From layoffs to profit: Is Lazada finally ready for an IPO?

“NO COMPANY can stay at the top forever in any industry,” Jack Ma said in an internal memo sent to Alibaba’s employees on its 25th anniversary last week.

Still, Ma firmly believes that Alibaba is one of the few companies that can endure for 102 years. His motivational message comes at a time when the Chinese ecommerce giant has been grappling with intense competition from two major rivals: PDD Holdings and ByteDance.

In South-east Asia, Alibaba-owned ecommerce platform Lazada no longer leads any country in gross merchandise value (GMV), according to a 2023 Momentum Works report. It trails behind Shopee across the region and also TikTok Shop in Vietnam and Indonesia.

So when Lazada announced that it crossed a profit milestone for the first time in July, the news surprised some industry watchers.

For Lazada, the milestone follows several key decisions, including laying off 30 per cent of its staff in January and launching Choice, its response to Temu and Shein, across South-east Asia.

Back in 2022, Tech in Asia explored the potential benefits of spinning off Lazada from Alibaba. However, this was before TikTok Shop became a formidable competitor and Temu launched its aggressive expansion strategy globally that has since reached South-east Asia’s shores.

Now two years later, does Lazada still have what it takes to pull off a long-rumoured initial public offering (IPO)?

“Shrinking to profitability”

Market insights firm Cube Asia estimates that Lazada’s GMV declined in the first six months of 2024 compared to the same period the previous year. According to Cube Asia co-founder Simon Torring, this drop exceeded 10 per cent in some markets, though he did not specify which ones.

“It seems that what’s happening this year is that Shopee is growing to profitability and Lazada is shrinking to profitability,” he said.

A Lazada spokesperson declined to comment on the company’s GMV and targets, stating that it has “moved away from short-term metrics” and is now focusing on long-term measures such as customer satisfaction and conversion rates.

Sameer Mehta, managing director and head of South-east Asia at VC firm DSG Consumer Partners, tells Tech in Asia that over the past three years, the company’s portfolio brands have shifted more focus and investment towards Shopee compared to Lazada, both in terms of dollar amounts and attention.

As TikTok Shop began making waves in South-east Asia, Lazada was noticeably less aggressive than Shopee in its livestreaming efforts, which it introduced in 2018. Meanwhile, Shopee ramped up marketing spend last year, grew its affiliate programme, and continues to use generous discounts and promotions to draw users. Unlike Shopee, Lazada does not offer discounts in Indonesia on its short-video channel.

Raman Arora, COO of ecommerce enabler Leap Commerce, stresses that while brands typically engage with customers across various platforms, cost structures remain a key consideration. The company works with premium and luxury brands across categories including beauty and fashion.

He notes that commission rates on various platforms have increased significantly, and that this rise must be considered when brands decide which platforms to prioritise for selling.

In recent months, Lazada has also increased seller commissions. While it is not the only platform to do so, Cube Asia’s Torring points out that Shopee seems to be reinvesting its additional revenue into marketing and subsidies. “That is potentially starting a bit of a flywheel that’s quite productive,” he said.

Retaining big sellers or competing in a low-cost war?

Instead of “jumping on the trend bandwagon,” Lazada is focusing on its core strengths in end-to-end logistics, technology, and its brand platform LazMall, according to a company spokesperson.

For example, LazzieChat, a generative AI-powered chatbot introduced last May, assists shoppers during their purchases.

Additionally, tools lsuch as personalised search recommendations and an image search feature have enhanced the shopping experience and driven “higher order conversion rates,” the spokesperson said.

Lazada also plans to introduce more genAI features later this year.

But would these efforts be enough to fend off its competitors? Leap Commerce’s Arora notes that in the past year, premium brands – particularly in Indonesia – have been turning more attention towards ShopeeMall. Like LazMall, ShopeeMall also guarantees product authenticity, but its 15-day return policy is shorter than LazMall’s 30 days.

