Newly IPO'd Full Truck Alliance (NYSE:YMM) is often described as China's "Uber for trucks," and for good reasons. For one, the company operates a smartphone app that matches shippers and truckers -- much like how Uber links riders and drivers.
In addition, Full Truck Alliance's largest shareholder is Japan's SoftBank Group (OTC:SFTBF). SoftBank is known for its big bets on sharing economy start-ups like Uber, DoorDash, and WeWork. While not all of its investments turn out spectacularly well, SoftBank's successes have transformed it into one of the world's largest tech-focused investment funds.
Will Full Truck Alliance be another feather in the hat for SoftBank? Let's find out for ourselves.
A super app for the road transport industry
Full Truck Alliance -- as its name suggests -- came into existence through the merger of two rival digital freight platforms, Huochebang and Yunmanman. Both companies began operating in 2011 and 2013 respectively, aiming to digitalize the complex system of matching truckers and shippers across China.
Historically, truckers in China park their trucks at remote logistics parks while waiting for their next shipment. While waiting, truckers sieve through multiple blackboards scattered across these parks to find their next shipping orders. Meanwhile, shippers need to go through layers of middlemen to find a trucker. As a result, truckers often need to wait for days in between shipments. On top of that, middlemen usually charge 10% to 15% of total freight fees, eating into the shipper's bottom line.
Enter Huochebang and Yunmanman. Both companies started by providing freight listing services on China's WeChat and QQ messaging platforms before developing their own mobile apps. In late 2017, both companies joined forces, creating China's biggest shipper-trucker matching platform. Since then, it has evolved into a one-stop shop for players in the road transportation industry.
How it works
To understand Full Truck Alliance's value proposition, let's walk through the process of matching a shipper and trucker using the mobile app.
To post an order, shippers enter a standard set of details into the mobile app. This includes the cargo's origin, destination, type, and size. From there, Full Truck Alliance's machine learning-powered algorithms take the wheel. The AI system leverages the company's data -- which includes its massive trucker base of over 2.8 million, the truckers' location, usual routes, and preferred cargo type -- to quickly match the orders to potential truckers.
To help things along, Full Truck Alliance's system generates shipping prices based on historical transaction data. Once both parties reach a deal, the trucker pays a deposit to secure the order. Full Truck Alliance holds this deposit in an escrow account and releases it once the shipment is completed. From the shipper's perspective, this deposit signifies the trucker's commitment to delivering on time.
With Full Truck Alliance's platform, shippers and truckers are matched in minutes, not days. This has obvious benefits for both players. For one, truckers save fuel costs as they do not have to travel to logistics parks in search of a shipment. They also spend less time finding new shipments, which improves their income levels. Shippers, on the other hand, enjoy lower shipping costs and a more transparent pricing structure. And as all transactions and interactions are recorded on the platform, truckers and shippers benefit from a source of support for dispute resolution.
Full Truck Alliance's success in digital freight matching has led it to create a marketplace for the road transport industry. For example, the company has leveraged its massive database to develop insurance pricing models and a credit risk management system. Building on this, it works with partners to provide insurance brokerage and credit solutions to shippers and truckers. Full Truck Alliance also generates sales leads for gas station operators, automakers, truck dealers, and electronic toll operators. Truckers can buy new trucks, pay for fuel, and purchase toll cards without ever having to leave the app.
Like many logistics players around the world, Full Truck Alliance was hit hard by the outbreak of COVID-19. In the first quarter of 2020, revenue fell 20% year over year, dragged by a plunge in the number of shipments ordered through the platform. However, Full Truck Alliance ended up a pandemic beneficiary as logistics parks had to stay closed and more shippers began posting orders online. The ensuing rise in orders helped Full Truck Alliance end 2020 with revenue of 2.58 billion yuan ($397 million), up 4% year over year. Top-line growth accelerated in the first quarter of 2021, with revenue growing 98% to 867.2 million yuan (roughly $132.9 million). This jump came on the back of the growth of fulfilled orders, which surged 169% to 22.1 million.
Prospects and risks
While Full Truck Alliance is already a massive company today, many things suggest it is just getting started. This is because China's road transport industry is still in the early innings of digital transformation. According to research commissioned by Full Truck Alliance, the total gross transaction volume (GTV) for the road transportation market in China was worth 6.2 trillion yuan ($955 billion) in 2020. Out of this, digital freight platforms have captured just 4% of the market. As more road transport transactions move online, the penetration of digital freight platforms is expected to hit 18% by 2025.
In 2020, Full Truck Alliance had a 64% market share in the digital freight industry. This puts it in a pole position to ride the growth tailwind. As the largest platform, Full Truck Alliance became the default choice for shippers. As more shippers sign up, increasing the number of jobs available on the platform, truckers will naturally follow. The bigger trucker base will attract more shippers, fueling a virtuous cycle of user growth. As the user base expands, Full Truck Alliance gets the data it needs to improve its algorithms. For example, the average time it took for a shipper to place an order, get a trucker, and confirm an order on the platform was 13 minutes in 2020 -- down from 24 minutes in 2019. Delivering progressively better services will help the platform keep existing users and attract new ones. On top of that, a bigger user base will attract more partners to Full Truck Alliance's in-app marketplace, helping the company grow income from value-added services.
That being said, the road ahead isn't all clear. Full Truck Alliance's success may have given rise to its biggest challenge yet: the rise of competing platforms. Didi Global (NYSE:DIDI), China's biggest ride-hailing company, has made inroads into the digital freight industry. Another up-and-coming rival, Lalamove, is expanding aggressively across China. At the moment, both companies do not appear to deal with long-haul shipments -- Full Truck Alliance's main service segment. But there's no guarantee they won't eventually end up competing in that market. Still, Full Truck Alliance's first-mover advantage gives it a good shot at defending its market share. The company also has the backing of SoftBank, which has the financial firepower to take it to the next stage of growth.
Is Full Truck Alliance a buy now?
It's not hard to see why Full Truck Alliance has immense growth potential. The company is the leader in a massive, fast-growing market and is backed by one of the world's most prominent tech investors.
But still, it's hard to justify investing in the stock at its current price. At a market cap of $20 billion, Full Truck Alliance trades at a whopping 52 times 2020 sales. For perspective, Facebook -- the world's biggest social media platform -- trades at 11 times sales. In other words, the market appears to have priced in Full Truck Alliance's promising prospects -- and then some.
Moreover, Chinese regulators have initiated a review of the company's data management on the grounds of national security, alongside companies like Didi Global and Kanzhun. We will have to wait for the investigation to be completed to better assess the exact impact on the company's business, both operationally and financially.
So until Full Truck Alliance starts trading at a more reasonable price and we have more clarity on the regulatory crackdown, investors are probably better off staying on the sideline.