Carousell, a Singapore-based online classified ad market operator, is considering a listing in the US through a merger with a blank check company, according to people who are aware of it.
The startup is working with an adviser on the possible transaction that could value the company up to US $ 1.5 billion, people said, who asked not to be named as the process is private.
The listing through a Special Purpose Procurement Company (SPAC) could take place as early as the end of this year, according to people.
A company with a blank check or SPAC raises capital through an initial public offering (IPO) with the aim of acquiring an existing operating company. Subsequently, an operating company may merge or be acquired by the publicly traded SPAC and become a listed company instead of running its own IPO.
Carousell is a marketable mobile app that makes selling things as simple as taking a picture. Launched in 2012, investors include Telenor Group, Rakuten Ventures, Naver and Sequoia Capital India. It now operates in Southeast Asia, Taiwan and Hong Kong.
Carousell is one of the countries in the world bigger and faster growing person-to-person mobile markets, according to technology site e27. More than eight million tokens have been created in Carousell, with millions of items successfully traded.
Millennials account for 70% of Carousell i visitors one-third of their income comes from the sale of second-hand vehicles.
As Carousell looks toward entry into the public investment domain, Vulcan Post analyzes the various risks the company will have to manage to avoid possible public reactions, scrutiny and negative impact on the shares.
It needs to clean up the market image
For the company to attract investors and be listed, it will have to revise its image of being a market known for e-commerce scams.
In the 2020 annual Singapore Police Crime (SPF) crime summary, Carousell continued to have the highest share of e-commerce scams with 1,319 cases (or 39.3%) of all e-commerce scams reported in the country.
The usual scam transactions consisted of the sale of electronic devices, items related to Covid-19 and personal accessories.
Carousell has been actively working on cleaning its market. Last year, in a media statement, it was said that there has been a decline in the fraud rate by 2020, with only three out of every 10,000 fraudulent transactions.
Carousell said he had reduced his overall share in the percentage of all e-commerce scams.
The company commented that the reduction in fraud was achieved thanks to Carousell’s sustained investment in security in the market and the strong partnership with the authorities.
He stated that the SPF has recognized that it is the most supportive online marketplace to collaborate with its dedicated anti-scam center to curb fraud in Singapore.
The company added that it has a team of moderators that removes inflated listings and suspends users when needed.
It has also invested significantly in improving its technological capabilities on this front.
Since the beginning of 2020, it has almost doubled the number of engineers dedicated to market security and improved the detection of scam patterns, with a percentage of suspicious accounts detected and suspended that automatically increases by more than one. 20%.
The company also encourages users to opt for Carousell Protection, its trusted deposit payment solution, which provides guarantee to users by keeping payment until it is verified that the seller makes a successful transaction.
During Covid-19, the company said it is mandatory that Carousell tokens in certain high-risk categories, including masks and electronics, be enabled for Carousell Protection.
Burn rate risks
With the massive efforts needed to tackle e-commerce-related crimes among its millions of buy-and-sell publications, the company will have to hire large teams to deal with this problem.
And with that, higher operating costs are achieved.
Taking a look at the regulatory requests for the year ended December 2019, or we can call it the pre-pandemic era, Carousell had more than double their income up to US $ 15.7 million, with the support of its advertising strategy.
However, Carousell also deepened its net loss to $ 39.4 million, up from $ 25 million a year earlier. The main drag was $ 28.8 million in staff costs, compared to $ 17.7 million the previous year.
According to the research site Crafts, Carousell has approximately 554 employees as of this month. According to The Straits Times, Carousell employs about 250 people in Singapore and has more than 700 employees in the region.
As countries begin to adjust to the new normal and to live with an endemic Covid-19, there are likely to be some readjustments of interest online for some platforms.
To achieve the goals, Carousell will have to balance its growth with hiring rates. This means you have to substantially increase your income to cover expenses or perhaps you have to reduce your labor costs.
The company has been rewarding and not neglecting its employees as it grows, which is a commendable act and not always seen in the world of startups. For example, he rewarded them through the Naver deal by repurchasing employee stock options.
We note that during a company’s hay days, it is important to celebrate victories.
But companies must also remember that we are now living in uncertain times. Cost management must be an important factor in the minds of all companies, regardless of the growth they experience.
The repurchase of stock options must strike a balance with conservative spending or spending on other business aspects.
12-fold increase in Series C shares, compared to A shares.
To understand Carousell’s value and growth proposition, we can take a look at its stock value over the years.
Just looking at the Naver deal in September last year shows the growth in Carousell’s value. The Naver deal was made with the goal of using technology to make selling and buying even simpler and more effective.
Of the $ 80 million in the Naver deal, it appears that only a portion involved newly issued shares.
Regulatory records show that Naver and two other vehicles, Mirae Asset-Naver Asia Growth Investment and New Horizon Investment I, bought about $ 23 million in new shares. They paid $ 12.75 per common share and $ 15.94 per “subclass C” preferred share.
Naver and two other vehicles also bought more than 4.3 million common and preferred shares from previous investors.
Vendors included Carousell co-founders Quek Siu Rui, Marcus Tan and Lucas Ngoo, angel investor Darius Cheung, as well as Rakuten, Sequoia India, 500 startups, Golden Gate Ventures and Quest Ventures.
VentureCap Insights, an intelligence research platform, showed that Carousell’s Series A shares were issued at US $ 1.13 per share and Series B shares at US $ 11.05 per share. action.
This represents a 12-fold return for investors with Series A shares, assuming the Naver consortium bought those shares at a 15% discount from the last issue price.
A Series B investor who sold his shares would get a return of 1.2 times per share.
E-commerce boom to support Carousell’s IPO
2020 was a flag year for e-commerce. In Singapore, consumers went shopping more than ever online, whether they were buying retail products, groceries or food to deliver.
Data analytics firm GlobalData said so ecommerce sales a Singapore accelerated even further due to the Covid-19. The compound annual growth rate of the e-commerce market reached $ 8.3 billion in 2019 and is expected to reach $ 9.5 billion in 2020.
“Increasing consumer preference for online shopping during the outbreak will have a lasting effect on the country’s e-commerce market,” GlobalData said.
Because Carousell’s accelerated growth rate has been well supported even before the pandemic, it has allowed the company to enter a growth sprint over the past three years.
In November 2019, Carousell combined with 701Search, a classified ad company and subsidiary of the Norwegian telecommunications company Telenor Group which has business interests in Southeast Asia. At the time, Carousell was valued at more than US $ 850 million.
Then, in September 2020, Carousell achieved an investment of US $ 80 million of the South Korean technology company Naver, reached a valuation of 900 million US dollars, advancing towards unicorn status.
In April, Carousell announced the release of Carousell Auto Group, which includes its car classified ad platforms across the region.
If Carousell’s SPAC agreement plans come to fruition, the transaction is estimated to value the company at up to US $ 1.5 billion.
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Featured Image Credit: Carousell