The platform economy

Financial analyst Aly-Khan Satchu.
Financial analyst Aly-Khan Satchu.
Image: FILE

The strategy, like big tech’s, is to be the platform, said Bob Collymore to the Africa Report,  “whether it was for the banking industry, the healthcare industry, the agricultural industry.''  Last week, Uber filed with an initial offering amount of $1 billion, typically a placeholder amount. The company applied to list on the New York Stock Exchange under the ticker UBER. In the IPO Prospectus, the word 'Platform' appears more than 700 times.

Uber is seriously ubiquitous and I recall how it arrived here in Nairobi and made its Gladwellian level move. “The tipping point is that magic moment when an idea, trend, or social behaviour crosses a threshold, tips, and spreads like wildfire.” ― Malcolm Gladwell. The new high tech, millenial, crypto, avocado economy exhibits viral, wildfire and exponential and even non-linear characteristics not unlike Ebola. 

Uber cites a preferred metric: monthly active platform consumers, otherwise known as people who touch one of its services at least once a month. Uber says it has 91 million MAPCs, more than double the number in 2016. So now you know that when you call your Uber you are in fact one of 91m MAPCs. Uber posted a $3b operating full year loss on revenue of $11.3 billion, bringing total operating losses over the past three years to more than $10 billion, Thursday’s filing shows. In a brilliantly counterintuitive move, Uber even said they might never make a Profit ever.  Ride-hailing revenue grew 95 per cent in 2017 from the previous year, that rate slowed to 33 per cent last year.

Uber argues that its share of the entire global transportation business is less than one per cent.  Uber argues its platform positions it to become all-things transportation, encompassing everything from scooters and bicycles to freight delivery, driverless vehicles and even flying cars [Bloomberg] Uber’s food-delivery business grew 149 per cent year-on-year to $1.5 billion in revenue in 2018. Uber is seeking to raise about $10b at a valuation North of $100b. ''The punchline is this the largest high-growth tech company that’s going to be going to the public markets,” David Erickson, a finance professor at the University of Pennsylvania’s Wharton School told Bloomberg. 

My perspective is that Investors will look through the accumulated losses and focus on the Ubiquity of the Platform and that therefore, these shares will pop meaningfully. Therefore, if the IPO Price range is between $100b-$110b market cap, I would be a buyer looking for a move towards $150b. This is therefore a Conviction Buy Recommendation within those parameters. 

Jumia Technologies AG listed in NYSE [raised $196 million with the sale of 13.5 million American depositary receipts at $14.50 each] and those shares popped as much as +75% at one point. Jumia has more than 4 million customers in 14 African countries, its retail platform isn’t profitable yet however sales jumped by almost 40 percent last year to $147.3 million and has accumulated losses of just shy of $1b. There has been ''off the charts'' debate about whether Jumia should characterise itself as an ''African'' Company given that its Headquarters are in Berlin and was initially financed by the German startup incubator Rocket Internet SE. MTN is its largest Shareholder. Pernod Ricard SA and Mastercard Inc recently stepped into the shareholder register. 

“It’s an opportunity for retail investors to buy the Africa growth story, the story of a growing consumer class,” said Steven Grin, managing partner of Lateral Capital, a New York-based investment company focused on Africa. 

“Rising per-capita incomes, an increasingly young and urban population, falling internet and data costs, surging mobile-phone penetration — these favorable long-term trends underpin the rise of the African online consumer.”

Investors are looking through the accumulated losses, seeing E-Commerce penetration levels of 1% or less in Africa versus something like 24% in China and betting that Jumia can parlay its First Mover Advantage into something like a seriously meaningful head start. Jumia is higher beta than Uber but on balance is a Buy as well on Fridays closing Price basis. 

Interestingly, last week we witnessed the biggest single day % move in any share price at the Nairobi Securities Exchange in more than a decade. Bharat Thakrar pulled a special 3/= dividend Rabbit out of his Hat and surged WPP Scangroup's share price some +71.57%, an off the charts price move [once in a decade phenomenon] got absolutely zero ventilation across our media. This loops me to a comment that the UNCTAD SG Dr. Mukhisa Kituyi made to me.

 
 

He said ''Its all about Platform Visibility. Africa is not visible on these Uber Platforms.''

I expect the African Platform Economies to be one of the richest and most rewarding of economies going forward.