BASE Co., Ltd. (hereafter, BASE Co., Ltd.) has greatly increased its sales in recent years due to the rapid increase in demand for online shopping due to the corona crisis.
BASE’s greatest strength is that anyone can easily open an EC site with relatively low fees, and the cumulative number of BASE shops has exceeded 1.8 million as of June 2022 (chart). 1).
As we saw in the first part, although BASE is growing sales well, it is in the red except for the fiscal year ending December 2020 on a net income basis. The main reasons for this are the high cost rate and the large amount of advertising expenses, and we learned that the high cost rate in particular is due to the heavy burden of commission payments to payment agency companies. rice field.
Now that we understand the skeleton of BASE’s business model, let’s continue our analysis of what points hold the key to further growth of BASE.
Two metrics to help analyze non-subscription SaaS
BASE is a so-called “SaaS” business, but it has one decisive difference from the SaaS companies that have been featured in this series, such as Slack, Sansan, and freee. that is,BASE is not a monthly subscription modelThat’s the point.
BASE adopts a platform-type model that earns a commission from a portion of the sales of EC shops opened using its own mechanism.
If it is a subscription-type business model, it is possible to analyze using indicators such as “ARPU (Average Revenue Per User: Customer unit price)” and “MAU (Monthly Active User: Number of customers)” that have appeared frequently in previous articles. increase. So how should we analyze platform-type SaaS models like BASE?
In such cases, the emphasis is onGMV (Gross Merchandise Value or Gross Merchandising Volume)”When”take rateLet’s take a look at each using the example of BASE.
BASE’s conventional plan is that when shop owners sell goods through BASE, they receive 3% of the settlement price as a service fee and 3.6% + 40 yen as a settlement fee.
In this case, as the sales of online shops using BASE increase, the sales of BASE will also increase. in this way,The total amount of sales at the online shop through BASE is “GMV”.
and,The “take rate” is an indicator that shows how much of the GMV the platformer (BASE in this case) can take.. In other words, the value obtained by multiplying the GMV by the take rate is the sales amount.
In order to increase sales with a business model like BASE,Increasing GMV or increasing take rate is more important than anything elsewill be
In fact, looking at the securities report of BASE, it is written that the company emphasizes “GMV” and “gross profit” as KPIs. In the case of BASE, gross profit is “GMV x take rate x gross profit margin”.in shortBASE pursues how to increase gross profit, which is sales minus cost of sales (= payments to credit card companies, etc.)That’s why.
Now, let’s check the actual GMV and take rate in the BASE earnings briefing materials (Chart 2).
As you can see, BASE’s GMV increased significantly in the fiscal year ended December 2020. The reason is that the opening of EC shops has increased dramatically due to the influence of the new coronavirus. Since then, GMV has remained around 26 billion yen on a quarterly basis.
On the other hand, the take rate was around 8% but gradually decreased,It was down 1 percentage point in the most recent quarter.What happened at this timing?
Decrease in take rate due to introduction of new plan
In fact, BASE introduced a monthly paid plan in addition to the conventional plan from April 2022.
In the previous plan, there was no fixed monthly fee, but service usage fees and settlement fees were charged according to the sales of the online shop.
However, in the newly launched monthly paid plan, the service usage fee is fixed at 5980 yen per month, and the settlement fee is 2.9% according to the shop’s sales (settlement amount) (Figure 3.
(Note) Generated for payment.
BASE uses GMV as a KPI, but with a monthly paid plan, even if GMV increases, BASE’s sales will not increase. The settlement fee will increase in proportion to the GMV, but as we saw in Part 1, there will be a cost that is not cheap for BASE (probably about 2.4%), so if the settlement fee is set at 2.9%, the profit margin will probably be about 0.5%. You should only be able to get it.This is how the take rate went from 7.7% to 6.7% in Figure 2.1% pointis also declining.
But do you wonder? For BASE, “GMV x take rate” is the source of sales. So why did you introduce a monthly paid plan that doesn’t lead to an increase in GMV and lowers your take rate?
To answer this question, imagine yourself as a shop owner. If you were to open an online shop using BASE, which would you choose, the traditional monthly free plan or the monthly paid plan?
If you think you can increase your sales in the future, you should definitely choose a monthly paid plan. Even if you look at the fees, it seems to be cheaper than Amazon and Rakuten (see the first part).
However, as you can see by a little calculation, the break-even point when comparing the conventional plan and the new plan is 160,540 yen. in short,If monthly sales exceed 160,000 yen, the monthly paid plan is more profitable, but if not, the conventional plan is more profitable.
Then, what is the average sales of companies that have opened online shops on BASE?
Based on this, the following assumptions can be made as to the purpose of BASE’s introduction of the new plan.
(1)Incentive purpose for companies with average sales to aim for further sales increase
(2)Acquire shop owners (including new store openings and switching from other companies) who are expecting monthly sales of 160,000 yen or more and want to use the service at a low price.
In addition, I think BASE also has such an aim.
