Excerpts from analyst's report


williamtng_cimb

CIMB analyst
: William Tng, CFA (left)

Traditional media out, online and mobile media in
McKinsey & Co in its 2014 “Global Media Report” projected digital advertising to experience the fastest growth among the media sectors over the next five years, with a total global spending CAGR of 15.1% to 2018.

This compares favourably against 6.7% for TV advertising and 0.2% for newspapers. According to Google Analytics, YuuZoo mobile recorded the highest average time spent per visit per user of 70.2 mins, vs. 10.9 mins for Facebook and 14.7 mins for Tumblr. A longer average time spent on a network could translate to greater monetisation through deeper user engagement and targeted advertising. 


E-commerce for the developing markets
Lack of accessibility to well-stocked physical stores has made e-commerce more popular in developing markets vis-à-vis developed markets.

According to a Deloitte “From bricks to clicks” report, while global e-commerce sales will likely reach US$1.4tr by 2016, e-commerce growth in emerging markets has outpaced mature markets like the UK, Japan and Western Europe since 2009 and this phenomenon is expected to last beyond 2016.

It was also reported that markets such as China (75% smartphone ownership, of which 46% make purchases via smartphones) and India (72% smartphone ownership, of which 40% make purchases via smartphones) have shown an upward trend for mobile purchases, spelling ample growth potential for e-commerce in these countries.


RISKS
Ability to monetise users
The number of registered subscribers under YuuZoo has grown significantly since 2012 to ~37mil as at 30 Jun 14 (see table below). Despite the large and growing subscriber base, the number of active users currently stands at ~1m only. Active users are defined to be registered users who have logged into a YuuZoo network at least once in the last 30 days. The conversion ratio and quantum of revenues that can be generated from an active user differ from network to network. 

Yuuzoo2.15Sources: Company reports

Is such technology easily replicated?
The mobile social media and e-commerce industry is fragmented, with relatively low barriers of entry to the business as the technical expertise can be easily replicated. Although YuuZoo differentiates itself through a vertically-integrated solutions offering and is focused on developing markets, it faces intensive competition from more established social media and tech companies such as Facebook, Google and Twitter, which have more resources and stronger market positioning.

FINANCIALS
thomas_zilliacus_handsupThomas Zilliacus, CEO of YuuZoo and formerly Nokia's regional director for the Asia-Pacific. NextInsight file photoLumpy sales but low-cost business
During FY11-FY13, the revenue contribution from each business segment varied, with the exception of network development fees.

This is partly attributed to the limited operating history of new business model and lack of recurring income. Its e-commerce segment only started generating sales significantly in FY13 and there were no licence fees recognised in the same year as the company focused on delivering the agreements signed earlier on.

9MFY14 sales grew 26% on a yoy basis, whereas normalised profit jumped 450%, stemming from the small base effect and after accounting for one-off RTO expenses of US$23.6m.

Costs of sales increased from ~60% of sales (FY11-12) to 73% of FY13 sales (attributable to change in product mix), offset by reduced expenses. As a result, net (normalised) profit margins were consistent at ~15% from FY11-13.

VALUATION
Based on its FY13 historical P/E, YuuZoo’s 38.1x valuation is higher than the average of Asia-listed peers but lower than that of US-listed peers. Amongst its peers, YuuZoo has the smallest market capitalisation.


Previous story: YUUZOO buys over IAHGames, on track for listing by 4Q13

 

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