Thinking Points

  • Beenos (TSE: 3328) is a serial e-commerce platform company and a startup incubator with a meaningfully global presence.
  • The company started out as an online group purchasing platform and evolved into a multi-faceted online platform operator with 27 incubation investments in 10 countries.
  • Today, the company’s core operating business is the Buyee platform, which enables overseas consumers to purchase items on Japanese online shops in their own native language.
  • At 1,051 yen per share, Beenos trades at an adjusted 0.9x EV/EBIT with a market capitalization of 13,263 million yen ($124 million USD)
  • With mark to market risks combined with no real timeline for the coronavirus situation to settle, Beenos is currently either appropriately valued or overvalued and investors are best advised to revisit the company at a later point.

Introduction

Beenos (TSE: 3328) is an e-commerce company with a startup incubation arm. The company reports through two segments: E-commerce and Incubation. The E-commerce segment is further divided into three subsegments, which are Crossborder, Value Cycle, and Retail & Licensing.

Source: Kenkyo Investing, based on company data

In recent years, the Incubation business has been the key profit driver for Beenos. From an operations standpoint, however, the Crossborder business, which enables consumers from all over the world to purchase products on Japanese e-commerce platforms, remains a core part of the company. 

The business & environment

Beenos was founded at the height of the dotcom bubble in 1999. Named Netprice.com at the time, the company started out as an online group purchase platform. From then on, Beenos was highly active in the internet scene, getting involved in various businesses such as consumer financial services, mobile fashion e-commerce, dropshipping, affiliate marketing, online auctions, etc. 

In 2006, Beenos formally set up its Incubation segment and acquired shares in Defactostandard (previously TSE: 3545, now wholly owned), which operates an online secondhand shop. This business marked the start of what would eventually be called the Value Cycle segment. In 2007, Beenos switched to a holding company structure. Around the same time, the company became a partner of eBay, giving Japanese consumers access to items listed on eBay through sekaimon.com.

The kickoff of sekaimon also marked the beginning of Beenos’ core Crossborder business. In 2008, the company started tenso, which forwards items purchased on Japanese online shops to overseas consumers. 

Meanwhile, the company’s key group purchase business started showing signs of weaknesses amid intensifying competition. Declining sales and lower margins plagued Netprice.com, which eventually resulted in four straight years of operating losses:

Source: Kenkyo Investing, based on company data

Between FY09/11 and FY09/14, Beenos worked to minimize losses from Netprice.com while growing its Value Cycle and Crossborder businesses. During the restructuring, the Netprice.com business was lumped into the Retail & Licensing segment (then sold in 2017). 

The Retail & Licensing business is further subcategorized into entertainment and global products. The entertainment subsegment operates websites and sells goods related to music artists and celebrities. The global products segment sells licensed goods such as Pokemon or Nintendo-themed goods. 

The global forwarding subsidiary, tenso, shifted to a more wholesome service during the restructuring period when it introduced Buyee. With Buyee, the company takes the shopping experience a step further by partnering with many of the major online platforms (i.e., Mercari, ZOZOTOWN, Yahoo! Auctions, etc), translating many of the listings, consolidating orders, and shipping to overseas consumers. 

Source: Kenkyo Investing, based on company data
Source: Kenkyo Investing, based on company data

Revenues for the Incubation are essentially dependent on whether Beenos sells a portfolio company. Over the last several years, the Incubation segment, which consists of 27 portfolio companies in 10 countries, generated the bulk of operating profits. Broadly speaking, the domestic companies mainly cater to inbound travel demand and the overseas companies are mainly internet companies (payment solutions, e-commerce, etc). One particularly interesting point about Beenos’ investment strategy is that it specifically avoids Chinese startups and looks ahead to startups in countries that it expects to boom after China.

As of Q2 FY09/20, the book value of Beenos’ portfolio companies came to 4,100 million yen ($38.4 million USD) with a market value of 22,600 million yen ($212 million USD). As of end-FY09/19, the portfolio companies had a book value of 4,100 million yen ($38.4 million USD) with a market value of 25,200 million yen ($236 million USD). Since the company generated sales proceeds of 2,900 million yen ($27.1 million USD), Beenos had a net gain of 100 million yen ($936K USD) during the six month period between end-FY09/19 and Q2 FY09/20.

However, investors should taper expectations going forward as both the operating environment of portfolio companies and the startup environment has come to a halt due to the novel coronavirus. Additionally, the damage runs deeper with live event cancellations in the Retail & Licensing segment as well as increased secondhand product purchases combined with fewer sales in the Value Cycle segment.

