Dec 19, 2020
Although wish is a US listed company, the majority( more than 90%) of seller on the platform are from China. We will tag it as a heavy China concentrated stock. And let's have a closer look at it. Wish is another kind of 'PDD', they generally focus on middle to low level customers who cares more about 'Xingjiabi'(性价比), which means to purchase the quality products by spending relatively small amounts of money. Overview Wish has a mission — to bring an affordable and entertaining mobile shopping experience to billions of consumers around the world . Founded in 2010, Wish have become one of the largest and fastest growing global ecommerce platforms, connecting more than 100 million monthly active users in over 100 countries to over 500,000 merchants offering approximately 150 million items. Their platform combines technology and data science capabilities, an innovative and discovery-based mobile shopping experience, a comprehensive suite of indispensable merchant services, and a massive scale of users, merchants, and items. This combination has allowed wish to become the most downloaded global shopping app for each of the last three years according to a report from Sensor Tower. Wish are revolutionizing mobile with a user experience that is mobile-first, discovery-based, deeply-personalized and entertaining. Over 90% of Their user activity and purchases occur on Their mobile app. Their data science capabilities allow them to mirror how consumers have shopped for decades in brick-and-mortar stores by offering a discovery-based shopping experience on a mobile device. Their highly-personalized product feed enables Their users to discover products they want to purchase by simply scrolling through Their mobile app and browsing. Over 70% of the sales on Their platform do not involve a search query and instead come from personalized browsing. Wish users engage with Their app in a similar manner to how they engage with social media; scrolling through image-rich, highly-engaging, and interactive content. To enhance user engagement, Wish incorporate fresh gamified features, rich user-generated content including photos, videos, and reviews, and a wide range of relevant products to make shopping more entertaining. Their differentiated user experience has driven superior engagement with Wish users spending on average over nine minutes per day on their platform during the twelves months ended September 30, 2020. Wish also built to empower merchants around the world. Wish define a merchant as of a particular date as a unique merchant account on Their platform. Today, most of Their merchants are based in China. Wish initially grew Their platform focusing on merchants in China, the world’s largest exporter of goods for the last decade,16 due to these merchants’ strength in selling quality products at competitive prices. Wish continue to expand Their merchant base around the world. The number of merchants on Their platform in North America, Europe, and Latin America has grown approximately 234% since 2019. In particular, the number of merchants on Their platform in the U.S. has grown approximately 268% since 2019. Through Their diversified and global merchant base, Wish are able to offer greater depth and breadth of categories and products. Wish give Their merchants immediate access to Their global base of over 100 million monthly active users and a comprehensive suite of indispensable services, including demand generation and engagement, user-generated content creation, data intelligence, promotional and logistics capabilities, and business operations support, all in a cost-efficient manner. Wish have experienced substantial growth since Their founding in 2010. Wish grew Their revenue from $1.1 billion in 2017 to $1.9 billion in 2019 at a compound annual growth rate of 31% and from $1.3 billion for the nine months ended September 30, 2019 to $1.7 billion for the nine months ended September 30, 2020, an increase of 32%. Their revenue is diversified and global. In 2019, 93% of Their revenue was from marketplace services, 84% of which was from core marketplace revenue and 16% of which was from Their native advertising tool, ProductBoost, and 7% was from logistics services. ProductBoost is an advertising feature by which Their merchants can promote their listings within user feeds. For the nine months ended September 30, 2020, 82% of Their revenue was from marketplace services, 90% of which was from core marketplace revenue and 10% of which was from ProductBoost, and 18% was from logistics services. In terms of geographic diversification by users, for the nine months ended September 30, 2020, 43% of Their core marketplace revenue came from Europe, 42% from North America, 5% from South America, and 10% from the rest of the world. Their growth has been highly capital efficient. Wish have been able to achieve this massive growth and scale by having net cumulative cash flow from operations of $16 million from January 1, 2017 to September 30, 2020, aided by Their positive cash float, where Wish receive an upfront payment from a user, and remit payment to a merchant a number of Weeks later. In 2019, Wish generated a net loss of $129 million and Adjusted EBITDA of $(127) million, compared to a net loss of $208 million and Adjusted EBITDA of $(211) million in 2018, and a net loss of $207 million and Adjusted EBITDA of $(135) million in 2017. For the nine months ended September 30, 2020, Wish generated a net loss of $176 million and Adjusted EBITDA of $(99) million, compared to a net loss of $5 million and Adjusted EBITDA of $(11) million for the nine months ended September 30, 2019. Market Opportunity Global ecommerce is a massive and growing market. In 2019, global ecommerce was a $3.4 trillion market expected to nearly double to reach $6.3 trillion by 2024. Excluding China, the global ecommerce market was $1.6 trillion in 2019 and is expected to grow to $2.7 trillion by 2024. Within ecommerce, mobile is the clear dominant force, comprising 63% of global ecommerce in 2019, and is expected to grow to 71% by 2024. While the market is large and rapidly growing, modern ecommerce has not evolved to fit the expectations and affordability needs of the global population. Billions of Value-Conscious Consumers Are Underserved Value-conscious consumers represent a large and growing portion of the global consumer population, and they have been historically underserved by traditional ecommerce. For this segment of the global population, price is often the single most important determinant when making a purchase. Forty-four percent of U.S. consumers and 85% of European consumers have a household income of less than $75,000,25 and we estimate that there are over 1 billion households with income of less than $75,000 around the world, excluding China and India. Additionally, in the emerging economies of Africa, the Middle East, Latin America, and Eastern Europe, where the average household income is approximately $18,000, affordability will be the key element for users shopping online for the first time. We believe that the next billion ecommerce customers will be these value-conscious consumers. This value-conscious population has significant and highly resilient buying power which can be evidenced by the success of discount retailers. While traditional brick-and-mortar retail continues to face challenges, discount retailers remain resilient as bargain-hunting consumers continue to shop at value-focused stores. Between 2019 and 2021, the number of variety store retailer locations in the U.S. is expected to increase.26 Despite their sizable presence, these discount retailers have achieved limited success in moving their low-price point business models online. Traditional Ecommerce Does Not Meet Evolving Consumer Behavior Discovery is a foundational aspect of the brick-and-mortar shopping experience. Shopping in store allows consumers to browse and discover new products that they want, driving many consumers to purchase items beyond their planned purchases. This type of navigational browsing often creates purchase intent for new products. A study conducted in 2019 by First Insight, a provider of data analytics for the retail industry, found that 89% of women and 78% of men who visit physical stores frequently add additional items to their cart beyond their identified need.27 However, the largest ecommerce companies in the world were created on desktop, and their consumer experiences are predominantly search-driven rather than discovery-based. When porting that search-driven experience to mobile, consumers can shop for what they know they need, but struggle to browse, engage, and discover new products. On average, people spend 3 hours per day28 on their mobile device, primarily on social and video mobile apps.29 As consumers spend more and more of their time on mobile, they expect visually rich, engaging, and personalized experiences. Mobile has become an effective platform for discovery in other verticals outside of ecommerce such as social media, gaming, music, and video, but we believe that online shopping has lagged in offering mobile discovery. Merchants Around the World Lack Access to Global Consumers Ecommerce represents a massive opportunity for global merchants, but they often struggle to access and serve global ecommerce consumers. IDC estimates that there are approximately 348 million SMBs around the world as of 2019, and the success of these businesses is imperative to local, national, and global economies. SMBs make up over 90% of all enterprises globally and employ over 50% of the global workforce.Despite their scale and economic power collectively, individual SMBs are often challenged, as evidenced by approximately 20% of U.S. SMBs failing in their first year and approximately 50% failing after five years in business, according to 2019 data. For merchants around the world to grow their businesses, the ability to reach and target consumers at scale is critical. Value Proposition to Wish Users • Affordable. Price is the single most important determinant when making a purchase for a substantial portion of the global population, and we aim to serve the affordability needs of these consumers. According to our survey of 2,850 consumers in select countries, approximately 75% of those responding prioritize the price of an item over brand and delivery time. Additionally, 95% of the survey participants who shop on Wish stated that they find items on Wish to be at a discount to branded alternatives. The merchants on our platform offer primarily unbranded products that can be discounted in excess of 85% as compared to branded alternatives across a number of categories, such as wireless ear buds and air fryers. For example, based on our internal research, the average price of the top 20 wireless ear buds sold on Wish is approximately $20, compared to the online retail average price of a select set of recognized branded alternatives of approximately $165, and the average price of the top 20 air fryers sold on Wish is approximately $85, compared to approximately $173 on average for a select set of recognized branded alternatives.34 Wish have a number of