to do proper data capturing; given that the proper production database is designed.
 

Gtx Gaming

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You mean this? http://www.takealot.com/sell - I looked in to selling on there, and it's a pretty horrible proposition. Very high rates, and very restrictive.
Yep I stopped selling on there now. I was making money on there ,but they are adding more fees.

Each time a item is returned you loose your R50 for the shipping fee and they adding addition fee where they will bill you for each item returned also.
 
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