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Facebook & Reliance: Whatsapp-Jiomart Deal Focal-Point

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Facebook & Reliance: Whatsapp-Jiomart Deal Focal-Point Facebook versus Amazon: WhatsApp-JioMart in India Ecommerce Sector Investment Risk Level: Medium June 13, 2020 Facebook & Reliance: WhatsApp-JioMart Deal We were able to go beyond headline news and get a very inside angle on the investment between Facebook (FB) and Reliance’s (RIL) “Jio” digital platform which occurred on April 22, 2020. We spoke with senior management at India’s Facebook division, and also retrieved insights from our own business associates and contacts in India [being of Indian origin myself]. This has led us to assess that this latest Facebook-Reliance Jio deal has long-term significant accretive value, especially in a growth market such as that of India’s. The investment made by tech-giant Facebook in Jio Platforms was valued at $5.7 billion (~30% of FB’s 2019 year-end cash balance), for a 9.9% stake. It was heralded by financial experts as being a big leap forward towards the company’s Facebook [FB] 1-year chart long-term goal of becoming a platform for commerce. Facebook’s investment was the largest and foremost capital infusion made, after which 12 other investments were happened successively in the span of two months by other companies, not just locally, but on a global level. Most recently, Qualcomm (QCOM) and Intel (INTC) took a 0.15% stake ($97 mn) and 0.39% stake ($254 mn) in the company (further detail on the 13 investments in 12 weeks - here). Qualcomm is a leader in 5G, and Intel is a chief computer processor manufacturer listed on Nasdaq. Since April 2020, Reliance Industries have in total raised ~$16 billion by selling a 25.24% equity stake in Jio Platforms. Jio has become a hot commodity, as seen by bidders and the market. This has brought Jio's enterprise value to $69 billion, and it plans to wrap up most of its private fundraising by the third quarter of 2020. It might then explore a potential IPO in the US markets in 2021, as tensions Reliance [RIL] 1-year chart escalate between U.S.-China over the trade war and the new HK security law, leading US-based Chinese companies to now eye their homeland for listings amongst a slew of sanctions being imposed by Washington. This might be an opportune time for a public offering on Nasdaq for Jio - opening up American investors to an internet company with a billion-plus market that could be relatively more attractive given the de-listing of Chinese firms -and potentially accruing 70% additional returns for Facebook in the process. Focal-Point: WhatsApp & JioMart The focal-point of this FB-Reliance deal will be WhatsApp and Reliance’s JioMart subsidiaries, respectively. The resulting service will afford small retailers Amazon [AMZN] 1-year chart the opportunity to better connect with the wider market of consumers across the Indian subcontinent, via the WhatsApp messaging application. To give some insight into both applications on an individual basis, let’s take a glance at both services from an Indian market outlook. WhatsApp is a messenger service with 2 Analysts: Milan Mehta ([email protected]) +1 617-848-8279 billion users worldwide, with 400 million Monthly Active Users (MAU) of that Shachi Seksaria user-base residing in India, making it by-far the largest market – Brazil, lags behind a distant 2nd with only 120 million MAUs. www.vipglobalresearch.com Page 1 JioMart, on the other end of the spectrum, is a joint venture between Reliance Retail, India’s largest retail chain, and Reliance Jio Platform, the biggest telecom network in India with over 385 million subscribers. The joining of these platforms - WhatsApp and JioMart - will create great potential to enhance business opportunity in India. How will it work? WhatsApp -JioMart [WJ] wants to create an e-commerce platform for disorganized retail, consisting of small businesses neighborhood convenience stores or more commonly termed as 'kiranas' in India. JioMart will act as a bridge for these kirana stores that sell your everyday small-ticket items (ex. milk, bread, cereal, tea, grains, cooking oil, etc) to the consumer. From your average-Joe to the elite upper-class, there is no limitation to who this service can cater to in the country. These stores - they are unique because they have no door - nor any formal entrance. This is what sets them apart from your typical 7-Eleven, or even more noticeably your typically well-established CVS or Walgreens pharmacies. These small retail establishment scattered across India’s brimming metropolis account for 90% of the retail market for nominal day-to-day purchases. Whatsapp will act as a Facebook’s WhatsApp will help to further supplement this JioMart’s market share of payment