(3)For shop owners with sales on the borderline of 160,000 yen, rather than getting unstable sales at GMV x take rate, secure revenue with a monthly subscription of 5980 yen.
BASE’s competitors are not only Amazon and Rakuten, but also stores.jp and Mercari, which provide the same services as BASE, and overseas Shopify. Even compared with these, BASE can be said to be within the lowest price range (Chart 6).
A form like an online shop has a strong lock-in effect, and the switching cost of switching to another company’s service is generally high (for switching costs, see the freee article discussed in this series). At the same time, however, it is also true that for online shops that sell several million yen a month, the amount of ongoing costs associated with using the service literally determines their income.
With that in mind,The establishment of a new BASE monthly paid plan was in anticipation of switching from other companies.Isn’t it possible to say?
In fact, in the “market size” item of BASE’s financial results briefing materials, the company’s target is clearly divided into “paid monthly plan” and “monthly free plan”, and the monthly paid plan has a much larger market size. We assume that it will be large (Chart 7).
In order to acquire these customers, they probably prepared an easy-to-use subscription plan with a fixed service fee regardless of the size of sales.
With this new plan, BASE expects gross profit, which is a KPI, to decrease in the short term. On top of that, we are envisioning a scenario in which the new plan will act as a stimulus to acquire new customers, eventually leading to an increase in gross profit (Figure 8).
In fact, the PAY business is growing more
In the analysis from the first part to this point, we have analyzed the BASE business, which accounts for 84% of BASE sales. Here, let’s take a look at another business, the “PAY business” (*1).
The PAY business is, so to speak, an API-linked service for payment agency services. Shop owners who have opened their own e-commerce shop without using a third-party e-commerce platform must, of course, prepare their own payment functions. The complexity of this process is as I mentioned in the previous part.
The PAY business operates “PAY.jp,” which was launched in 2016 as a payment service that can be easily incorporated on the web to address these issues.
In fact, although this PAY business accounts for only a small percentage of sales, the growth rate in GMV is growing significantly, with a 37% increase in the most recent second quarter of the fiscal year ending December 2022 (year-on-year). In addition, sales increased by 36.5% year-on-year, and gross profit increased by 43.8% year-on-year (Chart 9).
However, since PAY.jp is a settlement fee business, the structural profit margin in business is considered to be quite small. The take rate for the PAY business is not disclosed, but you can calculate the take rate backward from sales and GMV and use the formula “sales ÷ GMV” to find the take rate. Figure 10 is a graph showing the results.
Looking at the fiscal year ending December 2021, PAY.jp’s GMV is 55.3 billion yen. In other words, 55.3 billion yen was settled through PAY.jp. On the other hand, sales are 1.45 billion yen, so the take rate is 2.6%.
However, payment to the credit card company will occur from here. Gross profit after deducting these costs is 140 million yen (*2) according to BASE’s securities report. The net take rate calculated from this and the GMV is only 0.3%.
Figure 11 compares the take rate (sales / GMV) and net take rate (gross profit / GMV) of the BASE business and the PAY business.
In the most recent half year of the BASE business (the first half of the fiscal year ending December 2022), both the take rate and the net take rate have been lower than before the introduction of the new plan (fiscal year ending December 2021) due to the introduction of the new plan. On the other hand, the PAY business remains flat.
Comparing businesses,The latest net take rate for the BASE business is 4.2%, while that for the PAY business is 0.3%, which shows that the PAY business is still considerably lower..
Looking at this alone, I have the impression that “the PAY business seems to be difficult to make a profit,” but according to BASE’s securities report, only 14 out of 211 employees are involved in the PAY business. With people. It doesn’t seem to take a lot of human effort.
In the BASE business, it can be assumed that there will be a lot of work to be done, such as service updates and shop training, so it will take a lot of manpower, but the PAY business is basically a business that provides API linkage, so it will grow. The point should probably be as simple as ‘advertising expenses’ and ‘sales force’. For that reason, they probably don’t need so many people, including engineers. That meansIt seems that the PAY business is easier to do if you simply look at it from the perspective of “scaling the business”.
Also, since the PAY business handles payments, customers who have started using it once will not switch to another company unless there is a serious reason. In other words, the strength of this kind of service is that the lock-in effect works strongly.
In this way, BASE aims for future growth by providing the BASE business to shop owners who open new online shops, and the PAY business to businesses who already have a website and want to incorporate only the payment function. And it seems.
How’s your cache?
Since its founding in 2012, BASE has been in the red except for the first fiscal year ended December 2020. Is cash flow okay? BASE’s model is to grow by investing a large amount of advertising expenses, so how much funding is secured is the lifeline for growth. Let’s also check the cash flow (CF) situation (Chart 12).
Operating CF has always been positive since December 2019. This is because BASE once keeps the purchase price of the online shop customer and then pays the online shop owner from there. This type of payment method is called “ escrow payment ”, and BASE is easier to raise funds thanks to escrow.
Looking at the escrow system from an accounting point of view, the more the balance of accounts payable-to-business recorded on the B/S (balance sheet), the greater the profit on operating CF.
