Russian E-commerce - Market Consolidation Imminent

In this thematic report on Russian e-commerce, we focus on what we call the "Big Four" - AliExpress Russia, Wildberries, Ozon and Beru. They should grow well ahead of the overall e-commerce market at a 2019-22E CAGR of 39% (versus 23% for the market), reaching a 39% market share by 2022. We think consolidation in the market is imminent. Four strong players with developed ecosystems might be too many in a market of Russia's size for sustainable and profitable growth. We think Beru, as the smallest of the Big Four, might be at the center of the consolidation push. It is part of Yandex.Market Group (YMG), about half of which is owned by Yandex. We value YMG at $1.14 bln, which implies $1.60 per Yandex share, or 3.5% of its current share price.> Online shopping is becoming a habit. This is supported by increased convenience and choice. We expect the online retail market in Russia to grow at a 2019-22E CAGR of 23%. Its share in overall retail sales over the period should grow from 6.1% to 9.5%, driven by growth in the number of online shoppers (10% CAGR) and increased penetration into their wallets.> The experience of global e-commerce... The more developed an e-commerce market is, the more likely it is to have a dominant leading player. In the US, Amazon's 45% share is 6.4 times larger than the second biggest player. In China, leader Alibaba's 62% share is 2.5 times bigger, and in the UK, Amazon's 27% share is 2.6 times bigger.> ... suggests that market consolidation in Russia is imminent. Four strong players with developed ecosystems might be too many in a market of Russia's size, particularly as the country's vast geography might hinder achieving the scale needed for sustainable and profitable growth without burning cash for consistent customer acquisition. We think Beru, as the smallest of the Big Four, might be at the center of the consolidation push.> AliExpress. The most popular online store in Russia in terms of reach and user engagement, according to Mediascope, its key challenges include maintaining cross-border GMV growth despite regulatory headwinds and developing Tmall into an independent, strong and profitable player.> Wildberries. It is the largest domestic online retailer in terms of GMV, and we think it might operate around break-even. It disrupted distribution in Russia and brought fashion to remote parts of the country quickly and affordably.> Ozon. Consistently the most popular domestic online retailer according to our Ivanov consumer confidence survey, it is liked for its wide assortment, prices and quick delivery. The company expects to break even at the cash flow level in 2022.> Beru. Having launched commercial operations only in October 2018, it has managed to become the sixth most popular online retailer, based on our December 2019 Ivanov survey. We think it has yet to prove its ability to grow its customer base organically and deliver profitable growth.