Among the brands that Leap Commerce works with, “there has been some volume that has shifted in the last year or so onto Shopee”, Arora said.

This trend could be concerning for Lazada, whose brand category has historically been a niche. Notably, TikTok Shop also launched TikTok Shop Mall in March this year.

According to the Lazada spokesperson, LazMall, which currently features over 32,000 brands, will continue to differentiate itself through “more exclusive access and product diversity”.

But to retain larger sellers and brands, Lazada will need to do more, Cube Asia’s Torring said.

He believes that the firm should more clearly communicate to sellers its vision of the future and “paint an exciting picture.” If Lazada “will no longer be the biggest [ecommerce platform], it needs to be something else,” Torring added.

One of such attempts materialised in Choice, which was recently launched on Lazada in South-east Asia with little fanfare. Choice is Alibaba’s attempt to emulate low-cost platforms Temu and Shein by collaborating directly with manufacturers and subsidising them to reduce prices.

In a previous analysis, Tech in Asia pointed out that Alibaba seems to be betting on Choice to revitalise Lazada’s ecommerce glory as competition in the space heats up.

Jiang Fan, CEO of Alibaba International Digital Commerce, referred to South-east Asia as a “very important market” in the company’s earnings call for the fourth quarter of 2023. According to Tech in Asia’s calculation, Alibaba invested US$1.8 billion in Lazada in 2023 alone.

Fan also stressed that Alibaba will make a “large investment” in Choice, as it believes that the new model is delivering “much better user retention”.

Jacob Cooke, co-founder of digital agency WPIC Marketing + Technologies, thinks Lazada has a “solid chance” to succeed in the low-cost category, but it needs to continuously innovate and offer compelling value propositions to outpace rivals such as Temu.

So is Lazada ripe for an IPO?

“Certainly, as a profitable entity – even if on an adjusted earnings basis – Lazada may be more interesting to investors as a listing candidate,” Angus Mackintosh, founder of market insights firm CrossASEAN research, tells Tech in Asia.

“Often, companies will start to feed more info into the market because they view themselves as becoming a public company prospect … and it takes quite a long time to educate investors,” he said.

While it’s hard to find apples-to-apples comparables to Lazada, we estimate that the market may value the company at around 2.8x its last 12 months of revenue, based on the average multiple of other Asian tech companies that have ecommerce operations.

As it is not yet a public company, Lazada does not release its financial statements. However, Alibaba reported that its international commerce retail division – which includes Lazada’s numbers – generated 88 billion yuan (US$12.4 billion) in revenue in the 12 months ending June this year.

Cube Asia estimates that Lazada accounted for a quarter of Alibaba’s international retail business in 2023.

Taking this as an estimate of its share of revenue, Lazada’s revenue could be around US$3.1 billion. If we apply a 2.8x price-to-sales multiple to this figure, the firm could be valued at around US$8 billion to US$9 billion.

This compares with the platform’s total disclosed funding of US$8 billion.

Lazada declined to comment on questions about its IPO plans, noting that the firm does not provide forward-looking statements. It also declined to disclose the percentage of the company’s GMV contribution to Alibaba’s international ecommerce business.

While Lazada managed to turn a profit in July, Mackintosh advises against placing too much emphasis on a single month of profit. For the result to matter, Lazada must show it can maintain sustainable profits over time, he adds.

“Let’s say that IPO was the target – what are investors buying? Lazada is not the biggest ecommerce platform in SEA, it’s marginally profitable, and its sales are decreasing,” Torring from Cube Asia notes.

Still, he believes that Alibaba could easily invest the resources and cash needed for Lazada to compete head-to-head with Shopee again, if it chooses to.

Though attention may have shifted towards Shopee for now, Arora from Leap Commerce points out that there’s still no clear winner. Growing a presence on “both platforms remain important and relevant, especially for larger brands.” TECH IN ASIA

Simon Huang also contributed to this report.