FOCUS: Yandex to turn e-marketplace into local Amazon with Sberbank’s help
By Yekaterina Yezhova
MOSCOW, Aug 28 (PRIME) -- Internet giant Yandex and Sberbank have agreed to team up to create an Amazon-like business on the Russian e-commerce market, whose volume is expected to go beyond 1 trillion rubles in 2017. The joint venture, based on Yandex.Market, will enjoy strengths of the founders to become number one in the Runet, analysts say.
“The companies intend to combine the technological capabilities of Yandex and the infrastructure and technologies of Sberbank to develop a leading e-commerce ecosystem,” Yandex said in a statement.
On August 9, Yandex and Sberbank signed a non-binding agreement to set up the joint venture on a parity basis. Sberbank would invest 30 billion rubles into the project, valuing Yandex.Market at 60 billion rubles on a post-money basis, before taking into account any potential future synergies.
“Yandex.Market is a service to choose goods and places to buy them. It is visited by more than 20 million people a month. About 20,000 Russian and foreign online stores offer their goods and attract new clients via the service,” spokeswoman for Yandex.Market Ekaterina Lebedeva told PRIME.
“At present, Yandex.Market has two main business models: cost-per-click (CPC), when stores pay a commission if a buyer visits them from Yandex.Market’s Web site, and cost-per-action (CPA), when stores pay a commission when a buyer orders directly from Yandex.Market without going to the seller’s resource. Launched at the end of 2016, CPA is currently used by 25% of stores, which can use both models simultaneously.”
A Sberbank spokesperson said the country’s biggest bank is happy to team up with Yandex. “It’s not the first experience for us. We jointly own Yandex.Money, which has significantly improved operating and financial results over the years of our joint ownership (with Yandex). We’re waiting for even a bigger success of Yandex.Market,” the spokesperson said.
Yandex.Market’s management headed by Maxim Grishakov will remain. “This proposed joint venture will create new benefits for our users. Sberbank’s banking and payment infrastructure will help us develop simple and secure payment solutions for the Yandex.Market platform and will allow us to introduce new features, such as consumer lending,” Grishakov said in the statement.
Up to 10% of the company’s shares will be allocated for an equity incentive pool for Yandex.Market management and employees. The deal is subject to negotiations of definitive documentation and the completion of Sberbank’s due diligence. If and when the documents are signed, the transaction should be approved by regulators. The partners say it may be closed by the end of 2017.
VTB Capital said Yandex.Market’s initial comments indicate that it is likely to move towards an Amazon-type model.
“With no clear leader in the Russian e-commerce space, we see good opportunities for Yandex to take the top spot, while the announcement of partnership with Sberbank might make it easier to achieve that goal, in our view. This could open up new opportunities which are not in our model, all the more so as e-commerce represents just 3% of Russia’s retail turnover,” VTB Capital said in a research note.
The local Association of Internet Trade Companies (AITC) calculated that the country’s e-commerce volume rose 14% on the year to 240 billion rubles in January–March. The industry is seen to expand to 1.15 trillion rubles as of the end of 2017 as compared to 920 billion rubles in 2016.
“The teamwork of Yandex.Market and Sberbank seems logical to us, because the latter has a major stake in Yandex.Money in its coffers. A closer integration between the companies seems to us as a stronger impetus for the e-commerce development,” AITC President Alexei Fyodorov told PRIME.
“It’s evident that Yandex.Market wants to become a Russian Amazon or Alibaba. The intention is proved by the fact that the floor will be open to businessmen without online stores.”
Yandex, as a large and rapidly-growing player, will influence the market. “We’re going to see an even deeper consolidation of e-commerce and disappearance of small players. Many businessmen will close their own online stores to cut costs and will only distribute goods. Amazon’s share in Europe stands at 50%, but Amazon’s sales branch brings losses and evolves only thanks to investments,” Fyodorov said.
Yandex.Market will have to work really hard to raise its market share through advertising and promotion to become number one, like Amazon in Europe and the U.S. “It goes without saying that investments will help Yandex.Market to become the first in the Russian speaking Internet segment, the Runet, among local players,” the association’s head said.
According to researcher GfK, Russia leads Europe by the number of Internet users with 84 million Web surfers over 16 years old, or 70.4% of the population.
Investment company Aton said the partnership with Sberbank creates additional long-term opportunities for Yandex.Market. “Sberbank has been looking for an e-commerce partner for a long time to start developing an ecosystem. Based on the announced valuation, Yandex.Market presently contributes around 5% to Yandex’s total market cap,” Aton said in a research note.
The Internet giant’s stock has skyrocketed since the beginning of 2017 both at home and on foreign floors. Yandex’s common shares spiraled up 41.7% to 1,768 rubles on August 24 in Moscow, and its American depositary receipts ascended 46.8% to U.S. $29.88 in New York.
Yandex.Market was supposed to create its development strategy by September. The service’s spokeswoman Lebedeva said, “The strategy is formed regardless of the presence of external investment. We’ve already outlined several key vectors for ourselves, for example, logistics, purchases on Yandex.Market, work with foreign stores, and the like.
“Involvement of such a strong partner as Sberbank will give us a fundamental impetus to develop our business further and speed up the changes significantly.”
Final terms and conditions of the deal with Sberbank and Yandex.Market’s strategy are still being discussed, Lebedeva said, adding that Yandex.Market currently services clients in Russia and the CIS. “We don’t rule out further geographical expansion,” she said without elaborating.
The projected joint venture will not be the first to follow Amazon’s path. Ozon.ru started in 1998 as an online bookstore, like the U.S. giant back in 1994, but later diversified widely.
Ozon.ru’s PR Director Maria Nazamutdinova said the company is focused on its business. “We work directly with suppliers. We keep over one million items of popular goods on our central storage facility in Tver (a city in the central Russia) and 3 million items are available on order. We have partners that offer their goods on our Web site,” she said.
The association’s head Fyodorov said that all the floors will compete in the long run, but Ozon.ru has a different model: it is not an aggregator, but mainly the owner of goods it sells. “If Yandex.Market gets warehouses with goods, it will be a fully-fledged competitor for Ozon.ru,” said.
(59.1476 rubles – U.S. $1)