SBSNF - Schibsted

[yadayada]

This one looks too interesting not to discuss here. At first it does not look cheap at all. But if you look closer it looks very very cheap.

 

Basicly they are in the business of classifieds (euro craigslist?), to see what that means these are their three flagships:

Leboncoin.fr

BLOCKET.SE/BYTBIL.SE

FINN.NO

 

Their philosophy is to get to number one or quit trying. And looking at their track record, they seem to be pretty good at that. Because of the network effect if you don't capture number on in a country you are toast for the long run. The above mentioned are 2/3 all money machines and Leboncoin.fr is the third or second most popular website in France I think.

 

To appreciate it's cheapness, they are trying to copy this model in other countries too. So far they captured number one in :

Ireland, Spain, Italy, Malaysia, Hungary and Austria. These are according to them established, so not in investing phase. This is for job markets and various types of online market places. And it seems they are not having much problems competing with Ebay.

 

They are in investment phase in another 35 countries. And it seems they have a decentralized start up type culture focussed on taking controlled risks and giving employees lot's of freedom.

 

I think currently they trade around 15-20x earnings, and are not cheap. But their projects in investing stage eat up about 1 billion NOK a year. Current EBITDA is about 1.6 billion.

 

And another interesting tid bit is that their france operation is much larger then their scandinavian one. Interesting quote on that:

 

For Le Bon Coin’s future, this draws a glowing picture: according to Danske Market Equities, today, the Norwegian Finn.no generates ten times more revenue per page view than LBC, and twenty times more when measured by Average revenue per user (ARPU). The investment firm believes that Le Bon Coin’s revenue can reach €500m in 2015, and retain a 65% margin. (As noted by its CEO, Le Bon Coin has yet to tap into its trove of data accumulated over the last six years, which could generate highly valuable consumer profiling information).

 

so that would be 325m euro in ebitda , or about 2.6 billion NOK . So then I get over 5 billion NOK in EBTDA, most of that extra Ebitda streaming to bottom line. So all you have to do is substract extra taxes. And ofcourse this does not include the potential that could be tapped out of their other established operations. Just removing the drag of their investment projects that will probably mostly go away in a few years time, and increased monetization of their french website, and this thing is suddenly very cheap.

 

They also own some newspapers, but this seems to be shrinking and becoming less relevant to overall profitability picture.

 

Thoughts?

 

BTW here are some links on their business:

http://www.mondaynote.com/?s=Schibsted

 

(note written by a former employee)

http://www.theguardian.com/technology/2012/dec/03/schibsted-online-classifieds

 

http://www.inma.org/blogs/conference/post.cfm/schibsted-s-global-investment-in-advanced-data-analytics-is-paying-off

 

http://www.casecompetition.com/sites/default/files/cbs_final_presentation.pdf

 

http://research.handelsbanken.se/Attachments/20992/Credit%20Comment%2028%20april%202014.pdf

 

Also check out this:

http://hugin.info/131/R/1734472/580939.pdf

Seems they actually pushed out Ebay in france with Leboncoin.  Also note how they are crushing all their competitors in a lot of the other markets.

[alwaysinvert]

They actually own the far largest newspapers in both Sweden and Norway. Aftonbladet.se has 4 million readers (population 9m) and I would guess Verdens Gang has similar market penetration, although I don't know this for a fact. So I don't think these are of insignificant value long-term even though profits may be small at the moment.

 

As for your figures, 15-20x can't be correct with the EBITDA you have given since from what I can see market cap is 34b?

[yadayada]

ebitda is 1.6, so I guess over 20x ebitda at the moment. Not exactly cheap. But I think the -1bn from their investment stage projects will turn in a positive number of like 500m some time in the future. So then it is already over 3 billion. This will probably happen within 2-3 years.

 

Also there is a lot of untapped earning potential in their french operation (ebitda a franction of their scandi operations, despite dominating market). It seems in Norway and sweden they are the largest in real estate?

 

Just looking at rightmove, the largest british real estate website, they are worth over 3 billion$. It seems this company has a very good shot at this in france and norway and sweden? Population in those area's is 78 million vs 53 million in England. And this is real estate only.

 

Also Ireland spain italy and austria seem like countries that can add a lot of ebitda in the future. They barely add anything now. These have large populations and they are number one on every metric here.

 

It seems when they build up these businesses, in early stage they are negative or low ebitda contributors, but once matured they can start monetizing them after they are by far the number one player. Was hoping some forum members would be able to shed some light on this part of the thesis.

[alwaysinvert]

I don't know the revenue breakdown for blocket/finn. For real estate I think they are vastly outstripped by Hemnet in Sweden, though. But they are pretty strong on renting, I guess. Hemnet is the go-to place for brokers - Blocket only for people who want to bypass brokers' fees. I may be simplifying a bit much, though. No research done, only speaking as a Swede here.

 

I'll have a further look tomorrow.

 

 

[yadayada]

thanks for insight. It seems their presentation backs that up. About 650k vs 1.2-1.5m for Hemnet. Allthought if you look at market share growth that is going up rather quickly in a straight line.

 

Im curious how strong the network effect is here? I mean they basicly driven Ebay out of the market in various countries. Who says someone else will not do this 5 years from now? Or maybe Ebay turned into a bureacratic out of touch mess? Management here are all Mckinsey people, and act very decentralized (reminds me of outsiders CEO's)

 

edit: I guess if you take valuation. Currently 1.6 billion ebitda. Let's remove 1 billion in investments and say these things get actually +0.5 billion in ebitda in year three (advertising costs coming down and revenue up). This seems conservative. Then I already get 3.1. Another extra 400m from their papers and I get 3.5. Some increased growth from their current top 3 operations in scandinavia and France, France was suposed to be able to do 2.6 billion alone. i think annualizing Scandinavia from latest Q report and assuming france can do 2 billion, that is 3.2 billion so 1.6 billion added here. Or 5.1 billion.

 

Current established operations in 6 countries only do 244m in ebitda (all classifieds), vs their top 3 countries that do 1.6 billion in 2013.

 

Let's add another 500m in growth there in year 3 and i get 5.6 billion in ebitda.

 

Capex is 400m, but let's say 600m. Interest is about 150m? 33% tax rate on all that and you get 3.2 billion in FCF. Put a 15x multiple on that, and you don't really beat the market here.

 

BUT if you are more aggressive here, ebitda in latest quarter for France was 223 vs 182 in Norway. Yet france has 10x the population of Norway, and a much larger user base. So you would say if they could do 5x their ebitda (still a much lower ARPU) then I get 4.4 billion in ebitda from france alone. And this is from the third largest website in france basicly. In that case I get almost 6 billion from their top three operations alone. That would be 5 billion in FCF, or 125% upside.