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$OZON 70% GROWTH - eCommerce RUSSIA 
Their website gets 63m views EACH MONTH
COVID boosted eCommerce sales in RUSSIA 
Sales grew 70% YoY to $ 866m for first 9 months of 2020Intrigued? Here is an EASY thread
$OZON is one of the first eCommerce players in Russia 
It was founded in 1998 as an online bookstore
It quickly expanded to sell CDs, DVDs, clothing and electronics
It now offers more than 9m products across 24 product categories
It was founded in 1998 as an online bookstoreIt quickly expanded to sell CDs, DVDs, clothing and electronics
It now offers more than 9m products across 24 product categories
Ozon is one of Russia's leading multi-category eCommerce platform 
Its Gross Merchandise Value (GMV) expanded 152% in 1H 2020 
It also runs the online travel agency http://Ozon.Travel
and holds a stake in Litres, Russia's largest digital books platform 
Its Gross Merchandise Value (GMV) expanded 152% in 1H 2020 It also runs the online travel agency http://Ozon.Travel
and holds a stake in Litres, Russia's largest digital books platform
Sounds like GROWTH, here is what we’ll look at 
What about eCommerce in Russia
Who are the key players 
What are the key challenges to overcome 
Why $OZON 
What about eCommerce in Russia Who are the key players What are the key challenges to overcome Why $OZON
What about eCommerce in Russia eCommerce penetration is low at 6%, versus 27% for China eCommerce makes up 11% of total Russian retail sales - Lower than 16% global average
Russia isn't standing still as eCommerce sales grew 51% YoY during first 6 months of 2020
Furthermore, according to Statista
Sales in the Russian eCommerce market is projected to reach $ 24B in 2020
Sales are expected to grow at 6.1% over 2020 - 2025 period, resulting in sales of $ 32B by 2025
Sales in the Russian eCommerce market is projected to reach $ 24B in 2020 Sales are expected to grow at 6.1% over 2020 - 2025 period, resulting in sales of $ 32B by 2025
According to Euromonitor
Annual online sales in Russia are expected to grow by more than 40% this year to around RUB 2.5 T ($ 32.5B)
Followed by a 10-15% increase a year over the next five years (2020 - 2025 period)
Annual online sales in Russia are expected to grow by more than 40% this year to around RUB 2.5 T ($ 32.5B) Followed by a 10-15% increase a year over the next five years (2020 - 2025 period)
What are underlying drivers?
The pandemic gave a considerable boost as consumers were locked in
Large headroom for eCommerce penetration also sustain Russia’s online sales rise
eCommerce players invest in logistics (e.g. pick up points) and a broader product offering
The pandemic gave a considerable boost as consumers were locked in Large headroom for eCommerce penetration also sustain Russia’s online sales rise eCommerce players invest in logistics (e.g. pick up points) and a broader product offering
This is the case of http://Wildberries.ru , Russia’s eCommerce leader
“The retailer, which says it has over 34 million customers, now has 13 warehouses and dozens of sorting and distribution centres across Russia which reduce delivery times” By Rzhevkina & Marrow for Reuters
“The retailer, which says it has over 34 million customers, now has 13 warehouses and dozens of sorting and distribution centres across Russia which reduce delivery times” By Rzhevkina & Marrow for Reuters
And on the headroom for growth
“The Russian e-commerce market is growing significantly faster than in the United States or in the largest EU countries, thanks to the low penetration base effect” By Data Insight co-founder Boris Ovchinnikov
“The Russian e-commerce market is growing significantly faster than in the United States or in the largest EU countries, thanks to the low penetration base effect” By Data Insight co-founder Boris Ovchinnikov
Here is the full article https://www.reuters.com/article/us-russia-ecommerce-focus/covid-19-crisis-a-shot-in-the-arm-for-russian-e-commerce-idUSKBN27Z10Z
https://www.reuters.com/article/us-russia-ecommerce-focus/covid-19-crisis-a-shot-in-the-arm-for-russian-e-commerce-idUSKBN27Z10Z
Who are the key players 
The market is still highly fragmented as the top 3 players only control 18% of the market according to the Financial Times
For comparison, $AMZN controls over 50% of the US market on its own
These 3 Russian players are
http://Wildberries.ru reported $ 1.7B in sales in 2019 and got 139m website visits in Oct ’20
It grew by 89% in 2018 - 2019 period and controls 9 to 13% of the market
http://Wildberries.ru reported $ 1.7B in sales in 2019 and got 139m website visits in Oct ’20 It grew by 89% in 2018 - 2019 period and controls 9 to 13% of the market
http://AliExpress.ru got 112m website visits in Oct ’20 (Sales estimates vary but could be approximated to $ 1B) It grew by 162% in 2018 - 2019 period and controls 6 to 8% of the market
Ozon reported $ 832m in sales in 2019 and got 70m website visits in Oct ’20 It grew by 87% in 2018 - 2019 period and controls around 6% of the marketSources: http://ecommercedb.com http://similarweb.com http://datainsights.ru Reuters
Market shares estimates vary
Hey there! What is AliExpress exactly?