service connecting neighborhood curbside shops, by leveraging on its social media presence, shortening the gap between the consumer and small retailers. The scheme between these two unorganized retail in India – entities will combine to work in a 2-step system of payment and order fulfillment – ‘kiranas’ – to JioMart’s efficient delivery and handling services. JioMart has already started 1. WhatsApp - People will have access to a catalog or “mini-store” on the their browser platform, WhatsApp application, to which they can browse every-day grocery items WhatsApp will work to greatly (things you may commonly find at your local 7-11). Their final order items on enhance their market scope, in WhatsApp will be sent to JioMart for fulfillment. the largely untapped market 2. JioMart: Reliance’s ecommerce platform will step in and assign a environment of India. neighborhood store to that WhatsApp order and send the individual an invoice on their mobile. Therefore, JioMart will be taking care of order fulfillment, and dispatch. It is to be noted that their payment system, called “Pay”, is still seeking approval from the New Delhi courts to become fully operational. According to the Business Standard, its digital payment service will be rolled out in a phased manner. In the first phase, WhatsApp had offered payment services to 10 million users on Feb 10 - this is a good init ial start in our view. They are working around this and it should start to gain traction soon, like it has with their push for Pay in Brazil with 120 mn users and 10 mn business es taking part. Comments on the rollout of JioMart-WhatsApp – “You can browse shops and talk to the shop owner. And ultimately, where we do want to take this flow is for you to be able to place your orders.” — Ajit Mohan, Head of India for Facebook, TechCrunch, April 2020 www.vipglobalresearch.com Page 2 “The largest Facebook and WhatsApp communities in the world are in India, and we think that there's an especially important opportunity to serve small businesses and enable commerce there over the long term. So, by bringing together JioMart, which is Jio's small business initiative to connect millions of shops across India, with WhatsApp, we think that we're going to be able to create a much better shopping and commerce experience. And there's a lot more that we can do here, and I'm looking forward to making progress with the team at Jio.” — Mark Zuckerberg, Founder-CEO of Facebook, Q1’20 Earnings Call India is expected to become the second largest ecommerce The Ecommerce Market Boom market by 2034. The ecommerce market in India was valued at $38.5 bn and is expected to grow to $200 bn due to a surge in the number of internet users. It is expected to become the second largest ecommerce market in the world by 2034, surpassing the US. The ecommerce penetration of retail sales in the US has spiked 11.1% in the last 8-week period during Covid-19 – see line chart below. This trend will further influence global ecommerce going forward into 2021, as social distancing shrouds consumer buying decisions and brick-and-mortar stores continue to shut down throughout the world. The ecommerce sector is expected to grow 1,200% by 2026 as a result of this secular trend. The smartphone market is the fastest growing market and in 2022 it is expected to reach 859 mn users – shipments increase 8% y-o-y making it the fastest growing market amongst the top 20 smartphone markets globally. In 2019 it was inferred that one in One in every three Indians every three Indians shopped via a smartphone. Most of the smartphones purchased are shops with a smartphone. inexpensive, with Xiaomi leading the market in QoQ unit share, ushering in the influence of the rising middle class and the fall of high-priced phones like Apples’, which are doing well in developed countries, such as in the US where they are market leaders. Data from IBEF. Two of the primary areas of focus (ecommerce and smartphones) with the former giving us a picture of how JioMart might do, and the latter telling us how Facebook will do i.e. more number of smartphone users, the more the access to WhatsApp’s services. JioMart’s Growing Success JioMart has already begun as a web-based browser platform in India, offering 50,000+ products in 200 cities to over 20 million people. It has partnered with 90% of unorganized retail in the country. This is a statement from Mukesh Ambani, CEO of Reliance and Asia’s current richest person, regarding the project's vision of ecommerce, which he refers to as ‘new commerce’: JioMart has already begun as a web-based browser platform in “The main purpose of new commerce is to completely transform the unorganized retail India, offering 50,000+ market, which accounts for 90% of India’s retail industry.
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