Valuation of 58 home

58 Home is the O2O segment of 58.com. Currently it has three verticals, namely home services, truck and moving, and manicure business. In this article, I will use Some of Parts method to value 58 Home.



 

Implied valuation

In 2015, 58 home raised US$300 million from Alibaba, KKR and Pingan, which implied a valuation of $1billion.

  



1. Home services
In this segment, 58 Home directly compete with 1jiajie. Founded in 2011, 1jiajie was listed on China's OTC market in 2016, with a valuation of ~US$800 million. It's worth mentioning that Tencent is a key share-holder of 1jiajie, owning 20%+ shares.
- U.S. benchmark
Home Server USA is a comparable company, although it's more focus on plumbing services. It's founded in 2002 and currently has 700 employees and US$300 million revenue

2. Trucking and moving
This segment seems to be most fragment. Mayibanjia is a notable competitor, with ~700 trucks and ~3000 employees. It's an assets heavy business.

- U.S. benchmark
U-Haul International ("U-Haul"), a subsidiary of AMERCO, can be a proxy. In additional to moving business, it's provides self-storage spaces. The total revenue of U-Haul is US$1.87billion in 2007.

3. Manicure business
Helijia is the direct competitor of 58 Home in this segment. Helijia raised US$50 million in 2015 and was valued around UD$300 million.
Manicure services are commonly provided at saloon or beauty shops. Since it takes time for service providers to travel to clients' home, efficiency may be lower.
For instance, assume each nail technicians work 8 hour a day and servers each client for 1 hour. If it takes 0.5 hour to travel to clients' home, the number of clients served will decrease from 8 to 5; if no price hikes for services provided at clients' home and assuming US$40 per service, each nail technicians suffers US$2640 (22*3*40) revenue loss per month. In China, US$2640 can rent a decent small saloon in 1-tier cities.
Put in other words, it's still uncertain this business model is sustainable and provides extra value.

- U.S. benchmark
The manicure business is quite fragmented and there has not be similar services provided at home.

Current conclusion
The O2O business is still at an early stage. It's highly likely some giants will emerge in certain verticals and consolidate the current fragmented industries. However, the fundamental premises will be:
1. A generic platform can't compete with BAT
2. If a platform is trying to transform to a vertical service provider, it will endure painful and longwinded process, running a risk of losing current users on its platform

That being said, the internet business is rapidly changing in China and a strong management team that can switch gears is essential. Michael Yao, the CEO of 58.com, seems to enjoy deep networks in the internet industry. One example is that 58.com and 58 Home received financing from both Tencent and Alibaba.

Based on current information, we suggest the valuation of 58 Home in line with the fund raising valuation of US$1 billion. 

Some other backgrounds
O2O is a highly competitive and money-burning. It has been a norm to subsidy users and service providers to try out the O2O services, which can easily escalate to 'subsidy wars'. Users' stickiness is low, and GMV is highly correlated with amount of subsidies.

58 Home targets to generate total GMV of Rmb12-15 bn in 2017