Remember that Russia is a large country
It touches both the European Union and China 
Will eCommerce giants from China try to enter the market?
Remember that Russia is a large country It touches both the European Union and China Will eCommerce giants from China try to enter the market?
Well, according to Bloomberg & TechCrunch 
$BABA teamed up with http://Mail.ru in order to create a Russian eCommerce joint venture: AliExpress
http://Mail.ru already delivers online services (social media, email, food delivery) to 100m users
$BABA teamed up with http://Mail.ru in order to create a Russian eCommerce joint venture: AliExpress http://Mail.ru already delivers online services (social media, email, food delivery) to 100m users
$BABA holds 48% of the venture and http://Mail.ru gets 13% (other backers get the rest) https://techcrunch.com/2018/09/11/alibaba-russia-mail-ru/
Before this joint venture, $BABA was managing AliExpress in Russia on its own
However, it was loosing market share because of the long delivery tome for orders from China
It therefore choose to partner with a local partner https://www.bloomberg.com/news/articles/2020-10-20/in-russia-alibaba-baba-yandex-yndx-and-others-battle-for-online-crown
However, it was loosing market share because of the long delivery tome for orders from China It therefore choose to partner with a local partner https://www.bloomberg.com/news/articles/2020-10-20/in-russia-alibaba-baba-yandex-yndx-and-others-battle-for-online-crown
Needless to say, eCommerce in Russia is growing FAST and attracting giants such as $BABA
During the April-May period, $OZON recorded a 84% increase in new active buyers YoY
Regions outside of Moscow now accounted for 55% of $OZON gross merchandise value
During the April-May period, $OZON recorded a 84% increase in new active buyers YoY Regions outside of Moscow now accounted for 55% of $OZON gross merchandise value
What are the key challenges to overcome Russia’s main problems lies in the long distances and weak infrastructure The country counts 11 different times zones and stretches over 9,000km (5,600 miles)
eCommerce players are well aware of these challenges
$OZON now has over 200,000 SQM of fulfilment infrastructure across Russia
It now counts 16,700 pickup points and delivery lockers
Low labor costs help keep prices down as they are building out their logistics
$OZON now has over 200,000 SQM of fulfilment infrastructure across Russia It now counts 16,700 pickup points and delivery lockers Low labor costs help keep prices down as they are building out their logistics
According to http://retail.ru
“Delivery is also optimized by redistributing logistics hubs: companies are betting on cross-regional delivery, moving away from the centralized federal system. This lowers shipping costs and market entry barriers for new companies.”
“Delivery is also optimized by redistributing logistics hubs: companies are betting on cross-regional delivery, moving away from the centralized federal system. This lowers shipping costs and market entry barriers for new companies.”
Continued
“WildBerries and Ozon are planning to open large trade and distribution centers in Yekaterinburg, and the Kazan suburb of Zelenodolsk is also being developed by logisticians from http://Yandex.Market and X5 Retail Group”
“WildBerries and Ozon are planning to open large trade and distribution centers in Yekaterinburg, and the Kazan suburb of Zelenodolsk is also being developed by logisticians from http://Yandex.Market and X5 Retail Group”
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Another challenge for investors is the depreciation of the Rouble 
It is no secret that the Russian Ruble (Russian currency) has been under pressure these last years
The exchange rate reached 0.043 USD per Ruble in 2008
It is no secret that the Russian Ruble (Russian currency) has been under pressure these last years
The exchange rate reached 0.043 USD per Ruble in 2008
It then decreased to 0.027 USD per Ruble in 2014 It now trades at 0,013 USD per
What are the factors behind the fall of the Ruble?
Here is what Tomas Urbanovsky has found
“[…] the decline in global oil prices, which led to the currency crisis in Russia. However, other factors, which might have considerable effects on ruble exchange rate, […]...
Here is what Tomas Urbanovsky has found “[…] the decline in global oil prices, which led to the currency crisis in Russia. However, other factors, which might have considerable effects on ruble exchange rate, […]...
... FOR example changes in gold and gas prices, Russian interest rates, development of stock market and last but not least development of the USD exchange rate itself.”
