IPO Preview: QIWI Plc

| About: QIWI plc (QIWI)

Based in Cyprus with main offices in Moscow, 117587, RU, QIWI plc (NASDAQ:QIWI) scheduled a $204 million IPO with a market capitalization of $884 million at a price range mid-point of $17 for Friday, May 3, 2013.

QIWI is one of five new IPOs scheduled for the week of April 29. The full IPO calendar is here.

  • F-1A filed April 19, 2013
  • Manager, Joint Managers: J.P. Morgan, Credit Suisse
  • Co Managers: Baird, RenCap, William Blair.

QIWI is a payment processing company with significant growth in the reloadable debit card and mobile wallet segments. The "wallet" segment accounted for 30% of the business and grew 80% in 2012 vs. 2011. The other segments grew 14% in 2012 vs. 2011.

100% of the IPO proceeds are to selling shareholders for 23% of the company -- this is a negative.

QIWI targets the cash-based market in Russia, which accounts for 94% of transactions, so there is significant, obvious growth from the target market. However, that market growth is visible to everyone in the business, see "Competition" below.

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Compare to Greendot (NYSE:GDOT); NetSpend (NASDAQ:NTSP), in the process of being acquired for $1.4 billion; Yandex (NASDAQ:YNDX).

In the last several weeks, GDOT and YNDX have both declined in price.

QIWI revenue is growing.

Net profit declined in 2011 vs. 2010.

For 2012, profit grew faster than revenue.

As a percentage of sales, the wallet segment is growing, the distribution segment is declining.

Comparing market capitalizations, QIWI is second lowest.

On a trailing 12 month basis, QIWI's P/E is the same as that of YNDX.

On a price-to-sales ratio comparison, QIWI is second lowest.

On a price-to-book value ratio comparison, QIWI is the same as NTSP, which is in the process of being acquired for $1.4 billion.

Buy QIWI on the IPO.

"The rights of our shareholders are governed by Cyprus law and our articles of association, and differ in some important respects from the typical rights of shareholders under U.S. state laws."

QIWI is a leading provider of next generation payment services in Russia and the CIS.

QIWI has an integrated proprietary network that enables payment services across physical, online and mobile channels. QIWI has deployed over 11 million virtual wallets, over 169,000 kiosks and terminals, and enabled over 40,000 merchants to accept over RUB 39 billion cash and electronic payments monthly from over 65 million consumers using the network at least once a month.

QIWI's consumers can use cash, stored value and other electronic payment methods to order and pay for goods and services across physical or online environments interchangeably.

Cash Based Target Markets
QIWI operates in target markets and consumer segments that are largely cash-based and lack convenient alternatives for consumers to pay for goods and services in physical, online and mobile environments.

For example, according to a report from Edgar, Dunn & Company, Russia remains a cash-dominated society for retail consumer payments with approximately 94% of the value of payments exchanged in cash in 2011, while the penetration of electronic payment services, such as credit and debit cards and point of sale terminals, significantly lags behind more developed economies.

QIWI helps consumers and merchants connect more efficiently in these markets by providing an integrated network of kiosks and terminals, virtual wallets and payment services that enable consumers to deposit cash, convert it into a digital form and remit the funds to a virtual wallet, a variety of Visa-branded prepaid cards or any merchant in the network quickly and securely -- for example, to pay bills, add minutes to their mobile phones, purchase transportation and tickets, shop online or at a retail store, buy digital services or send money to a friend or relative.

Two Operating Segments
QIWI has two principal operating segments: Qiwi Distribution, which primarily generates revenue from payment services offered through kiosks and terminals, and Qiwi Wallet, which generates revenue from payments processed through online electronic user accounts and bank prepaid products, including the prepaid card business.

Since November 19, 2012, the Qiwi Wallet business has been rebranded as Visa Qiwi Wallet.

The primary source of revenue in each of these segments is fees received for processing payments made by consumers to merchants, based on a percentage of the size of the transactions that processed, which QIWI refers to as payment volume.

Primary Growth Strategy
QIWI intends to make Visa Qiwi Wallet a global online and mobile payment processing and money transfer system through which any Visa member bank will be able to offer a Visa Qiwi Wallet account to its customers.

Competitors include retail banks, non-traditional payment services providers (such as retailers and MNOs), traditional kiosk and terminal operators and electronic payment system operators as well as other companies, which provide various forms of payment services, including electronic payment and payment processing services.

QIWI faces significant competition from major retail banks for our services, including both the Qiwi Distribution and Visa Qiwi Wallet businesses.

Competitors include, among others, Sberbank, Russia's largest retail bank that is majority-owned by the Russian state, and Alfa-Bank, one of the leading privately owned Russian retail banks, both of which have robust electronic payment products and large retail networks. Some retail banks are currently developing their own kiosk networks and are active in the area of electronic payment products.

QIWI also faces competition from major telecommunication and media devices retailers, including Euroset and Svyaznoy, which offer some financial and payment services of third-party providers, such as instant money transfers, loan repayments, utilities payment and other services, and sell third-party insurance and consumer banking products, building on the strength of their retail networks. We compete to an extent with the MNOs, which allow their subscribers to make instant payments using their mobile phone balances.

QIWI also potentially faces competition from the Russian Post, due to its vast network of offices throughout Russia which accept payments for certain third-party services, including utilities and banking services.

Finally, QIWI also competes against some directly comparable businesses, such as traditional kiosk and terminal operators (primarily CyberPlat and Elecsnet) and electronic payment system operators (primarily Yandex.Money (a majority stake in which was recently acquired by Sberbank) and WebMoney).

Intellectual Property
QIWI relies primarily on a combination of contract provisions, copyrights, trademarks, patents and trade secrets to protect its proprietary technology and other intellectual property.

Corporate Information
QIWI was incorporated in Cyprus under the name of OE Investments Limited on February 26, 2007 as a new holding company for CJSC Unified Instant Payments System, or OSMP, which was established in 2004.

Principal executive offices are located at Varshavskoe Highway 125, Building 18A, Moscow, 117587, the Russian Federation.

40,000,000 class A shares have one vote each - 40mm
12,000,000 class B shares have 10 votes each - 120mm

5% Pre-IPO Shareholders

Principal and Selling Shareholders:

Antana International Corporation 13%
Saldivar Investments Limited 25%
Palmway Holdings Limited 8.5%
E1 Limited 8.4%
Mail.ru Group Limited 21%
Mitsui & Co., Ltd 15%

Use Of Proceeds
100% to selling shareholder

Disclaimer: This QIWI IPO report is based on a reading and analysis of QIWI's S-11A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.