However, it should be noted that BASE’s accounts payable is money that should be paid to the shop owner eventually and does not necessarily remain in BASE’s balance sheet. In fact, in the second quarter of the fiscal year ending December 31, 2022, operating cash flow was negative ¥2.2 billion due to a large amount of cash outflow from operating accounts payable (Figure 14).
However, in the fiscal year ended December 2020, we raised 12.4 billion yen, and as a whole, we have a cash balance of about 21.8 billion yen as of the end of June 2022. With such ample funds, we can allocate sufficient budget for advertising expenses in the future, so even if the deficit continues, it seems that there will be almost no problem in terms of cash flow.
In addition, the BASE balance sheet is also maintaining soundness to some extent. Current assets greatly exceed current liabilities (Chart 15), and since it is a “debt-free management” with no interest-bearing debt, it can be said that both short-term liquidity and long-term soundness are high.
Shareholder composition has recently changed significantly
While the company’s finances are in good shape, there are some concerns when looking at BASE’s financial results briefing materials.The shareholder composition, which used to be 39.6% held by foreign institutional investors, has decreased by 13 percentage points to 26.4% as of June 30, 2022.(Chart 16).
Earlier, I mentioned that BASE had raised 12.4 billion yen in the fiscal year ended December 31, 2020, but at that time the funds were provided by overseas investors. At that time, the stock price of BASE exceeded 3,000 yen, and the market capitalization reached nearly 300 billion yen.
However, since the spring of 2022, the market has changed dramatically, especially for tech startups, and stock prices have fallen across the board, especially for SaaS companies (*3).
BASE is no exception, and recently the stock price is around 330 yen and the market capitalization is around 37 billion yen.
One of the reasons for the stock price decline is that overseas investors sold BASE shares. Rather than weakening expectations for BASE, it should be seen as the result of overseas investors changing their policies in response to changes in market conditions and removing their SaaS stock positions.
The B/S of BASE can be said to be sound, but since the company raises most of its funds through the issuance of shares, business growth is likely to become more important than financial soundness in the future. This is because the equity money procured through the issuance of shares is a high-risk, high-return investment from an investor’s point of view. Investors want their money to grow, and they don’t want companies to keep their money in cash.
“Sales growth” plays a particularly large role in the elements that make up market capitalization (stock price), which can be said to be the value of a company (Figure 18).
What is worrisome about BASE is that although sales in the main BASE business increased sharply due to the coronavirus pandemic, sales have remained almost flat since then.(Chart 19). The introduction of the new plan may have been aimed at overcoming this slowdown in growth and realizing further growth.
In addition to these business strategies, in order for BASE’s stock price to grow steadily in the future, we must not overlook how to secure stable shareholders as a financial strategy.
Financial difficulties are often caused by a lack of cash. On the other hand, start-ups and mega-venture companies that are growing rapidly and raise funds in stocks with high expected returns, even if they have enough cash,I struggle with how to use that cash to grow the business one step further..
In addition, in order to challenge new businesses and appeal unknown value to the world, it is necessary to make not only customers but also shareholders, who are important stakeholders, understand the value and potential of the company’s services. come out.
Only when these things are achieved will the number of customers increase, the interest of investors will gather, and the stock will be bought and the stock price will rise.
BASE has grown its business significantly amidst the environmental changes of the corona crisis, and has procured a large amount of cash through equity money. How will you achieve further growth in the BASE and PAY businesses going forward? Alternatively, there may be a possibility of new business or M&A centering on these two existing businesses. It is important to pay attention to further progress in the future.
*1 The PAY business is operated by PAY Co., Ltd., a wholly owned subsidiary of BASE.
*2 BASE, “Securities Report (9th Period)” March 24, 2022, p.15.
*3 Naoyoshi Goto, Koyomi Matsushima, “[Complete Commentary]The ‘winter age’ of startups has arrived,” NewsPicks, May 16, 2022.
(Writing cooperation: Tatsuya Ito, series logo design: Mio Hoshino, editing: Ayuko Tokiwa)
Shigehisa Murakami: CEO of Fine Deals Co., Ltd., CFO of GOB Incubation Partners Co., Ltd. Visiting professor at iU Information Management Innovation College. After completing the graduate school (master’s course) of the Graduate School of Economics, engaged in securitization, real estate investment, non-performing loan investment, project finance, fund investment business, etc., mainly in structured finance business at a financial institution. Since September 2018, as CFO of GOB Incubation Partners Co., Ltd., he has been developing new businesses and supporting entrepreneurship. In addition, he also provides financial and legal support for several start-up companies. Founded Fine Deals Co., Ltd., which provides financial consulting, etc. in January 2021. In his book “Financial Statement Mystery Training](PHP Institute).
Source: BusinessInsider
David Ortiz is an opinionated and well-versed author, known for his thought-provoking and persuasive writing on various matters. He currently works as a writer at 24 news breaker, where he shares his insight and perspective on today’s most pressing issues. David’s unique voice and writing style make his articles a must-read for those seeking a different point of view.