We are thus speaking about
Oil prices
Natural gas prices
Gold prices
Interest rates
It is very hard to give a strong view on this part, this is a risk for investors
Oil prices Natural gas prices Gold prices Interest rates It is very hard to give a strong view on this part, this is a risk for investors
So… This is a lot of information. Let’s summarise
eCommerce penetration in Russia is low at around 11% of total retail sales - coming from 7% pre-Covid
Technology and improved logistics help eCommerce players master key challenges posed by Russian’ geography and climate
eCommerce penetration in Russia is low at around 11% of total retail sales - coming from 7% pre-Covid Technology and improved logistics help eCommerce players master key challenges posed by Russian’ geography and climate
The eCommerce market is highly fragmented with 4 players having a strong foot: http://Wildberries.ru , Aliexpress, Ozon and Yandex Main risks come from the Ruble’s constant decrease (linked to oil prices amongst other things)
Why $OZON 
The Russian eCommerce market is not in bad shape, but why should we pick $OZON? Let’s put ourselves in the shoes of Sistema 
One of Ozon’s largest shareholderHere is what made them invest back in 2014
eCommerce penetration was rising and would reach 7% by 2020 (Spot on!) Fragmented market providing a golden opportunity for $OZON to stand out
$OZON was a diversified eCommerce conglomerate active in online retail, logistics and travel Gross Merchandise Value was growing fast - From RUB 3.2B in 2009 to RUB 23,8B in 2013
And there are many other reasons that led them to invest
If you want more on the 2010 - 2014 period for $OZON , here is an interesting Harvard Business Review piece
https://hbr.org/2014/07/the-ceo-of-ozon-on-building-an-e-commerce-giant-in-a-cash-only-economy
Here is the full deck
http://www.ewdn.com/wp-content/uploads/sites/6/2014/04/ozon_investment_by-Sistema_eng.pdf
If you want more on the 2010 - 2014 period for $OZON , here is an interesting Harvard Business Review piece
https://hbr.org/2014/07/the-ceo-of-ozon-on-building-an-e-commerce-giant-in-a-cash-only-economy
Here is the full deck
http://www.ewdn.com/wp-content/uploads/sites/6/2014/04/ozon_investment_by-Sistema_eng.pdf
But what is $OZON now 
$OZON boasts 11.4m active buyers in Q3 ’20, up from 5.3m in Q1 ’19
It’s making the switch towards a marketplace and now counts 18.1m active merchants - up from 1.3m in Q1 ’19
It scores a NPS of 79! In the same range that $AAPL and $SBUX get
$OZON boasts 11.4m active buyers in Q3 ’20, up from 5.3m in Q1 ’19 It’s making the switch towards a marketplace and now counts 18.1m active merchants - up from 1.3m in Q1 ’19 It scores a NPS of 79! In the same range that $AAPL and $SBUX get
Financials Check Data concerns first 9 months of 2020
Sales grew by 70% YoY to $ 866m with Gross Margins of 30% (up from 19% a year earlier)
Operating expenses as % of sales reached 48% down from 51% a year earlier
Largest operating expense is fulfilment and deliveries at 30% of sales
Loss from operations reached 153m down from a loss of $ 161m a year earlier Company had $ 66.6m in cash pre-IPO and raised $ 990m during its IPO to fund its expansion https://www.reuters.com/article/us-russia-ozon-ipo-idUSKBN2840OE
THE BOTTOM LINE eCommerce in Russia is getting a considerable pandemic related boost as consumers had to move online in order to make their purchases The market is fragmented and requires considerable logistical investment, creating barriers to entry for new players
$OZON has managed to grow at a very strong pace in its pre-IPO years and continues to deliver YoY sales growth of 70% $OZON is scaling its operations without having to spend big on marketing, with the major share of OpEx going into logistics
Entry for neighbouring Chinese players needs to be monitored but risk is somewhat mitigated by high infrastructure investments required Russian Ruble has been on a downward path for the last years, a risk investors have to bear
We take a medium stake in $OZON - 50% of full potential position 
$YNDX is on our watchlist To Be Reviewed SOON
Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.
Sources
✑ Investor presentation
✑ Company website
✑ Financial Times
✑ Reuters
✑ Staista
✑ Euromonitor
Sources
✑ Investor presentation
✑ Company website
✑ Financial Times
✑ Reuters
✑ Staista
✑ Euromonitor
✑ Data Insights
✑ eCommerceDB
✑ Bloomberg
✑ Harvard Business Review
✑ eCommerceDB
✑ Bloomberg
✑ Harvard Business Review
Hope you liked this thread!
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