The e-commerce retail market is going to be a $1.2 trillion market in 2025, says Rahul Malhotra, an analyst.

Give us a sense as to what the outlook is on RIL’s ARPU potential as well as how you see their services revenues as you are of the view that it could double in the next three years?
Look at what they have achieved. The kind of funding that they have received during the Covid times is incredible. The Jio platform has close to 10-15 services that they have across all of the services and they have close to $5 billion plus total addressable market. From our view the core services around retail e-commerce, around payments, around the content OTT we believe is a large market that they potentially are looking at; which is close to a $2 trillion market across the e-commerce opportunity, retail opportunity, the OTT content as well as the platform from a payments perspective.

India obviously is a fairly attractive market after the US and China and for all of these global investors from the US and the Middle East, it is an opportunity to tap a market which is close to 600 million internet users, close to 700 million smartphone users. I think this entire unlocking of a $2 trillion market opportunity is what excites a lot of these investors to look at the Jio platform opportunity. When we compare that to global parallels in the US and China, what comes out is that players that are platform-oriented and building platforms around it tend to take a lot of market share. We have seen Amazon in the US do 40%. We have seen Alibaba in China having a 60% e-commerce market. That has driven a very strong digital advertising market as well as a very strong payments market; both being 50% plus for Alibaba.

From our perspective, the investment in telecom obviously is for the Jio platform. That is where the core business is and that is the floor for a lot of these investments coming in but the additional value that is going to be driven from the new apps or new ecosystem is getting built around retail commerce around, payments ecosystems and as well as the OTT and the advertising spends is fairly unique and that makes a very large opportunity. It is interesting for the investors to look at this and over the next five years see a very strong market share build up.

What is the potential of Jio platforms to earn in the next four-five years?
I think it is significant. The e-commerce retail market is going to be a $1.2 trillion market in 2025. The payment’s market is going to be another significant market at $700 billion. The OTT advertising market is going to be close to $100 billion. So beyond the wireless and mobile opportunity, there is this large opportunity that is potentially possible and as the ecosystem develops and they build the entire monetisation across the platform and across the e-commerce market where they are working with the kirana stores on the JioMart opportunity, that is a huge opportunity with 30 million kirana stores. If they can penetrate to a large extent and digitise all of these kirana stores and build the JioMart platform in a big way, one could anticipate that the entire Jio platforms ex telecom could also be a fairly significant part of the entire revenue potential or monetisation potential in next five years.

Considering the opportunity in e-commerce which we think is going to be a $130-140 billion market with the opportunity on the payment side. There is this entire ability of having Facebook as a partner and they bring in the technology, capability as well as act as the messaging and onboarding for small businesses with kirana stores and when the transactions are happening, they can manage the entire transaction through Whatsapp Pay. So I think a lot of those monetisation engines have to fire and obviously it is early stage for that as this business executes but I think in the next five years that will be a large part of the entire Jio platform story.

What kind of multiples do you think the Street would assign it?
I think the margin profile will build up over time and if you see and compare to platforms like Alibaba in China, they have EBITDA of close to 25-30%. So those are the parallels one could look at from an entire capability set or from a platform set that will build up over the longer term perspective. But again once execution starts happening and we look at parallels with Amazon in the US and as they are building their advertising model with the e-commerce model, we look at the China market with some of these large platforms Tencent and Alibaba there.

So you potentially see a fairly strong margin profile as you kick in e-commerce in a big way and pool in the advertising revenues that start coming in as brands start using this entire network of kirana stores potentially. I think the margin profile expansion is definitely possible and from where Jio mobile is, you potentially see very strong margin profiles in both Alibaba in China and the US for Amazon. So I think there is obviously expansion that is possible if it is executed well.

How do you think the earnings per share could look by 2024-25?
I do not have it handy with me but the way it will drive earnings is obviously that the entire mobile wireless angle of it will continue to drive bulk of the earnings while the e-commerce and some of the other platform business starts building in. So initially there will be some investments in those models. So the profitability and the earnings metrics will take time to develop but I think on a longer term on a five-year basis, if you look at the model we believe it is going to be a fairly strong growth on the earnings for both Reliance as part of the Jio platform business. So I think it has to be based on how the execution happens.

Globally we have seen players who are purely into the e-commerce as well the platform business having very high margins because what happens is that you have access to 400-500 million users and on the other side, you have a very strong network on e-commerce with kirana stores and effectively you can drive a lot of monetisation potential and that is typically a high margin business. So not delving into exact numbers but we believe there is a very strong potential of margin expansion from here.







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