Equity Analysis /

Nasdaq rout has created a golden opportunity for accumulation in EM e-commerce

  • Post Covid, GMV growth may have peaked, but the path to profitability has been formed

  • Several Baby Amazons including Sea Ltd and Jumia proactively raised cash at the top of the market

  • Investors have an opportunity to invest in Baby Amazons similar to after the Nasdaq crash in 2000

Nasdaq rout has created a golden opportunity for accumulation in EM e-commerce
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
15 February 2022
Published byTellimer Research

In this article, we assess the segment of emerging markets tech populated by the e-commerce companies known as Baby Amazons. The Baby Amazon index has fallen sharply in 2022, down 10% ytd.

Performance: Baby Amazon Index

The emerging-market tech rout has been sudden and violent, and in some cases the baby has been thrown out with the bathwater. Some worthy stocks have been caught up in the sell-off, such as Jumia, Coupang and Sea Ltd.

Post-Covid GMV growth has peaked...

We expect Gross Merchandise Value (GMV) growth to plateau. The surge in online shopping that the pandemic created was never going to be sustained in perpetuity, and has slowed. For example, Sea Limited's e-commerce unit (Shopee) saw GMV growth of 96% in FY20. We expect its GMV growth to fall to 60% in FY22.

... but cash flow is improving and net profitability is on the horizon

We note that cashflow from operations and free cash flow generation are improving among the Baby Amazons.

Amazon took seven years to become CFO and FCF positive, and eight years to become profitable.

Despite the slowdown in GMV growth from the height of the pandemic, the business segment is maturing. The graduation from cashflow negativity to positivity is nearing for Jumia, Coupang and Sea and we expect net profitability by FY23.

Meanwhile, MercadoLibre is already CFO and FCF positive. We expect it to generate US$371mn in net profit in FY22.

Baby Amazons - Cash flow from Operations (US$ mn)

Baby Amazons - Free Cash Flow (US$ mn)

Baby Amazons - Net Income (US$ mn)

Many Baby Amazons have made hay while the sun shines

Several of the Baby Amazons were proactive in raising equity capital at the height of the market. For instance, Sea Ltd raised US$6.3bn in September 2021. This included US$3.8bn in a primary share issue and US$2.5bn in equity-linked debt. Jumia and Coupang also raised equity capital when the going was good.

As a result, some of the Baby Amazons are net cash. They have sufficient net cash reserves to fund 3 to 10 years of FCF negativity, based on their current cash burn.

Baby Amazons - Net Cash Position (US$ mn)

We need to look at the disruptive tech firms like the Baby Amazons using the lessons of the past.

Amazon rose 520-fold from its low after the 2000 Nasdaq crash. Amazon’s business model was untested at that time and its balance sheet was weak with high net debt.

The situation for the Baby Amazons is radically different. The companies are flush with cash and there is a clear pathway for profitability. Our projected revenue growth is still strong, which should propel the companies to profitability.


The downside risks to our forecast are as follows:

  • The Fed raises rates even more aggressively than the market is bracing for.

  • The operating performance of the EM tech companies falters due to inflationary pressure.

  • EM tech is beset by accounting scandals driven by falsified financial statements during the pandemic.

Top picks

Our top picks among the Baby Amazons are Jumia, Coupang, Sea Ltd and MercadoLibre.

Baby Amazons - Revenue Growth (%)

Valuation table: Baby Amazons