B2W Companhia Digital: Opportunity To Access Ecommerce Potential In Latin America

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Includes: BTOOY
by: Kevin Carter
Summary

B2W is a leading Latin American ecommerce company.

Lojas Americanas - Brazil's largest retailer - has a 61.5% ownership stake in B2W.

B2W may also benefit from a recovering economy in Brazil.

B2W Digital (OTCPK:BTOOY) is a leading ecommerce company in Latin America. The company has experienced strong growth through its digital solutions linking buyers and sellers and through its linkage with Brazil’s largest physical retailer, Lojas Americanas (LAME4.SA).

B2W is a public company. Investors seeking exposure to Latin American ecommerce can purchase shares directly.

Company Description

B2W Digital (BTOW3) is a leading ecommerce company in Latin America. The company operates under five primary brands:

  • americanas.com – one of the largest online stores in Latin America
  • Submarino – a leading online store
  • shoptime – a home shopping network in Brazil with a mainly home products offering
  • Sou Barato – an online discount shopping site offering repackaged and used products
  • Submarino Finance – an online consumer finance company

B2W is majority-owned (61.51%) by publicly traded Lojas Americanas (LAME4) which is one of the largest traditional retail chains in Brazil.

Digital Initiatives

Marketplace: B2W created the Marketplace in 2013 as a platform to help vendors access customers on B2W’s online retail platforms. Marketplace acts as the mediator between the vendor and the customer. Customers order products through B2W’s platform which processes the order and makes it available to the vendor for delivery.

AME: AME is a digital payment system developed and being utilized within B2W. The system allows for digital payments, transfer, and receipt of funds, cash in and cashbacks. In 2018, B2W launched a pilot program allowing AME to be used for payment in Lojas Americanas stores and plans for the platform to be rolled out chainwide by the end of 2019.

Online to Offline (O2O): B2W and Lojas Americanas have developed a common platform for the two businesses to leverage the logistics and distribution assets of both companies. Lojas was connected to the Marketplace, making its products available online. Consumers, through the “Click and Collect” can order products online for delivery to their local physical Lojas store. Delivery options range from two hours to seven days.

Strong Results

During the third quarter of 2018, B2W experienced sales grew by 23.7% from the third quarter of 2017 to reach R$ 3.6 billion1. Marketplace sales rose nearly 65% and now represent over 52% of total sales. For the nine months ending 9/30, total and Marketplace sales rose 24% and 77%. Mobile traffic made up 68% of sales during the third quarter, up from just under 60% in last year’s third quarter.

The company’s earnings before interest, depreciation and amortization (EBITDA) rose 6.5 in the third quarter vs. last year and 14.2% over last year’s nine months. The company reported a net loss of R$ 105 million in the third quarter and R$ 330 million for the nine months.

Ecommerce Potential

Ecommerce sales in Brazil were $18.8 billion in 2017. They are projected to reach $21.3 billion in 2018 and $31.7 billion by 2022. However, they only represented 2.7% of total sales in 2017. In contrast, online sales represented 9% and 23% of total sales in the United States and China, respectively, highlighting the growth potential in Brazil.

Brazil is also a highly connected market. According to PagBrasil, Brazil was the 4th largest internet market globally in 2017, with 140 million internet users out of a total population of more than 207 million. It was also the fifth largest smartphone market globally with over 76 million smartphone users.

Economic Recovery

Earlier this year, Brazil elected a new president, bringing a tumultuous election, and a source of economic uncertainty, to an end. After shrinking 3.6% and 3.5% in 2015 and 2016, respectively, GDP grew 1.0% in 2017, and is estimated to reach growth of nearly 1.5% in 2018 and over 2% through to 2022.

An economic recovery, coupled with strong internet connectivity and a low penetration rate imply potential for future growth in ecommerce.

Summary

B2W Cia Digital is a leading ecommerce company in Brazil. It operates some of Brazil’s leading ecommerce sites. Its digital platforms offer convenient access to millions of consumers. The company also benefits from being majority-owned by Lojas Americanas. This linkage provides access to product as well as additional distribution options through the expansion of O2O.

Additionally, the company may benefit from an economic recovery in Brazil, a population with deep internet connectivity, and a low penetration rate for online sales.

Investors looking to gain exposure to the potential for online sales in Brazil may be well-served to consider B2W.


1 Sales measured by gross merchandise value (GMV) which is a measure used in online sales to indicate the total sales dollar value of merchandise sold.

Disclosure: I am/we are long BTOOY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the founder of the Emerging Markets Internet and Ecommerce Index, which is licensed to Exchange Traded Concepts and serves as the basis for the Emerging Markets Internet and Ecommerce ETF (EMQQ). I manage an Emerging Markets Hedge Fund that is sometimes long constituents of EMQQ and myself and my family are long EMQQ.