GMO Pepabo 3633
January 08, 2016 - 5:21pm EST by
2016 2017
Price: 4,720.00 EPS 0 0
Shares Out. (in M): 3 P/E 0 0
Market Cap (in $M): 105 P/FCF 0 0
Net Debt (in $M): -16 EBIT 0 0
TEV (in $M): 89 TEV/EBIT 0 0

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  • Personal Account Idea
  • Illiquid
  • Micro Cap
  • Japan
  • Ecommerce
  • Sum Of The Parts (SOTP)


The company’s President, Kentaro Sato, joined Pepabo in 2003 when he was in college, and is only 34 years old now. The Chairman is Masatoshi Kumagai, who is also the founder and President of the parent company, GMO Internet. We think very highly of Sato-san from our meetings with him. We also think very highly of Kumagai-san and the GMO Internet group, and we have been investors in other GMO companies in the past. We think GMO companies are some of the most entrepreneurial, shareholder friendly, and well-managed companies in Japan. For example, GMO Internet recently raised its total shareholder payout ratio (dividends + buybacks) to 50%. Similarly, Pepabo has historically had a 40-50% dividend payout ratio. Pepabo’s dividend was suspended in 2015 due to the early stage minne investment period, which we think makes sense. However, we expect management will return to a friendly shareholder return policy after minne reaches scale. Furthermore, Pepabo just completed a share buyback in Sept-15 which equated to 3.5% of the free float. We don’t think this is a stock where value is likely to be trapped by poor management.
This is a good business which has steady gross margins of 50-55% and operating margins of 17-20%. Free cash flow conversion is more than 100% of net income because customers pay upfront for the hosting service. Advances Received on the balance sheet is more than 150 days of sales. We don’t expect this business to grow rapidly, but it has compounded topline at 11% p.a. between 2008-2014, and sales grew +13% y/y in the first nine months of 2015. Management expects the business to grow single digits over the medium-term.
minne’s website and business model are very similar to Etsy. minne attracts domestic artisans of handcrafted goods who list their items and create stores within the site. minne users are largely female and the majority of the items are clothing, accessories, and miscellaneous items. However, management is targeting to expand more into furniture and vintage items, which carry higher ASPs. There are currently more than 170,000 sellers with over 1.5 million items listed.  Minne charges the seller a transaction fee, which is fixed at 10% of the transaction value. Currently 100% of minne’s revenue is generated from these transaction fees, although we see potential to add revenue streams from other seller services.
minne is small today with estimated 2015 GMS of ¥4.46 billion and revenue of ¥446 million ($3.8 million). This is in part due to the fact that the handcrafted ecommerce business model started more than five years later in Japan than it did in the US. In order to accelerate user adoption, growth, and market share, Pepabo has started advertising and promoting minne more aggressively this year. This is mainly done through TV commercials and online advertising and promotion through social media. 


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


minne GMS growth, minne turns profitable, more coverage of Peapbo by GMO Internet sell-side analysts

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