policies which, in combination with robust user-generated content, promote higher quality merchants and products on our platform. This allows them to offer a vast selection of high-quality items at competitive prices, a value proposition that attracts more than 100 million monthly active users to their platform. • Accessible. Making Wish open and accessible to everyone is core to their strategy. Within ecommerce, mobile is the clear dominant force, comprising 63% of global ecommerce in 2019, and is expected to grow to 71% by 2024.35 Wish was built to be mobile-first so any consumer around the world can easily access their shopping platform on a mobile device. They also do not have membership fees, understanding that millions of consumers are value-conscious and/or would not be able to afford such fees. • Everywhere . Since founded, they have continuously expanded global footprint, with the result that they have users in over 100 countries today. To better serve their global user base, they localize various features on their online platform and tailored our experience to each respective market through, for example, making it accessible in 40 different languages and providing country-specific payment methods. This localization improves the engagement of our large, diverse user base. In addition to connecting their users with online merchants, Wish started connecting users with local brick-and-mortar stores through Wish Local program. Wish Local allows users to shop online and also stop by almost 50,000 Wish Local partner stores to pick up products that they purchase through online platform. Users can support their local businesses through increased foot traffic, which drives additional sales. Wish Business & Financial Model Their business benefits from powerful network effects, fueled by Their data advantage and massive scale. As more users join Wish, attracted by Their affordable value proposition and shopping experience, they are able to increase revenue potential for Their merchants. As more merchants succeed on Wish, more merchants join the platform and grow their businesses with Wish, broadening Their product selection, which in turn improves user experience. By developing a strategy focused on users and merchants, they align user and merchant success with the success of Their financial model. The growth in users and merchants generates more data, further strengthens Their data advantage and creates an even better experience for everyone on Their platform, in turn attracting more users and high-quality merchants. Their model relies on cost-effectively adding new users, converting those users into buyers and improving engagement and monetization of those buyers on Wish over time as well as adding new merchants, delivering economic success for those merchants, and having those merchants use more of Their end-to-end platform. The following are key elements of Their financial model that drive Their growth: • Increase the scale and growth of Their user and buyer base. Attracting and engaging users have been Their key areas of focus since Their founding. They measure Their effectiveness in attracting and engaging users through metrics such as Their MAUs, which increased over 33% from the nine months ended September 30, 2019 and to the nine months ended September 30, 2020, as well as the average minutes spent per visit by user. These increases have primarily been driven by the growing popularity and recognition of Their brand and platform, the user preferences for Their differentiated mobile shopping experience, wide selection of attractively priced products, and the success of Their promotional and marketing campaigns. This growth has contributed to making Wish the most downloaded global shopping app for each of the last three years according to a report from Sensor Tower. As a result, They have experienced significant revenue growth in recent periods. They will need to continue to invest in Their marketing efforts to attract additional users and buyers and to enhance Their brand and drive user engagement, and over time They will need to do this cost-effectively in order to achieve profitability. • Invest in Their sales and marketing engine . They have made significant investments in Their data science which underpins all aspects of Their operations including marketing and user acquisition. By leveraging Their unique and scaled data set and algorithms, Their goal is to execute cost-effective and successful digital marketing strategies to acquire new users and re-engage existing users on the Wish platform. They consider Their user acquisition expertise a strong competitive advantage and have invested in this capability over time to continue to drive user and revenue growth. They will need to continue to invest in Their marketing efforts to attract new users and increase user engagement. • Increase the cumulative lifetime value of Their users . Their ability to successfully drive improvements in user engagement and monetization on the Wish platform will be an important driver in expanding the cumulative lifetime value of Their users and allow us to achieve profitability. They utilize data science to estimate lifetime value of users and accordingly adjust Their user acquisition strategies to maximize Their return on marketing investment. They also deploy dynamic pricing to drive effective monetization of Their user base. Dynamic pricing utilizes Their data to instantly adjust prices across products to optimize user conversion and has increased Their margins. • Continue to grow and diversify Their merchant base and product