Carousell's monetising push quadruples 2018 sales, but it's still US$25m in the red

Singapore

CAROUSELL's monetisation efforts may be starting to pay off, as the online marketplace operator quadrupled revenue to US$7 million in 2018, according to regulatory filings obtained by The Business Times.

But with its most recent valuation of over US$550 million, the seven-year-old loss-making startup may still have a ways to go to justify a multiple of close to 80 times revenue.

Carousell remains well in the red with US$25 million in losses, although this is a narrower deficit than the year-ago loss of US$29.8 million. And while Carousell's topline has grown, in dollar amounts, its revenue is still small relative to other e-commerce businesses.

But there were positive signs in the financials for Carousell, which only began monetising its mostly free platform in 2017. This is by focusing on advertising and partnerships; premium visibility services Bumps and Spotlight; and Carousell Pro, a subscription platform for property agents and car dealers, CEO Quek Siu Rui previously told BT in April.

Revenue growth for 2018 came from all the major business segments. Direct media services revenue rose over US$1.5 million to US$2.5 million, while programmatic advertising sales increased by about US$1.5 million to US$1.7 million.

Bumps revenue grew about US$0.9 million to US$1.3 million, while listing services revenue rose about US$0.19 million to US$0.2 million. The startup also recorded US$1.3 million in other unspecified revenue, up from a year-ago US$0.1 million.

Cash burn also eased slightly, with net cash used in operations decreasing to US$22 million from US$27 million a year earlier.

Carousell could not be reached for comment.

The topline and cash flow growth are "healthy signs" for Carousell's financial sustainability, said Lawrence Loh, associate professor at the National University of Singapore Business School.

Carousell has put in "credible effort" to grow revenues, with the strong media and advertising revenue of US$4.17 million "attesting to the large traffic they have", agreed angel investor Lim Der Shing.

The task at hand is then to "continue this growth rate for another year or two to justify the valuation in the last round", Mr Lim noted.

This could hinge on how much more advertising Carousell can squeeze onto its platform without affecting user experience, or if the startup can extract revenue from other segments more effectively.

Carousell's monetisation is currently concentrated in Singapore. Of the US$7 million topline, US$5.78 million came from the home market, US$700,132 from Hong Kong and the remainder from other markets. Carousell also operates in the Philippines, Malaysia, Indonesia, Taiwan and Australia.

It will be challenging for Carousell to build up other revenue streams, but Mr Lim thinks that the car marketplace model could work, as opposed to the more competitive property and jobs classifieds arenas.

He added: "I definitely think that (Carousell) is strongest in the customer-to-customer (C2C) e-commerce market. The question is whether it can get a cut of the large C2C transactions that happen on the platform and not just earn off advertising."

One wild card lies in the Philippines unit of classifieds giant OLX, which Carousell acquired in April for US$34 million in stock, according to filings. Carousell said in its report that it is still evaluating the impact of the acquisition.

While growing revenues, Carousell will also need to rein in costs to stay attractive to investors, said Prof Loh.

The startup's largest operating expense for the year was US$17.5 million in staff costs, followed by US$7 million in marketing expenses and US$3.5 million for servers and online tools.

"Their burn rate is still high, in terms of operational expenses ... Their cash flows will also eventually have to match their valuation," Prof Loh said.

Carousell may have enough cash for "about two more years", said Mr Lim, assuming operational cash burn stays unchanged. The company had about US$55.4 million in cash as at end-2018 with about US$6.1 million in liabilities due within a year.

Carousell may find potential investors to be more demanding the next time it goes to the market. Numbers reported by Carousell suggest a shrinking premium for its shares.

In 2017 and 2018, Carousell sold shares in its Series C funding round at US$14.92 apiece, a 35 per cent premium to its Series B pricing of US$11.05 per share. In the OLX deal, Carousell paid for the acquisition with shares valued at US$15.94 each, a smaller premium of just 6.8 per cent over the earlier Series C shares.

"While investors love (Carousell's) traffic, they want a bit more protection for the risk they are taking at such valuation," Mr Lim said.