Makuake (4479) | First Look

Share Price: ¥6,750 | Market Cap: $750m | EV/Rev: 18x

Makuake operates an online platform that functions as a marketplace for new product and service launches. Along with market testing and proof of concept, Makuake can also be a source of new capital (crowdfunding) as sellers usually get a premium for the products launched on the platform during the campaign period.


The platform has seen phenomenal growth in Gross Merchandise Value (GMV) and sales over the past few quarters. The most recent quarter saw GMV reach ¥5.3bn, +104% YoY, and sales reach ¥1.1bn, thanks to a take rate of over 20%.


In order to assess Makuake's future growth and potential for value creation over the long-term, we apply our 4M (Model, Market, Moat, Management) framework.

MODEL

Makuake is primarily composed of two businesses. The core business is the Makuake platform. With this platform, new products can be introduced to supporters (buyers) before being released to the broader market. Another service, Makuake Incubator Studio, or MIS, helps in bringing products to the pre-market by focusing on firms with strong research and development capabilities. The company charges a 20% commission for all platform sales (and a consulting fee for MIS services).

Why do entrepreneurs use Makuake?


Launching new products is a complex process, as many issues need to be addressed: pricing, market testing, and channel access. Makuake assists with the development of new products online, helps with branding, and optimizes advertising. The seller will gain valuable pricing information by the end of a campaign, allowing for better inventory control that is valuable for successfully launching new products. In addition, as it combines crowdfunding in its model, project owners get the added benefit of cash in hand as they sell their new products on the platform at premium prices.


The process is detailed in the diagram below. The platform joins sellers, called Project Owners, and buyers, known as Project Supporters. Makuake will get a project proposal and its experienced team provides several services, including screening, consulting, promotion, and monitoring. For this, the company charges a 20% commission of gross sales for the campaign period. Project supporters benefit because they can access new, interesting products that are not yet available on the mass market



In recent years, the platform has grown stronger, benefitting from the general trend towards online shopping, Covid-19, and aggressive TV ad spending. As a result, the number of projects as well as the number of supporters has grown, creating a virtuous cycle. At the end of 2Q FY9/21, the platform had over 1.5mn members (potential project supporters), generating over 11mn unique visits to its website during the period. Both unique site visits and registered members have shown strong growth YoY.



Along with the growth of potential project supporters, the number of projects has also grown, with over 1,600 projects recorded in the past quarter, up from 860 projects a year earlier. The platform has a relatively large share of repeat owners and repeat supporters, demonstrating its popularity and usefulness.


MARKET

Makuake targets the new project launch market, an area that was traditionally served by market research companies to estimate and assess potential before launching products. This is known as the pre-primary distribution market. Using its platform, Makuake has turned this into a real product market. The pre-primary distribution market for Makuake is defined as the sales volume for the first three months following the launch of a new product. The market is estimated to be worth ¥5 trillion. Makuake is directly targeting the online portion of this, which is estimated at ¥1trn.




MOAT

Makuake's only direct local competitor is the unlisted Campfire. The company is moving aggressively to strengthen its platform by increasing Project Supporters and Project Owners in what is now becoming a virtuous cycle. The business has a strong network effect. The number of unique users, repeat users, and registered members increases, encouraging more project providers to join the platform. By doing so, it will further entice supporters to join the platform to discover distinctive and unique products.

As Makuake's competitive edge, it has (i) strong reach across the entire country, (ii) curators that offer specific advice on taking on projects and (iii) screening and monitoring capabilities.

MANAGEMENT

Makuake started out as Cyberagent Crowdfunding in May 2013 and later became Makuake. Ryotaro Nakayama is the president of the company. Having joined Cyberagent in 2006, he entered Cyberagent Ventures in 2010 and was the investment representative for Cyberagent Vietnam between 2010 and 2013. He returned to Japan in 2013 and became Makuake's founding representative director. Other key members of the board and senior management team include co-founders Kana Bogaki and Fumiaki Kiuchi.

The incentives of management are aligned with long-term shareholder value creation. President Nakayama holds 292,000 shares (¥2bn; 2.4% stake), Bogaki 119,000 shares (¥800mn; 1%) and Kikuchi 152,000 shares (¥1bn; 1.2%).

The company sets itself goals of growth in gross merchandise value that range from 50-70% every year. Makuake aims to reach GMV of ¥100-500bn by 2030 by expanding the number of new projects and increasing the average payment per project. This aggressive growth strategy led Makuake to raise JPY4bn in Feb 2021 to fund advertising, new personnel hires, systems development, and M&A/Capital tie-ups.



VALUATION

Makuake has a large addressable market. Given the business model's significant leverage, if the company could capture ¥100bn in GMV by 2025, this would result in approximately ¥20bn in sales. Assuming, a conservative 30% OPM, that would translate to ¥6bn by 2025. An EV/OP of 30x, a similar multiple to that of Z-Holdings, implies a potential EV of ¥180bn in compared to the current ¥75bn.



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