categories . As of September 30, 2020, They had over 500,000 merchants on Their platform. While most of Their merchants today are based in China and sell unbranded goods, They plan to continue to grow Their merchant base globally and diversify Their product categories. While They initially grew Their platform focusing on merchants in China due to their production strength, They have since started to diversify Their merchant base around the world; the number of merchants on Their platform in North America, Europe, and Latin America has grown approximately 234% since 2019. They believe the increase in the number and the diversity of merchants leads to more competitive pricing and broader product categories, which will in turn help us attract more users, generating powerful network effects. • Continue to innovate and expand Their platform . They generate revenue primarily from commissions earned on the sales by Their merchants on the Wish marketplace, as well as from fees from offering Their logistics platform to Their merchants. They aim to enhance the value of Their platform by broadening Their marketplace service offerings, expanding the size and engagement of Their user base, and improving data insights and services available to Their merchants across digital marketing, payments, logistics, user support, and operations. They believe that expanding Their platform will attract more merchants to Wish and drive Their revenue. In recent periods, Wish logistics and advertising offerings provided critical capabilities to Their merchants to improve their operations and sales, which has driven their success on Wish and in turn, their growth. They have been able to drive strong adoption of these merchant offerings and intend to continue to invest to increase this adoption. For example, approximately 30% of Their merchants have utilized ProductBoost in 2020 to date. This has enabled Their logistics and advertising to reach approximately $607 million and $196 million, respectively, on an annual run-rate basis based on the three months ended September 30, 2020. They aim to continue to expand Their platform so that They can grow and diversify Their future revenue streams. • Capital efficiency of our business model. Wish operate an asset-light business model and have achieved substantial revenue growth with limited capital requirements. Their business model enables us to avoid the costs, risks and capital requirements associated with sourcing merchandise or holding inventory. As a result, their growth has been highly capital efficient. Wish have been able to achieve this massive growth and scale by having net cumulative cash flow from operations of $16 million from January 1, 2017 to September 30, 2020, aided by positive cash float. Financial Profile Monthly Active Users Wish define MAUs as the number of unique users that visited the Wish platform, either on our mobile app, mobile web, or on a desktop, during the month.18 MAUs for a given reporting period equal the average of the MAUs for that period. An active user is identified by a unique email-address; a single person can have multiple user accounts via multiple email addresses. The change in MAUs in a reported period captures both the inflow of new users as well as the outflow of existing users who did not visit the platform in a given month. We view the number of MAUs as key driver of revenue growth as well as a key indicator of user engagement and awareness of Wish brand. Revenue Their revenue consists of marketplace and logistics revenue. Marketplace revenue : Wish provide a mix of marketplace services to merchants. Wish provide merchants access to their marketplace where merchants display and sell their products to users. Wish also provide ProductBoost services to help merchants promote their products within their marketplace. Marketplace revenue includes commission fees collected in connection with users purchases of the merchants’ products. The commission fees vary depending on factors such as users location, demand, product type, and dynamic pricing. Wish recognize revenue when a user’s order is processed and the related order information has been made available to the merchant. Commission fees are recognized net of estimated refunds and chargebacks. Marketplace revenue also includes ProductBoost fees for displaying a merchant’s selected products in preferential locations within their marketplace. Wish recognize revenue when the merchants’ selected products are displayed. Wish refer to their marketplace revenue, excluding ProductBoost revenue, as their core marketplace revenue. Logistics revenue : Their logistics offering for merchants, introduced in 2018, is designed for direct end-to-end single order shipment from a merchant’s location to the users. Logistics services include transportation and delivery of the merchant’s products to the users. Merchants are required to prepay for logistics services on a per order basis. Wish recognize revenue over time as the merchant simultaneously receives and consumes the logistics services benefit as the services are performed. Wish theme an output method of progress based on days in transit as it best depicts their progress toward complete satisfaction of the performance obligation. Revenue increased $422 million, or 32%, to $1,747 million for the nine months ended September 30, 2020 as compared to $1,325 million for the nine months ended September 30, 2019. This increase was attributable to both increased marketplace and logistics revenue. Marketplace revenue increased $180 million to $1,438 million for the nine months