On March 3, the Hong Kong stock market will usher in a new Internet company-GOGOX. As one of the leading freight companies in the same city, will GOGOX be a good target?

The Chinese version of Barron Weekly believes that although GOGOX is not the largest from the current market share, after listing, GOGOX's valuation may be supported from three aspects. They are-the golden track of freight transport in the same city, the logistics ecology of GOGOX, and the restorative return of valuation.

The overall situation of the golden track is uncertain, where is GOGOX's growth potential?

In the logic of valuing growth stocks, high growth is the basis for higher valuations. The growth of a company depends not only on its own growth rate, but also on the growth space of its industry and the position of the company in the industry.

According to Frost Sullivan, the penetration rate of online logistics platforms in Asia was only 0.2% in 2016, compared with 0.3% in China.

However, in the following years, there has been a rapid growth in inter-city freight transport. In terms of total transaction volume, the Asian inter-city logistics market grew at a compound annual growth rate of 7.8 per cent from 2016 to 2020, compared with 11.5 per cent in China. From 2021 to 2025, these two figures will remain at 9.4% and 8%. At that time, the penetration rate of online logistics platform will reach 14.3% and 18.8% respectively.

From another perspective, we can see the potential of logistics in the same city.

Capital is always the most sensitive, in the city freight market, there is no lack of well-known funds to enter the bureau, goods Lala behind Hillhouse Capital, Sequoia Capital, Full Truck Alliance Co. Ltd. listed behind Sequoia Capital China, Yunfeng Fund, Tiger Global Fund, GOGOX behind the Ali system of Taobao China, Cainiao, AHKEF (BABA's investment fund), as well as UBS, BoCom International Asset Management Company, and so on.

GOGOX was an early participant in freight transport in the same city.

GOGOX, formerly known as 58 Express, founded in the mainland in 2014, merged with Hong Kong-based GOGOVAN in 2017 and changed its name to GOGOX in 2018. GOGOX currently operates under the GOGOX and GOGOX (formerly known as GOGOVAN) brands in the mainland and other parts of Asia, with the latter concentrated in Hong Kong, Singapore, South Korea and India.

By the end of September 2021, GOGOX had started business in more than 340 cities in five Asian countries and regions, with 26.5 million registered users and 4.9 million registered drivers.

Unlike cargo lesbians, an important feature of GOGOX is its coverage of overseas markets. According to Frost Sullivan, a third-party company, mainland China and Hong Kong together account for about 68 per cent of the Asian online logistics market in the same city based on transaction volume in 2020. In other words, in the process of transformation and upgrading from offline logistics to online logistics, mainland China and Hong Kong are ahead of the Asian market, indicating that other Asian markets will have greater potential in the future. As mentioned, from 2021 to 2025, the compound annual growth rate of the Asian city logistics market will be higher than that of the Chinese market.

In the mainland Chinese market, GOGOX also has a lot of room to play in the field of planned car use. At present, the planned car business in the mainland market accounts for only 5% of revenue, while overseas accounts for 30%. An industry source said that the penetration of the Internet freight industry began with the relatively easy real-time freight, and as the industry matured, it would enter the field of planned car use. Therefore, the field of planned car use will also be the growth point of GOGOX in the future.

Mainland China and overseas markets account for almost half of GOGOX's income structure, and the share of overseas markets has been increasing over the past few years. GOGOX's overseas income accounted for 26.5%, 35.4%, 47.1% and 49.2% of total income in 2018, 2019, 2020 and the first nine months of 2021, respectively.

Suppose Frost Sullivan forecast is accurate for the prediction of logistics penetration in the same city. Even if calculated according to the constant proportion of the current market share, GOGOX's income will increase correspondingly in 2025 after the market penetration increases by 5-6 times respectively.

Of course, with the development of the industry, the market share of industry participants is bound to change.

According to the transaction volume, at present, the market share of logistics in mainland China is very concentrated, with the five leaders accounting for 67.5% of the market share.

However, the market is far from when the overall situation has been decided.

From the format itself, the existing brands have not yet occupied the minds of consumers, and new competitors are still entering the game one after another. In April 2020, DiDi Global Inc. invested 100 million yuan to set up DiDi Global Inc. freight, which officially entered the freight track in the same city.