In its Q2 FY09/20, the company noted its defensive stance in all but the Crossborder segment. Interestingly, Beenos recently partnered with Southeast Asia’s largest e-commerce platform, Shopee, to manage some Shopee stores on behalf of Japanese companies. 

It’s important to note here that while the Crossborder segment is growing and has no formidable competitor at this point, its business model is rather simplistic and easy to replicate. The key benefit Beenos has as a frontrunner is a sizable network of partnered major Japanese online platforms. Meanwhile its logistics network is almost purely outsourced (with the exception of Taiwan operations) and easy to replicate.

For FY09/20, Beenos expects initially forecasted revenues of 26,000 million yen ($243 million USD, +2.9% YoY) and operating profit of 3,000 million yen ($28.1 million USD, +75.7% YoY). The company revised initial forecasts and provided a best/worst case range with revenues of 23,500 — 31,400 million yen ($220 — $294 million USD, -7.0 — +24.2% YoY) and operating profit of 2,350 — 3,140 ($22 — 29.4 million USD, +37.6 — 83.9% YoY). 

Shareholders

As of Q2 FY09/20 (ending March 31, 2020), Beenos had 13,335,995 shares issued and 492,450 shares in treasury, putting outstanding shares at 12,843,545.

Here are the major shareholders:

Source: Kenkyo Investing, based on company data and Nikkei

Teruhide Sato is the founder of Beenos. Although he is not on the board or involved in day to day operations, he takes an advisory role, according to the company website. 

Beenos offers stock options to both the management team and employees. As of Q2 FY09/20, the company had 3,411,800 options outstanding (~26.6% of outstanding shares), both exercisable and not yet exercisable.

In terms of shareholder return, the company started paying out dividends in FY09/16 and started repurchasing shares in FY09/17. The dividend payout ratio has been around ~20% and the company has repurchased less than ~3.0% of outstanding shares in each year since FY09/17 (while also issuing shares).

Financials & Valuation

  • Beenos (TSE: 3328) is a serial e-commerce platform company and a startup incubator with a meaningfully global presence.
  • The company started out as an online group purchasing platform and evolved into a multi-faceted online platform operator with 27 incubation investments in 10 countries.
  • Today, the company’s core operating business is the Buyee platform, which enables overseas consumers to purchase items on Japanese online shops in their own native language.
  • At 1,051 yen per share, Beenos trades at an adjusted 0.9x EV/EBIT with a market capitalization of 13,263 million yen ($124 million USD)
  • With mark to market risks combined with no real timeline for the coronavirus situation to settle, Beenos is currently appropriately valued and investors are best advised to revisit the company at a later point.

The most important thing to note about Beenos is that the business as a whole is unpredictable. With that said, the unpredictability largely lies in the Incubation segment as the Crossborder and Value Cycle segments have some level of predictability.

At 1,051 yen per share, Beenos trades at an unadjusted 1.1x EV/EBIT with a market capitalization of 13,263 million yen ($124 million USD). Adjusted for long-term investment securities, the company trades for 0.9x EV/EBIT.

Unlike many traditional Japanese companies, which tend to have cross shareholdings that are listed as long-term investment assets, the bulk of Beenos’ investment assets are categorized as operating investment assets and listed under current assets. Hence, much of the investment assets are included in the EV/EBIT calculations of major financial data platforms.

As noted earlier, the operating environment as well as the startup environment has affected Beenos’ portfolio companies. In other words, mark to market losses may be on the horizon. Additionally, while the 0.9x EV/EBIT may appear low at first glance, the bulk of EBIT (LTM) was generated through sales of portfolio companies in Q4 FY09/19 and Q1 FY09/20. 

While this also means the company essentially guaranteed profits for FY09/20, the low-end of the revise operating profit forecast (2,350 million yen) paints a bleak picture considering the company had recorded 2,616 million yen in operating profits for 1H FY09/20 (the bulk of which was from a sale in Q1). Needless to say, a prolonged coronavirus situation may severely affect Beenos.

As Beenos’ Incubation segment is hard to track with 27 portfolio companies in 10 countries, a certain level of leniency is needed to consider Beenos as an investment. With currently existing mark to market risks combined with no real estimate as to how long the coronavirus situation will last, Beenos is likely either appropriately valued or overvalued at 1,051 yen per share.

The bottom line

Beenos is a serial e-commerce platform company with an incubation arm. While its operating businesses provide some level of stability, sales of portfolio companies in the Incubation segment is what drives results for Beenos. Given the novel coronavirus situation and its effects on Beenos as a whole, investors are best advised to revisit the company at a later point.


Kenkyo Investing
Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.