- Aiming to be consumer Internet platform with content, commerce, payments
- Composition of GMV ratio changes with sophistication of e-commerce
FLUSH with his company having raised a fresh round of US$170 million in Series D funding, led by the Malaysian Government’s investment arm Khazanah Nasional Bhd, Garena Interactive Holding Ltd group president Nicholas A. Nash (pic) sheds some light on the type of startup it has become, on its revenue, and why it uses GMV (Gross Merchandise Value) as a metric to measure growth.
As Nash explains via email to questions Digital News Asia (DNA) posed, “We have always thought of ourselves as an end-to-end consumer Internet platform company. There are three key components in that framework: Digital content, e-commerce, and payments.
“In China, those three business models are actually three separate companies: Tencent, Alibaba, and Alipay. Here in South-East Asia, we are proud that we have been able to integrate all three important consumer services into a single company, Garena,” he says.
Nash joined Garena in 2014 from US private equity company General Atlantic, where he led its initial investment in Garena’s undisclosed Series B round in 2014 while based in Singapore.
Due to return to the United States to take up another position with General Atlantic, he was instead persuaded by Garena founder Forrest Li to lead Garena, currently with 4,600 staff, into achieving its goal of becoming a dominant consumer Internet platform in the region.
Having started with gaming in 2009, Li had already launched Garena’s foray into the payment space with AirPay in 2014.
Under Nash as its group president, Garena launched of its e-commerce foray with its C2C (consumer-to-consumer) app, Shopee, last June. Chris Feng Shopee's CEO led the development and launch of the service. [Sentence edited for accuracy.]
And while Garena has already shared some high-level numbers around its revenue and the value of transactions on Shopee and AirPay, Nash provides DNA with some additional clarity.
For instance, the annualised GMV of US$350 million for Shopee is based on February’s monthly GMV multiplied by 12. This puts the GMV at US$29.16 million generated by 650,000 sellers, a combination of individuals and business entities.
Some media reports have inaccurately described all 650,000 sellers as SMEs (small and medium enterprises).
“Due to the rapid growth of Shopee’s business, an annualised GMV figure would most accurately reflect the business performance,” argues Nash, disagreeing when it was posed to him that GMV was not relevant to Shopee because its advertising and listings business model was not tied to GMV.
“GMV is the e-commerce industry’s most frequently used metric to measure marketplace growth. It would be similar, conceptually, to a stock market talking about trading volumes or Visa International talking about payment volumes.
“It is also an important metric investors use worldwide for calculating the valuation of an e-commerce marketplace.
“Speaking as a former technology investor, it truly is one of the most important financial and operating metrics for the industry and the venture capital community. A quick look through Alibaba’s or eBay’s annual report provides a firsthand glimpse of its importance,” he explains.
E-commerce companies closely measure and manage their revenue-to-GMV ratio. As e-commerce has matured, the composition of this GMV ratio has also changed, Nash points out.
In the first generation of e-commerce, that ratio was essentially the commission the marketplace charged to facilitate matching between buyers and sellers.
“Today, that ratio reflects a combination of commission fees, advertising fees for merchants, and other software tools to help merchants manage their businesses. But because that ultimate revenue is a function of the GMV throughput in the marketplace, tracking GMV remains very important,” he says.
AirPay’s revenue is more traditional, with Garena recognising a portion of the GTV (Gross Transaction Value) of US$330 million, since its 2014 launch, as revenue, similar to how Visa or MasterCard calculate their revenue.
As Shopee does not charge yet for listings or advertising, it is likely that the majority of Garena’s gross revenue of US$300 million in 2015 or, “recognised accounting revenue,” explains Nash, comes from its gaming arm.
However, its current funding round leaves Garena confident of achieving its platform leadership, with Li saying in an official statement, “With this new round of capital, we have no doubt that Shopee and AirPay will be the leading offerings in the market.”
Adding to this, Nash says, “We feel strongly that the whole is much greater than the sum of the pieces. The growth of each of our three businesses truly highlights the potential of a unified platform to serve the hundreds of millions of Internet and mobile users in our region.”
Some of that growth has been powered by acquisitions in the past, with Garena being unique among startups in the region with its own venture capital arm, which has participated in three funding rounds into RedMart, a Singapore-based online grocer.
When asked if the current funding will be used for acquisitions, Nash says, “We cannot comment on future acquisitions, but as we grow we may make acquisitions in the future if they are appropriately priced and truly strategic for our business.”
No doubt, Nash, who in a recent profile by Asian Venture Capital Journal shared that his current startup role has given him greater insight into asking the right questions as an investor, will play a leading role in any acquisition or investment that this aspiring Internet platform company makes.
C2C marketplace Shopee officially launches in Singapore
In Malaysia, Shopee to take on giant Mudah
Shopee Malaysia to hit 1mil users ahead of target
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