Y Ventures Group Ltd: Monetizing data analytics through e-commerce January 29, 2018

PSR Recommendation: BUYStatus: InitiationTarget Price: SGD0.70
  • 50% p.a. growth in revenue over the next two years from e-commerce sales.
  • Data analytic capabilities creating new revenue streams from own branded products and distributorships in consumer products.
  • Initiate with BUY and target price of S$0.70. This is based on PE of 30x FY18e.

Company Background

Y Ventures Group Ltd. (Y Ventures) was listed in June 2017. It is a data analytics e-commerce company founded in Singapore in 2013. Y Ventures uses data analytics to determine the most popular product categories, most sought-after product features, price trends and competitive landscape. Armed with ample understanding of consumer demand, Y Ventures aims to sell such products either as (i) an e-commerce retailer/distributor of third party brands; (ii) a partner of the brand owner/manufacturer to create a new product; or (iii) under its own brand name. Its products are sold on online marketplaces. Y Ventures is now in more than 20 online marketplaces globally.  At present, most of its sales are generated from the US.

Investment Merits

Riding high on e-commerce. We believe Y Ventures is on a course for a 50% revenue CAGR the next two years, with four potential growth drivers of growth.

  1. Organic growth from an existing publisher. One of the major book publishers (or suppliers) for the company is Elsevier Group. We expect stronger organic growth after the recent opening up of the buy box by a large online marketplace in the US. Products on the buy box enjoy much higher sell-through rates.
  2. Additional book publishers. We expect Elsevier’s success to draw other publishers to use Y Ventures as their key e-commerce retailer or partner. Most publishers have established offline channels but lack the expertise and tools for online distribution. Y Ventures can also provide access doors to less developed markets, namely South East Asia.
  3. Own branded products. Y Ventures is building up its own branded products such as JustNile, an online retail private brand. The product range under this brand includes health, beauty, home, living, electronics and food products. Another newly created brand is Faire Leather, the highest funded Kickstarter launched in Singapore to date.
  4. Online distributor of other consumer products. Many consumer brands have not garnered sufficient experience or expertise in online distribution. Most of their products are indiscriminately sold online, with little control over pricing or brand image. Y Ventures, we believe, will become the preferred e-commerce distributor or retailer. In January 2018, Y Ventures announced it has secured online distribution rights for over 20 consumer brands.

We initiate coverage on Y Ventures with a BUY and a target price of S$0.70. We are pegging Y Ventures to other e-retailers from US and Europe. However, such companies can trade at an astronomical 50x to 60x PE, with most still loss-making. Due to the smaller scale and difference in business model, we are adopting a more conservative valuation for Y Ventures. We are using a 30x PE FY18e as our target price.

Background

Y Ventures Group Ltd. (Y Ventures) was listed in June 2017. It is a data analytics driven e-commerce company founded in Singapore in 2013. Y Ventures uses data analytics to determine the most popular product categories, most sought-after product features, price trends and competitive landscape. Armed with ample understanding of consumer demand, Y Ventures aims to sell such products either as (i) an e-commerce retailer/distributor of third party brands; (ii) a partner of the brand owner/manufacturer to create a new product; or (iii) under its own brand name.

Products are sold on online marketplaces. Y Ventures is now in more than 20 online marketplaces globally (Figure 1). Online marketplaces are essentially virtual department stores that can provide a variety of products to potential buyers. The sellers on marketplaces are predominantly 3rd party vendors. At present, most of its sales are books sold in the US. We expect the company to expand into wider range of consumer products. Not all products will be attractive for the company, for instance, fashion is too fast changing with high return rate, and shoes need large inventory due to the variety of sizes.

Business Model

Y Ventures’ revenue comes from product sales and profits from the typical markup or margins from the product sold. Y Ventures will take on the inventory risk as there are hardly any consignment goods.

Below is a simple step by step illustration of Y Ventures sales process.

1

Step 1 Data Analytics: Retrieving valuable information from online marketplaces and other social media platforms. The company can track the comments/reviews of a product, price trends or most searched item/feature. Such a large data set can be used to ascertain the potential size of the market, competitive landscape and popularity of a product.

Step 2 Purchase product (with customized design): After this process, Y Ventures is able to identify rising trend in a particular product, consumer opinion and pricing strategies. For instance, Y Ventures believes that retro style wall clock is in demand (refer Figure 2). It will work with manufacturers to produce a clock with such specifications. Once ready, the product will be displayed for sale in established marketplaces.

Step 3 Customer purchase: Customer keys in the keyword for his/her desired clock, for example, “Retro country style round silent wall clock” in an online marketplace, which then returns Y Venture’s product. Customer clicks on the featured buy box to add product to their cart followed by making payment.

Step 4 Delivery: Fulfillment or delivery can be executed by the marketplace. Y Ventures will ship these clocks to the online marketplace warehouse. A fee will be levied by the marketplace for storing, picking, packing and shipping. Alternatively, Y Ventures may keep the inventory in its own warehouse and use the multiple 3rd party delivery companies (e.g. Singapore Post, Ninja Van) for delivery.

Step 5 Customer receives product

Step 6 Feedback from customer: Customers may elect to provide feedback/ reviews about the product or the service of the seller. Reviews may include the quality of product, punctuality of delivery, seller’s fast response to queries on the product. The qualitative reviews will then be picked up by the sentiment analytics tools in Step 1 to allow the team to make the necessary adjustments to improve the entire sales experience or product enhancements (Refer Figure 3).

 

Investment Merits

All about capturing e-commerce growth. We believe Y-ventures is on a course for a 50% revenue CAGR the next two years, with four potential growth drivers sources of growth.

1. Organic growth from existing publisher. A major book publisher (or supplier) for the company is Elsevier.  These are mainly new medical and other professional books. We expect stronger organic growth after the recent opening up of the buy box by a large online marketplace in the US. Products on the buy box enjoy much higher sell-through rates. (Refer to Box 1 on our explanation of the Buy Box and its significance).

2. Additional book publishers. We expect Elsevier’s success to draw other publishers to use Y Ventures as their key e-commerce retailer or partner. Most publishers have established offline channels but lack the expertise and tools for online distribution. Y Ventures can also provide access doors to less developed markets, namely South East Asia. Y Ventures, we believe, is already a key partner for books sold online in South East Asia.

3. Own branded products.  Y Ventures is building up its own branded products such as JustNile, an online retail private brand. It started this private label in 2015. The product range under this brand includes health, beauty, home, living, electronics and food products. Growth for JustNile will be by expanding its SKUs. Another newly created brand is Faire Leather, the highest funded Kickstarter launched in Singapore to date (refer Figure 8).

4. Online distributor of other consumer products. Many consumer brands have not garnered sufficient experience or expertise on online distribution. Most of their products are indiscriminately sold online, with little control over pricing or brand image. Y Ventures, we believe, will become the preferred e-commerce distributor or retailer. Refer Figure 9, on some of the challenges faced by offline consumer brands when they go online.

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2 Comments on "Y Ventures Group Ltd: Monetizing data analytics through e-commerce"

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ML
MLFebruary 1, 2018 9:32 pm

Hi, it was announced yesterday that Y-ventures will place 5m shares, but yet at a price lower then currently traded. What is your view on this? Does it effect the share price and the company fundamentals and thus affect the target price?

http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementLast12Months&F=C25XQ2WD8C756PJ1&H=eda49471295d80f949cc855743cd8741cf6b837b009a4cd27deb2990dd69bb4c

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