E-commerce is among the most compelling and lucrative secular growth stories in the world. Even after the pandemic meaningfully accelerated the space's overall demand, the category is still set to enjoy double-digit growth annually through 2027.
Perhaps partially as a result, Ozon Holdings (OZON -8.15%) -- an e-commerce giant in Russia -- received takeover interest from behemoths like Amazon and SoftBank, with SoftBank's Lydia Jett even obtaining a board of directors seat with Ozon. Here we will explore why their interest makes so much sense.
Great results and compelling value
In the company's most recent quarter, results were fantastic across the board. Ozon's gross merchandise value (GMV) soared 135% year over year to 74.2 billion rubles ($1.02 billion) while it boosted its 2021 GMV growth guidance from 90% to 100% year over year. Other demand gauges were just as impressive. Revenue rose 67% year over year to $453 million and beat ambitious analyst estimates. Furthermore its total orders skyrocketed 161% to 13.1 million.
Despite rapid demand growth, Ozon was able to raise its on-time delivery rate from 95%+ at the IPO to 98% today.
Encouragingly -- and perhaps somewhat surprisingly -- CEO Alexander Shulgin informed investors that order frequency is actually increasing further with pandemic restrictions fading away; that should be very positive for investors. Maybe this is due to a 9% e-commerce penetration rate in Russia -- that is less than half of the U.K. and U.S.
There is seemingly still a long, long way to go for e-commerce adoption in Russia -- pandemic or no pandemic. Within this runway, Ozon enjoys nearly double the top-of-mind brand awareness of its closest competitor and is quickly proving to be a formidable Russian powerhouse.
Not only is the company finding growth, but it's also improving profitability. Ozon's gross profit margin rocketed from 23.1% to 34.4% year over year, with EBITDA margin still negative but also quickly moving in the right direction. Even with the rapid growth and steadily improving margin, Ozon trades for just 4.5 times enterprise value to 2021 sales. This represents a steep discount when looking at other competitors across the globe with inferior growth and profitability, like Jumia Technologies.
To me, Ozon screams "growth at a reasonable price."
New endeavors are driving success
Ozon is not satisfied with simply offering an e-commerce marketplace in Russia. It has its sights set on much broader goals. For example, the organization's financial service products now make up 10% of the company's total GMV. Its Ozon debit card holders spiked 73% sequentially last quarter and these holders buy from Ozon 60% more frequently than a typical consumer. Additionally, Ozon Express -- the company's expedited shipping service -- saw daily volume "more than double" compared to December 2020.
While it is very early days for the company's advertising business, Ozon sees this as yet another lucrative growth channel. The organization has barely started in these efforts but does expect advertising revenue to reach a mid-single-digit percentage of GMV in the long run.
Beyond new product launches, the company is also seeking expansion into more Eastern European nations. Ozon plans to launch fulfillment and logistics operations in Belarus this year. The country has just a 9.46 million population but it's a heartening sign of things to come in terms of entering more and more territories. Ozon competitors like Wildberries are already operating in Western European nations like Germany, signaling that Western Europe could also be in the cards for Ozon down the road.
It is worth mentioning that investing in a Russian company comes with inherently more geopolitical risk. Sanctions are always a heightened possibility and investors have to stomach that if they want exposure to this potential upside. For me, it's worth the risk. For you, it may not be.
Go with Ozon
Ozon provides a unique combination of efficient growth, immense optionality, a truly mouth-watering opportunity, and a reasonable valuation. This is quite rare in today's stock market and should be taken seriously by investors, as it was by Amazon and SoftBank. I own Ozon, and I think you should consider it as well.