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Ozon IPO offers direct play to Russian e-commerce

  • Ozon Holdings PLC is offering 16.9% of the company’s capital at $22.5-27.5 per ADS

  • Ozon provides direct exposure to the Russian e-commerce growth story

  • The proposed IPO price range lies closer to the lower-end of the multiple-based peer valuation

Anna Kurbatova
Anna Kurbatova

Senior Analyst, TMT & Agro

Olesya Vorobyeva
Olesya Vorobyeva

Analyst, TMT, Agro and Retail

19 November 2020
Published byAlfa

Ozon Holdings PLC is offering 16.9% of the company’s capital at $22.5-27.5 per ADS. The IPO targets a market capitalisation of $3.99-4.99bn.

Ozon provides direct exposure to the Russian e-commerce growth story, which relies on low penetration, massive investments and the additional impetus from the pandemic. Ozon is Russia’s most recognised e-commerce brand, which demonstrates 2x+ y/y turnover growth on 3P model expansion, but remains negative on the EBITDA and FCF levels, as the active investment phase continues.

The proposed IPO price range lies closer to the lower-end of the multiple-based peer valuation, while the $27.5 high-end price is fairly in line (5% discount) with the mid-point of the range determined by the broad list of 16 EM & DM peers. We see 36-8% upside potential from the proposed IPO price range to the mid-point of our fair value range, which is $5.4bn.

Russian e-commerce is set to grow by 31-33% p.a. from a low base. Russia demonstrates low e-commerce penetration (6% and 8% of retail sales in 2019-20E) compared to developed markets and China, which underpins strong growth potential in the medium term. INFOLine and DataInsight project domestic e-commerce volumes to expand by 31-33% 2019-24 CAGR to RUB5.5-7.2tn in 2024 ($76-93bn), or 17-19% of the country’s retail sales. Multi-category e-commerce platforms (diversified online marketplaces) are likely to gain the bulk of incremental volumes, as with forecasted 55% 2019-24 CAGR (INFOLine) they will far outpace the broad industry.

Ozon enjoys a spectacular 2x+ GMV growth on 3P model development. Launched in 1998, Ozon is one of the oldest Russian e-commerce players and the most recognized brand. With an estimated 8.0% share of the total Russian e-commerce market in 2020, Ozon is #2 player by GMV after Wildberries. The launch of the 3P (marketplace) model in late 2018 on the top of direct product sales (1P) gave a boost to GMV, which surged 93% y/y in 2019 and accelerated to 142% y/y in 9M20. According to our estimates, Ozon’s GMV may triple in the next two years on further marketplace expansion and reach c.RUB540bn in 2022.

Negative EBITDA and FCF so far. Sustainability of the positive trends of Q2-Q3 is the main issue. Ozon remains in an active investment stage, as the marketplace expansion requires serious investments into offline logistic infrastructure. The losses on the EBITDA and FCF deepened to RUB16-20bn in 2019. 9M 20 showed a visible improvement on the profitability and the cash flow side, as the pandemic gave a boost to sales volumes and supported unit economics, with the contribution profit coming positive in Q2 and Q3. The sustainability of positive trends is the main issue, given that Ozon has a busy pipeline of logistic infrastructure development projects for the next two years.

An appealing combination of size and growth explains the rising competition in the multi-category marketplace segment. Both Yandex and AliExpress Russia (AER) launched marketplace operations in late 2018-early 2019 and express ambitious growth plans for the coming years, which are supported by their access to funding. We expect 2021 to become the year of peak investments at AER and Yandex.Market, as their shareholders expect companies to achieve strategic KPIs in 2022-23. This suggests, that the competitive environment will remain tense in coming years and the race to become the "Russian Amazon" will be hard for all players.


Ozon IPO price range of $22.58-27.5 per ADS suggests 0.94-1.18x 2021E EV/GMV and 2.15-2.68x 20201E EV/Sales. These multiples imply a 19-49% premium to the current price based on median peers on EV/GMV and from a 7% discount to a 16% premium on EV/Sales. When compared with EM & DM peers target valuations, the low end of the IPO range suggests a 24-2% discount and the high end of the range from a 5% discount to a 23% premium. Hence, we see Ozon’s implied multiples as acceptable.

Risks: 1) Stock overhang, 2) Rising competition from AER and Yandex.Market in the multicategory marketplace segment, 3) Softer-than-expected trajectory to breakeven.