Sansan (4443) | Quick Look
Share Price: ¥9,010, Market Cap: $2.5b, EV/Rev 17x
The MODEL The exchange of business cards is important and deep rooted in Japanese business culture and managing this treasure trove of data is a challenge for companies of every size. It is estimated that annually, over 10 billion business cards are printed worldwide, over one-third of which are in Japan - managing these cards and sharing their data, is a big challenge for all companies. Sansan enables companies and employees to share the information derived from accurately scanning and digitizing business cards. Revenue is projected to grow 20% this fiscal year to ¥16b - Sansan is a key beneficiary of Digital Transformation in the workplace. Sansan Business Segment (90% of sales): the cloud-based B2B business card management service is the main revenue driver, accounting for 90% of sales. Sansan Business had over 7,500 subscriptions, up 13% from a year earlier. The SaaS business model delivers high gross margins (88%) and a high level of recurring revenue (94%) In the most recent quarter, sales grew 20%, despite the backdrop of the pandemic. The sales per subscription reached ¥167k/month, up +2.5% YoY, while churn remains low at 0.67%. Eight (10% of sales): A freemium card holder app allowing individual users to share business cards and communicate. Over 2.8m people have downloaded the app and registered their business card - it is the largest business SNS service in Japan. Eight also has a B2B service with 9M revenue growth of 69% to ¥0.8b. Sansan plans to monetize Eight through corporate advertising, business event planning, and recruiting services.
The MARKET The company estimates that it controls over 80% of the business card digitization market in Japan. We estimate that the TAM is around $2.2 billion. Competition within the space is limited. Sansan’s software already integrates with major CRM providers, like Salesforce, making it unlikely global players will move into this market niche. Despite Sansan’s dominance, market penetration is low: 15% of large companies and 3.3% of mid-tier companies use Sansan. There is still a long runway for growth. The underlying growth of the market is underpinned by digital transformation and a more flexible workforce; where employees need access to contact information at any time, in any place, and across all devices. The MOAT Sansan has developed a strong franchise in business card management and has strong brand recognition. SanSan’s leadership is built on its technology to scan cards with a high degree of accuracy. This digitalization process is more complicated than one would think, and errors tend to be costly for companies to clean-up the data - scanning tech is a key competitive advantage. Given SanSan’s market dominance, it will be difficult for peers to offer a competitive product. Switching costs are a wide moat, with the potential loss of useful information digitized and used in the ecosystem. The MANAGEMENT President Chikahiro Terada founded Sansan in 2007. The Board of Directors has 10 members, including four external directors. Terada-shacho owns 35% of outstanding shares, and so, his incentives are aligned with the long-term success of the company. SanSan has a well-defined growth strategy. In the main Sansan Business, penetration is still low, and the company will continue to expand the subscriber base. ARPU should continue to tick higher as more employees use the software, as well as adding new premium services, such as Sansan+, which integrates with other business software. New growth initiatives include Bill One – a digital invoice solution. Bill One launched in 2020 and SanSan started running TV ads from Feb 2021, which resulted in 2-3x pick up in inquiries. Contract One will follow.
As an early-stage growth company, we value SanSan using an EV/Revenue multiple and compare the stock with comparable DX players in Japan. We use two metrics to form a scorecard: EV/Sales and Rule of 40 (Sales Growth + EBITDA margin). Sansan’s valuation is in line with peers at 17x LTM EV/Revenue. The Rule of 40 is a measure that tries to balance between growth and profitability. On this metric, in the most recent quarter, does not meet this rule of thumb.