Share price: ¥3,615 | Market cap: $800m | EV/Rev: 22x
Giftee is a leader in the distribution of e-gifts for individuals, corporations, and local governments in Japan. The shift from offline to online drives continued demand for e-gifts.
MODEL
The central premise of Giftee could hardly be more straightforward. It’s all about appealing to our innate desire to receive rewards or win prizes. That could be a simple personal thank you gift in recognition for a job well done or a marking campaign by a global brand. Giftee’s platform enables both individuals and consumers to distribute gifts and rewards digitally, as an eGift. Giftee was established in 2010 as a casual e-Gift service for consumers. The company pivoted into the larger “Giftee for Business” in 2016 and was listed on TSE Mothers in 2019.
Chart 1 | An eGift is an electronic ticket that can be exchanged for goods at a retail outlet
Giftee’s growth has been nothing short of phenomenal, with sales growing at a CAGR of 78% over the past five years. Similarly, operating profit has grown from a loss of -¥5mn to ¥1.1bn, with margins an impressive 35.9% as of the end of FY12/20. This year has got off to a strong start, with Q1 sales growth +142% YoY, on the back of record gift distribution of ¥4bn. The revenue model consists of a combination of Sales commissions, systems use fees, and Issuing fees, paid by both gift issuing companies (CPs) and eGift user companies (DPs)
Giftee’s Services:
Giftee for consumers: 5% of sales: This service is for individuals to send small thank-you or congratulatory gifts to their friends and acquaintances. For example, you could send a coffee to someone that you are friends with on Facebook. There are over 1.5m registered members that have used the service to gift their friends.
Giftee for Business: 46% of sales: This service enables companies to send eGifts to customers, for example as campaign gifts or as a reward for completing a survey. There are over 600 companies that have distributed gifts and run marketing campaigns via the platform.
eGift System for Retailers: 11% of sales. This system enables retailers to generate and distribute digital gift tickets that can be used to drive traffic to physical or online stores.
Regional e-currency service: 38% of sales. This was a previously unexciting service largely supplying coupons for regional governments to support local tourism. However, with the Go-To-Travel campaign, Giftee provides one of the systems for the issuance and acceptance of regional electronic coupons.
Chart 2 | Giftee operates four distinct services on its “e-gift platform.”
MARKET According to Giftee, the overall addressable market is around ¥6 trillion, or $60b, which includes both personal and corporate gifts. Giftee’s platform is expected to distribute less $100m in gifts this year, so its current share of the entire gift market is not even 2%. It is fair to say that the market for digital gifts is growing rapidly with distribution volumes almost trebling over the last two years. However, it is not clear how much of the gift market will eventually shift online. If we conservatively assume 5%, then the market size could be around $3b, which is still a sizeable opportunity for Giftee. Giftee believes that they are the only company offering a complete service across the gift value chain. However, it seems that there is at least one unlisted competitor, Cotoco.net that offers a similar service for both individuals and businesses. It is run by a South Korean company called, SK Planet.
Chart 3 | The addressable market for gifts in Japan
MOAT
For the Giftee Consumer business, the key competitive advantage is first-mover effect, but this does not appear to be a wide moat. Giftee has amassed over 1.7m registered members, but the pace of customer acquisition has slowed from a year ago. Whether this is due to rising competition with Cotoco or just a sign that the market is maturing, it is difficult to know. There is no real network effect with the content partners (retailers) that issue the coupons given that it is in the CP’s interest to sign up with as many platform providers as possible to drive traffic.
Giftee for Business has a wider moat. Giftee has signed up over 500 companies that ran over 1,500 marketing projects in Q1. Given that corporate accounts are harder to break into and require a sales team to develop relationships, Giftee should be able to fend off competition as long as the results of the marketing campaigns have an acceptable ROI for the client.
Chart 4 | giftee for business is allows companies to reduce advertising costs
MANAGEMENT
Giftee was founded by Mutsumi Ota, who had previously worked at the consulting company, Accenture. He has grown the business with support from Tatsuya Suzuki (CEO) and Fumitaka Yanase (CTO) into a company with ¥86b market cap. The leadership team is well-aligned with common shareholders, owning 28.6% of outstanding shares.
Chart 5 | the management team
Mid-term earnings outlook: The core growth driver is giftee for business, which is well-aligned with the current shift towards digital transformation (DX) and remote work. If the almost sacred “hanko” is about to be retired, the Japanese penchant for distributing marketing materials by paper could also be on its last legs. As businesses start to digitalize their workflows, the marketing departments will inevitably conduct more campaigns online. eGifts can be used in a wide variety of ways, in virtually all industries, to incentivize consumers to “do something.”
The company recently acquired Sow Experience Inc. This business is focuses on experience gifts, which have a higher price point. The end products range from Beauty Spas, high-end restaurants, music events, and Sightseeing. Typical price points will reach up to ¥100,000 and these gifts are likely to work well for real estate brokers and car sales agents.
Longer term, the strategy is to expand the eGift platform both geographically and into new industries. This will involve increasing the number of eGift issuers and developing new services. Giftee is looking to expand overseas, with the first target being Malaysia and then the rest of ASEAN.
VALUATIONS
Given the early-stage growth for Giftee and its peers, we value these high growth stocks on a multiple of revenue. Within the universe of local fintech peers, Giftee looks slightly pricey at 22x EV/REV, but the company is seeing best-in-class growth. Considering the topline growth, potential size of the market and still under penetrated opportunity, Giftee is on our radar screen.