ended September 30, 2020, as compared to $1,258 million for the nine months ended September 30, 2019. This increase was due to improved monetization of buyers through increased dynamic pricing, and to a lesser extent, an increase in transaction volume. This increase was partially offset by a decrease in merchant utilization of ProductBoost service, as the result of economic uncertainties related to the global pandemic. Logistics revenue increased $242 million to $309 million for the nine months ended September 30, 2020, as compared to $67 million for the nine months ended September 30, 2019. This increase was primarily due to the continued expansion of the logistics offerings around the world and significant expansion of A+ program to additional countries. Most notably, Wish launched A+ program in the United States in July 2020. Cost of Revenue and Operating Expenses Cost of revenue . Cost of revenue includes colocation and data center charges, interchange and other fees for credit card processing services, fraud and chargeback prevention service charges, costs of refunds and chargebacks made to Their users that Wish are not able to collect from Their merchants, depreciation and amortization of property and equipment, shipping charges, tracking costs, warehouse fees, and employee-related costs, including salaries, benefits, and stock-based compensation expense for Their infrastructure, merchant support, and logistics personnel. Cost of revenue also includes an allocation of general IT and facilities overhead expenses. Sales and marketing . Their sales and marketing expenses are primarily driven by the cost of acquiring and engaging users by targeting social media and search engine digital advertisements, outsourced user support services, sponsorships and local marketing campaigns, and employee-related costs, including salaries, benefits, and stock-based compensation, for Their employees involved in marketing, user support, and business development functions. Sales and marketing spend also includes an allocation of general IT and facilities overhead expenses as well as business development expenses for attracting merchants and conducting ongoing merchant education. Wish expect Their sales and marketing expenses to decrease as a percentage of Their revenue over the long term, although Their expenses may fluctuate from period to period due to the timing of expenses related to Their sales and marketing campaigns. Product development . Their product development expenses consist primarily of employee-related costs, including salaries, benefits, and stock-based compensation for Their engineers and other employees involved in product development activities. Product development costs have historically been expensed as incurred. Product development costs also include the cost of IT themed by the product development team as well as an allocation of general IT and facilities overhead expenses. Wish expect Their product development expenses to continue to increase in absolute dollars for the foreseeable future as Wish continue to invest in the development of Their marketplace and merchant offerings. General and administrative . Their general and administrative expenses consist primarily of employee-related costs, including salaries, benefits, and stock-based compensation for Their executives, finance, legal, information technology, human resources, and other administrative teams. General and administrative expenses also include outside consulting, legal, tax, and accounting services, and facilities and other supporting overhead costs. Wish expect Their general and administrative expenses to continue to increase in absolute dollars for the foreseeable future as Wish continue to invest in Their corporate infrastructure to support Their revenue growth. Further, Wish expect to incur additional general and administrative expenses in connection with Their becoming a public company. Key Factors Affecting Performance (Risks) Buyer Lifetime Value and Buyer Acquisition Cost Efficiency Wish success relies in part on the ability to engage users and convert them to buyers, while simultaneously optimizing Wish efficiency and marketing spend and efforts. Failure to effectively engage users and convert them to buyers on a cost-effective basis would adversely affect Wish revenue growth and operating results. Revenue from New Buyers and Existing Buyers Wish success also depends on the ability to increase engagement from existing buyers while simultaneously attracting and engaging new buyers. Therefore, we focus on increasing revenue from both new and existing buyers. If we are unable to increase engagement and revenue from existing buyers and attract new buyers to Wish platform, Wish revenue and results of operations will be negatively impacted. Average Revenue per Active Buyer Wish success also relies on the ability to continue to improve Wish platform and maintain and increase engagement from Wish active buyers. Therefore, we use average revenue per active buyer in a given cohort as an indicator of the level of engagement, the success of Wish discovery-based and personalized user experience, the quality of Wish products listed, and the overall scale and growth of Wish business. If we are unable to improve Wish platform, including, among other things, creating a positive user experience, ensuring that quality products are listed for sale, and otherwise increasing or maintaining engagement, then average revenue per active buyer may decline, which could lead to decreased revenue, which would have an adverse effect on Wish results of operations.