IPO success for Russian e-commerce giant Ozon

The Bell

It’s rare that Russia’s top business story is good news. But that’s what happened this week with the long-awaited New York IPO of Russian online retailer Ozon. Not only did the company price the deal above initial guidance, but shares rose by 40 percent in early trading. Now, Ozon needs to demonstrate to its shareholders — old and new — that the $1 billion it raised from this IPO will allow the company turn a profit for the first time in 22 years.

  • Ozon’s listing was priced at $30 per American depository share (ADS), above the expected upper limit of $28.50. Then, when shares started trading on the Nasdaq and the Moscow Exchange on Tuesday afternoon, it became clear that many believed the company often dubbed the ‘Russian Amazon’ was seriously undervalued. On the Moscow Exchange, Ozon shares jumped 32 percent at the start of trading; on Nasdaq they rocketed 42 percent. After a few hours, Ozon’s capitalization was over $8 billion.
  • That growth was expected: on the eve of the IPO, financial market sources told The Bell and Forbes Russia that the order book was oversubscribed. 
  • This frenzy of interest is easy to understand: Ozon is the only Russian online retailer to have ever gone to the market, and Russia has Europe’s highest number of internet users (about 100 million). Russia’s e-commerce market grew 23 percent in 2019 and is worth over $31 billion, according to e-commerce analytical firm Data Insight. That’s about the same as India, and a bit bigger than Canada. Between 2021 and 2024, the market is expected to average 33 percent growth every year.
  • However, analysts and online retailers pointed out that Ozon isn’t the market leader in Russia (that title is held by Wildberries). What’s worse, in 22 years of trading, the company has yet to make a profit. Even though Ozon’s net revenue was $800 million last year, it recorded losses of $257 million.
  • Can Ozon meet expectations? The pandemic may help: the e-commerce market has exploded in 2020 and Ozon has taken full advantage. In just nine months, the company’s turnover exceeded its 2019 total, while losses grew slower than sales.
  • On the other hand, competition is ever more intense. State-owned banking giant Sber, which has already spent four years trying to create its own ‘Russian Amazon’ — first with Chinese e-commerce giant Alibaba, then IT firm Yandex and, this summer, with Ozon — is not about to give up. The bank is currently in talks with electronic retailer M.Video’s shareholders about jointly developing its Goods.ru online marketplace.

Why the world should care 

Despite the pandemic, this year is fast becoming the year when Russian companies returned to IPOs. Before the 2008 financial crisis, public offerings were a regular event. But then they became less and less frequent and, after the 2014 Ukraine crisis, a rarity. Now, things look to be changing. Two more companies this week announced plans to go public: Russia’s biggest online cinema, ivi, and financial services aggregator sravni.ru. Once again, this all proves that the only truly competitive part of the Russian economy is the internet.  


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