How much does Avito really cost?

The topic of the issue is the business of Russian classifieds

On January 25, the South African fund Naspers increased its share in the Avito classifieds service to 99.6% (the remaining shares belong to management). Naspers paid $1.16 billion for a 29.1% stake.

Avito is the second largest classifieds site in the world, second only to the American Craigslist. 10.5 million people visit it daily.

The deal valued Avito’s business at $3.85 billion, and this is the most interesting thing about it.

Deceptive deal

An outside observer, seeing almost $4 billion, will respectfully shake his head - this is more than a third of Yandex, which at the time of writing this article was worth $10.6 billion. However, market participants are not so optimistic.

The fact is that the shares being purchased belonged to the Swedish Vostok New Venture and Baring Vostok, as well as to the founders Jonas Nordlander and Philip Engelbert.

Vostok New Venture, according to Euronews, valued its share of 13.2% at $600 million back in mid-2018, and the entire company at $4.55 billion. It is easy to calculate that with a valuation of $3.85 billion, the Swedish fund agreed to deal with a 15% discount.

The official statement indicated that the fund, having received $540 million for its share, lost 3.9% compared to the estimate at the end of September.

Managing partner of Gagarin Capital Nikolay Davydov told Vedomosti that the value of Avito was underestimated - the company was sold for 20 EBITDA, while its peers were valued at 50.

All market participants interviewed by The Bell declined to comment. One of them only remembered that the Swedes had retired quite a long time ago. And another linked the sale of minority stakes to the “toxicity” of the Russian market. Another thing is Naspers, whose presence on the Russian market is so large that it will not be possible to leave quickly in any case.

In 2015, Naspers gained control of Avito, increasing its share from 17.4 to 67.9%. Then the fund paid $1.2 billion for 50.5% of the company, valuing the entire service at $2.38 billion.

Why does the Naspers fund need Avito?

The South African fund consolidated its stake in Avito through its own classifieds business, OLX Group, which employs 5,000 people across 35 offices around the world. Now Naspers, through the OLX Group, owns classifieds in more than 40 countries around the world.

Naspers has consistently built its classifieds business. In 2010, he bought out OLX, created by the French, which by that time had already entered the Russian-speaking market.

In Russia the market was fragmented. The former leader, “From Hand to Hand,” did not survive the digitalization of the market, and Slando.ru, created by the British and the Swedes, Avito.ru and OLX, were busy burning marketing budgets in an attempt to outdo each other.

Naspers faced a difficult task - to create a leader. Fortunately, this problem was solved with a sufficient amount of money.

In 2011, Naspers bought Slando from the British Michael Pennington and Simon Crookall. At that time, the service was visited by 11 million people from Eastern Europe and Russia.

In March 2013, a great merger took place that changed the landscape of the Russian classified market for a long time. In a deal worth $570 million, OLX and Slando merged into Avito, and Naspers received 18.6% in the new group for $50 million. By this time, 140 thousand people were posting advertisements on the site every day. The resource grew along with the growth of the regional RuNet.

Since then, Naspers has only increased its stake - in 2015, when the fund gained control, another investor, Baring Vostok, partially exited the asset. Now it's everyone else's turn. In fact, the only competitor to Avito on the Russian market was Yula, owned by Mail.ru and created in the same 2015.

It is profitable to consolidate the market leader's share. This is confirmed by Andrey Barkovsky, PR director of Avito.ru, recalling that since the last major transaction in 2015, the company’s semi-annual revenue has increased by 3.7 times, and its valuation by 60%. Avito earns money through advertising, promotion of business clients and user payments.

The change in assessment correlates with the number of advertisements: if in December 2015 there were 32 million of them posted on Avito, then four years later - 50 million.

The official story, as laid out by Barkovsky, is simple: 20 EBITDA is a good valuation and a bargain. On the part of Naspers, this is a sign of confidence of the main shareholder in management (no changes are planned).

What will happen now is unknown. A slightly absurd situation is emerging - after all, Naspers owns 28% of the share capital of Mail.ru Group, the owners of Yula. The competitors are not that far from each other.

1 thing to do this week

Pay attention to PicsArt Photo Editor. In January, the photo application of the hero of “Russian Norms” Hovhannes Avoyan managed to take the top five free applications in the American AppStore by storm, leaving behind only Instagram, YouTube, Netflix and TikTok.

The application has received half a billion downloads and combines several mechanics of successful mobile applications: a photo editor for visual environments such as Instagram and Snapchat; image processing using neural networks; short free trial period and freemium subscription model.

+1 to productivity

• How to walk 100 thousand steps in a day. 66-year-old David Paul Kirkpatrick, president of Paramount Pictures, head of production at Walt Disney Studios and co-founder of the MIT Center for Future Storytelling, decided that meditation, 10 thousand steps a day and physical activity were for weaklings. He went on a hike, covering almost 67 kilometers in a day.

Read later

• Detailed investigation by Reuters: UAE intelligence services developed the Karma tool, which made it possible to infiltrate victims’ iPhones.
• Exclusive design. What if, instead of designing websites that also accommodate people with disabilities, the designer created websites that cater specifically to them? The concept of “exclusive” design versus inclusive design can provide a lot of ideas .
• Napster. A review of the file-sharing program Napster, dated 1999. Written before numerous trials, persecutions and the torrent revolution.

Alexander Amzin