(36 Pages, 46 graphs and tables)
Listen to analyst’s audio summary

• Changes in e-commerce front and backend provided opportunities for E-commerce software to also change. But the opportunities afforded to Weimob and Youzan aren’t very significant, in our view;
• From Net Dollar Retention (NDR) and free cash flow (FCF) perspectives Weimob and Youzan aren’t attractive investment choices. Behind the financials underlies fierce competitive that isn’t likely to improve; 
• We initiate Weimob/Youzan @ SELL w/ TP of HK$8.4/$1.34.

From serving Alibaba to serving multiple platforms
E-commerce software and retail extension of ERP packages have long existed. The rise of Pinduoduo (PDD), Douyin and Kuaishou e-commerce fragmented the front end. Competition in express delivery fragmented the backend, creating opportunity for the mid-end to rise. But how big is this opportunity?
 
Five forces are competing for the e-commerce SaaS pie
A detail examination showed that e-commerce platforms all have their own merchant toolboxes, thereby creating powerful competition to e-commerce software companies. Further, two types of new entrants are joining the foray: One leveraging sourcing and one leveraging PaaS;
 
Multi-channel and one stop shop are necessary but not enough
Shopify’s experience showed that multi-channel support and one stop shop are keys to withstand the competitions mentioned above. However, skyrocketing valuation had deprived Weimob and Youzan the chance to quietly build strength;
 
Unfavourable and deteriorating NDR underscore biz model issue
Weimob and Youzan’s NDR are both one of the worst and deteriorating recently, reflecting intensified competition. We expect them to achieve sustained FCF positive by 2024/2023, respectively. Weimob needs to raise capital multiple times;
 
Respective financial problems exist
Weimob’s FCF situation is far worse than its P&L situation, thanks to the capital intensity of its expanding advertising agency business. Youzan’s minority interests ate away 35% of 2019’s net losses. Both should depress the valuations, in our view.

Click to download the full report