Weimob just announced a fund-raising round and solid 1Q21 operating metrics.
We believe that the company’s latest fund-raising effort is timely, as it will help it to build up its warchest as it continues to increase its R&D capabilities and expand into new sectors. We continue to be bullish about its smart retail/smart catering operations, as well as its relatively high retention rate, which is fueled by its large customer strategy.
• Operating data that are positive. Weimob’s Subscription Solutions revenue increased by more than 100% year over year in 1Q21, excluding a one-time impact, while Merchants Solutions grew by more than 50% year over year.
The number of paying merchants increased by 22% year over year, with a low attrition rate of 4.3 percent. Both revenue growths were within our forecasts for 1H21 (assuming the same performance in 2Q21), as we anticipated a higher attrition rate of 19 percent in the first half.
We believe the strong success was fueled by an expanding number of Key Account (KA) clients including Starbucks, Mengniu, Purcotton, and others, as well as a lower-than-expected attrition rate. The churn rate for SMEs was 25-30% vs. c.10% for large merchants, and the LTV/CAC ratio for SMEs was 2-3x vs. 10x for large merchants. For 2021, KA (key account) income contribution will be 30%.
• Fundraising to replenish the organization’s war chest. Weimob announced the issuance of US$300 million (HK$2.34 billion) zero coupon convertible bonds (due in 2026, conversion price of HK$21.00) and a US$298.5 million (HK$2,315.6 million) private placement (exercise at HK$15.00 per share, representing 6.9% of its enlarged issued share capital) on May 24. Tencent, a major partner, has bought a 20% stake in the company.
For the private placement and convertible bond, respectively, both corporate exercises were oversubscribed by 8x/5x. The funds will be used to improve the company’s research and development capabilities, expand into other sectors, and fund a prospective M&A target (s). Given the heightened competitive situation within e-commerce SaaS, as well as unconventional companies such as Douyin and Kuaishou entering offline digitalization, we believe the fund-raising effort is timely.
• Perspective for the year 2021. Subscription income is predicted to expand 70-80 percent year over year, while merchant solutions are expected to expand 50 percent year over year, according to the company. In terms of costs, Weimob plans to increase its R&D staff to 2,400 by 2021 in order to better support its rapid growth.
The robust SaaS revenue will be fueled by a 20-30% year-over-year increase in merchants and a 15-20% year-over-year increase in ARPU. By segment, the company anticipates high double-digit revenue growth in e-commerce (WeiMall) in 2021, 100 percent year-over-year growth in the smart retail sector, with 400 new chain brand customers joining; and re-accelerating growth of 50 percent year-over-year in smart catering, thanks to the catering industry’s recovery from the pandemic.