Giftee - Give, but give until it hurts š
Japan Disruptive Innovation Winners
Giftee (4449) | Quick look
Share price: Ā„3,165 | Market cap: $800m | EV/Rev: 22x
Giftee is a leader in the distribution of e-gifts for individuals, corporations, and local governments in Japan. The shift from offline to online drives continued demand forĀ e-gifts.Ā Ā
MODEL
The central premiseĀ of Giftee could hardly be more straightforward.Ā ItāsĀ all about appealing to our innate desire to receive rewards or win prizes. That could be a simple personal thank you gift in recognition for a job well done or a marking campaign by a global brand. Gifteeās platform enables both individuals and companies to distribute gifts and rewards digitally, as an eGift.Ā Giftee was established in 2010 as a casual eGift service for consumers. The company pivoted into the larger āGiftee for Businessā in 2016 and was listed on TSE Mothers in 2019.Ā Ā
Chart 1: An eGift is an electronic ticket that can be exchanged for goods at a retailĀ outletĀ
Gifteeās growthĀ has been nothing short of phenomenal, with sales growing at a CAGR of 78% over the past five years. Similarly, operating profit has grown from a loss of -Ā„5mn to Ā„1.1bn, with the operating margin hitting 36% as of the end of FY12/20. This year has got off to a strong start, with Q1 sales growth +142% YoY, on the back of record gift distribution of Ā„4bn.Ā The revenue model consistsĀ of a combination of Sales commissions, systems use fees, and Issuing fees, paid by both gift issuing companies (CPs) and eGift user companies (DPs)Ā
Gifteeās Services:
Giftee for consumers:Ā 5% of sales: This service is for individuals to send small thank-you or congratulatory gifts to their friends and acquaintances. For example, you could send a coffee toĀ someone that you are friends with on Facebook. There are over 1.5m registered members that have used the service to gift their friends.Ā
Giftee for Business: 46% of sales: This service enables companies to send eGifts to customers, for example as campaign gifts or as a reward for completing a survey. There are over 600 companies that have distributed gifts and run marketing campaigns via the platform.Ā Ā
eGift System for Retailers:Ā 11% of sales. This system enables retailers to generate and distribute digital gift tickets that can be used to drive traffic to physical or online stores.Ā Ā
Regional e-currency service: 38% of sales. This was a previously unexciting service largely supplying coupons for regional governments to support local tourism. However, with the Go-To-Travel campaign, Giftee provides one of the systems for the issuance and acceptanceĀ of regionalĀ electronic coupons.Ā Ā
Chart 2: Giftee operates four distinct services on its āeGift platform.āĀ
MARKET
According to Giftee, the overall addressable market is around Ā„6 trillion, or $60b, which includes both personal and corporate gifts. It is fair to say that the market for digital gifts is growing rapidly with distribution volumes almost trebling over the last two years. However, it is not clear how much of the gift market will eventually shift online. If we conservatively assume 5%, then a more reasonable target could be around $3b, which is still a sizeable opportunity for Giftee.Ā Ā
GifteeĀ believes there is no comparable company offering a complete service across the gift value chain. However, it seems that there is at least one unlisted competitor,Ā Cotoco.netĀ that offers a similar service for both individuals and businesses. It is run by a South Korean company called, SK Planet.Ā Ā
Chart 3 | The addressable market for gifts in JapanĀ
MOAT
For the Giftee Consumer business, the key competitive advantage is first-mover effect, but this does not appear to be a wide moat. Giftee has amassed over 1.7m registered members, but the pace of customer acquisition has slowed from a year ago. Whether this is due to rising competition withĀ CotocoĀ or just a sign that the market is maturing, it is difficult to know.
Giftee for Business may have a wider moat. Giftee has signed up over 500 companies that ran over 1,500 marketing projects in Q1. Given that corporate accounts are harder to break into and require a sales team to develop relationships, Giftee should be able to fend off competitionĀ as long asĀ the results of the marketing campaigns have an acceptable ROI for the client.Ā Ā
Chart 4 ā giftee for business helps reduce advertisingĀ costsĀ
MANAGEMENT
Giftee was founded by Mutsumi Ota, who had previously worked at the consulting company, Accenture. He has grown the business with support from Tatsuya Suzuki (CEO) and Fumitaka Yanase (CTO) into a company with Ā„86b market cap. The leadership team is well-aligned with common shareholders, owning 28.6% of outstanding shares.Ā Ā
Chart 5 ā the management teamĀ
Mid-term earnings outlook:Ā The core growth driverĀ is giftee for business, which benefits from the current shift towards digital transformation (DX). If the almost sacred āhankoā is about to be retired, the Japanese penchant for distributing marketing materials by paper could also be on its last legs. As businesses start to digitalize their workflows, the marketing departments will inevitably conduct more campaigns online. eGifts can be used in a wide variety of ways, in virtually all industries, to incentivize consumers to ādo something.āĀ
The company recently acquired Sow Experience Inc. Sow focuses on experience gifts, which have a higher price point. The end products range from Beauty Spas, high-end restaurants, music events, and Sightseeing. Typical price points will reach up toĀ Ā„100,000 and these gifts are likely to work well for real estate brokers and car sales agents.Ā Ā Ā
Longer term, the strategy is to expand the eGift platform both geographically and into new industries. This will involve increasing the number of eGift issuers and developing new services. Giftee is looking to expand overseas, with the first target being Malaysia and then the rest of ASEAN.Ā Ā
VALUATIONSĀ
Given the early-stage growth for Giftee and its peers, we value these high growth stocks on a multiple of revenue. Within the universe of local fintech peers, Giftee looks slightly pricey at 22x EV/REV, but the company is seeing best-in-class growth. Considering the topline growth, potential size of the market and still under penetrated opportunity, Giftee is well worth looking into. Ā Ā
Japan Disruptive Innovation - Winners and Losers
Our Japan Innovation and Disruption universe was on š„, rising +6% this week.Ā The more extreme moves are detailed below:
šŗĀ +24% CARENET (2150, mkt cap $920m), the provider of online medical data continued its phenomenal run and is now up over 100% over the past month. A strong Q1 report followed by Artisan adding further to its already sizeable holdings.
šŗ+22% JIG-SAW (3914, $610m), the provider of algorithms that connect and control devices in cars rebounded this week after a major derating post 1Q earnings.Ā The company announced Ā a new tool āNEQTO CloudSync", which enables users to synchronise machines and devices with Google Cloud.
šŗ+21% MONEY FORWARD (3994, $3b)Ā the provider of cloud accounting software services announced that it would be promoted to the TSE 1st Section. This implies significant passive demand for the stock on its inclusion.Ā
šŗ+16% V-CUBE (3681, $610m),Ā the video conferencing company, launched a new virtual shareholder meeting service.
šŗ+16% FREEE (4478, $4.6b)Ā šŗ+20% YAPPLI (4168, $490m), šŗ+16% RAKUS (3923, $3.7b) all out performed as market liquidity flowed back into small cap growth stocks.
Have a great weekend