YuuZoo critics need first to understand its business model
Don’t criticise what you can't understand, Bob Dylan
famously sang in his 1964 anthem of change The Times They Are A-Changin'. The
Singapore market, it appears, is doing that to YuuZoo, a company whose business
model is understood by few.
Comments
Jacquelyn Cheok
14 April 2016
Don’t criticise what you can't understand, Bob Dylan famously sang in his 1964 anthem of change The Times They Are A-Changin'. The Singapore market, it appears, is doing that to YuuZoo, a company whose business model is understood by few.
Some critics, for example, are giving YuuZoo a wide berth as they perceive its business model as being too complex, one that will perhaps be better received in a bourse elsewhere, such as in Australia.
"The market doesn't quite understand the business," YuuZoo co-founder and chairman Thomas Zilliacus has time and again lamented. YuuZoo shares are also "terribly undervalued", the 61-year-old Finnish, who proclaims himself to be the world's oldest Internet millionaire, said. He was formerly Nokia's regional director for the Asia-Pacific and a professional football player in Finland and Brazil.
Since making its trading debut at S$0.51 on Sept 16, 2014 - following a reverse takeover of components trader W Corp - YuuZoo shares have been on a steady decline. Notwithstanding the surge at the end of March this year on news of the company's multi-million e-sports deal with Alibaba Sports Group, the stock is now trading at S$0.215, barely half its debut price. Some investors and analysts are not too familiar with YuuZoo's business model. The firm is still and all the first - and only - social media, e-commerce and entertainment company to be listed on the Singapore Exchange mainboard following the reverse takeover.
The onus is therefore on YuuZoo to make its case. What is perhaps needed is a crash course, an uncomplicated report, that explains its business in more layman terms.
Mr Zilliacus puts it this way: "Think of YuuZoo as a virtual shopping mall. A modern brick-and-mortar shopping mall like VivoCity has not just shops but also restaurants - in essence meeting places - and entertainment amenities." On YuuZoo's virtual shopping mall - a platform it has developed in-house and optimised for the smartphone - one will find the same three fundamentals: shops (in the form of e-commerce), meeting places (social networks) and entertainment (e-sports, games and videos), he explained.
"YuuZoo lets users do everything in one place via a single login; they spend more time looking at more things. Games, for instance, provide major stickiness to social networks."
(The company on Tuesday issued 15 million new ordinary shares to pay for its acquisition of a 30 per cent stake in games company Infocomm Asia Holdings (IAH), which distributes and publishes FIFA Online and Grand Theft Auto. This means that all of IAH's game business will be transacted through YuuZoo's platform; IAH's over 37 million registered gamers will also join YuuZoo's platform.)
Within YuuZoo's virtual shopping mall are hundreds of themed and brand-based targeted networks. YuuZoo builds for brands and organisations their own social networks that are interest-, location- or age-specific. Examples are hiphop (interest), Australia (location), kids (age) where users can find common interests.
Each social network is also painstakingly localised - with an e-commerce shop featuring local and global merchandise, as well as content adapted for the local geography and published in the local language. This provides users with an "optimised experience", said Mr Zilliacus. To do that, YuuZoo adopts a franchise model. Each time it enters a new country, it appoints a local partner or franchisee - typically an entrepreneur that understands the Internet space, and not a big company - to run its virtual shopping mall. The franchisee has two roles: to localise (find local merchants, for instance) and operate the virtual shopping mall, and to market the platform to users.
To-date, YuuZoo has 68 employees across Singapore, China, Africa, the Philippines and Thailand - even as it has a presence (via franchisees) in more than 68 countries. Business costs come up to just US$400,000 a month, according to Mr Zilliacus.
But how does YuuZoo make money? The most straightforward way is through e-commerce sales, in which the company earns from payments, merchant sales, gaming and advertising revenues. ("Payments" refers to YuuZoo's online payments tool YuuPay, which merchants pay to use for e-commerce transactions.) Another way - which can be challenging to grasp - is through franchise sales.
Franchisees pay YuuZoo for the franchise licence in cash, shares or a combination of the two, although YuuZoo prefers shares for two reasons. First, it gets a higher share of the recurring revenues from advertising, e-commerce and gaming generated by the franchisee's platform over time; such revenues are recognised and reported as they are earned. Second, it allows YuuZoo to participate in the potential value increase (or decrease) of the platform over time as the franchisee's business develops.
In YuuZoo's earlier franchise model (before 2015), it received a one-time cash fee from the franchisee for the license and a fixed revenue share on all future income. For the franchisee now, the new model removes the need to pay a hefty cash fee upfront, which can be better used to market the platform. For the YuuZoo shareholder, the new model makes him not only an owner of YuuZoo, but of a growing number of localised virtual shopping mall businesses, all of which can be sold when the time is ripe.
Said Mr Zilliacus: "We operate almost like a venture capitalist. We valuate each platform at the start, support it over time, and sell it when the price is right." Except YuuZoo also built and owns the technology behind the platform, which Mr Zilliacus said is currently patent-pending.
"As long as the shares are not sold, Yuuzoo will always own part of the franchisee's business. Income is therefore recurring," he added.
YuuZoo is a "third-generation social network". It's a term the company has coined to refer to the latest social networks that are open and differentiated by themes or brands. First-generation social networks like MySpace popularised personal profiles, while second-generation networks like Facebook offer a closed platform to engage with loved ones.
Mr Zilliacus said: "YuuZoo's networks are themed (ie, not random) and moderated. This offers a more meaningful and positive environment, especially for people who have grown up with social media and witnessed how it can spawn negativity, such as a lynching mentality."
Market observers said that YuuZoo's financial performance also matters. For FY15, YuuZoo registered a net profit of US$23.8 million on revenue of US$65.4 million. The group's per-share earnings and net asset value were 3.74 US cents and 10.72 US cents respectively.
DBS Group Research said in a January report that YuuZoo's valuation at 11 times trailing 12-month PE represented a discount of about 55 per cent to its larger peers' 25 times. It added: "We believe that the stock should re-rate if YuuZoo Corp can demonstrate the commercial viability of its social media networks through consistent delivery of revenue and earnings growth."
The financial ball is therefore in YuuZoo's court.
Business Brokers Sydney