Although the business models of intra-city freight and inter-city passenger transport are similar, there are industry differences between them. One of them is that the passenger transport in the same city on the line is closer to standardized pricing, which is basically based on the distance from place A to location B, but the freight is different, and each piece of goods has different size and location, so it is difficult to form standardized pricing and monopoly centralization.

From the perspective of external policy changes, on the one hand, as a platform company, participants in inter-city freight transport will inevitably be affected by the Internet antitrust storm in the past two years, and companies with high market share are more vulnerable. On the other hand, Chinese regulators are strengthening the supervision of logistics in the same city, and companies with poor qualifications will also be eliminated.

According to this analysis, GOGOX may benefit from the changes in these two policies. GOGOX will not only grow with the development of the industry as a whole, but also grow faster than the industry average because of the expansion of market share.

The moat does not rely on burning money but on technology: if you catch the driver, you can retain customers.

GOGOX defines his mission as "using technology to make inter-city logistics easier."

A successful platform should grow in a technological way and take into account the rights and interests of all stakeholders. It is a consistent way for Internet companies to spend money on subsidies and quickly occupy the market. For example, at the beginning of DiDi Global Inc. freight entry, not only waived the service fee for new drivers to join the platform, but also gave a lot of subsidies, so that DiDi Global Inc. freight orders soared at the beginning. DiDi Global Inc. freight practice, once again started the city freight price war, even the leading goods lesbians also had to participate in the war again.

But occupying the market by burning money may have worked in the past market environment, but in the current market environment, this logic may not work, because after the decline in the valuation center of the platform company, the financing environment is no longer allowed to burn money like this, and the market share obtained by burning money may not be so reliable.

GOGOX realized this very early on.

In 2018, GOGOX changed his previous ways of getting customers, such as subsidies and coupons, to carry out marketing activities through word-of-mouth recommendations, incentives to users, social media and app store advertising, search engines and keyword search.

At the same time, GOGOX pays more attention to his own operational efficiency and establishes his own moat. The implementation of this slogan at the operational level is to improve customer loyalty.

Customers in the freight industry include both truck drivers and shippers. The loyalty of truck drivers depends on the stability and predictability of their income, and the loyalty of shippers depends on reliable cargo transport services.

GOGOX's business structure needs to be explained here.

GOGOX's business consists of three parts: platform services, enterprise services and value-added services. The simplest understanding of the platform service is similar to the freight mode of DiDi Global Inc. chauffeured car, in which the shipper places the order on demand, and the truck driver receives the order and completes it. Corporate services, generally planned car customers, generally for corporate customers with regular logistics needs, including supermarkets, restaurants, building materials suppliers, community group buying platforms, e-commerce platforms and government agencies. By the end of September 2021, GOGOX has provided enterprise services to more than 37000 small and medium-sized enterprises and large enterprises. Value-added services are mainly provided for drivers, including positioning gas stations and vehicle maintenance centers, fuel cards and other services, and collect commissions from suppliers.

From the perspective of revenue structure, corporate services account for half of the company's revenue, but this is mainly due to accounting standards. Unlike platform services, which only include commissions, corporate services include all transactions in revenue and the amount paid to drivers as costs. In accordance with uniform accounting standards, corporate services account for 5 per cent of revenue in mainland China and 30 per cent overseas. In addition, the proportion of value-added services in revenue is very low, which is ignored here.

Therefore, what is discussed here is mainly GOGOX's platform services.

In 2020, the total transaction volume on GOGOX's platform was 2.7 billion yuan, about 27.1 million orders from 3.2 million shippers.

First of all, from the driver's point of view, like DiDi Global Inc. chauffeured car, the truck driver is not GOGOX's employee, the management is difficult, and the driver's stickiness is low. They can go to other competitor platforms at any time, or even pick up orders on both platforms at the same time.

How to solve this problem?

According to GOGOX's operation logic, if a driver derives most of his income from GOGOX, the viscosity between him and GOGOX will naturally increase, and the platform's "management" of drivers is effective in order to serve customers well. It can be summed up simply that only when GOGOX takes good care of the driver can the driver take good care of the customer.

In order to achieve the goal of increasing the income of drivers, GOGOX has taken a number of measures.

From the perspective of business philosophy, unlike some other industry participants, GOGOX does not impose membership fees and franchise fees on new drivers. Platform income is mainly the difference between the amount of orders paid by customers and the amount paid to drivers by the platform, or it can be called commission. The difference between the membership system and the commission system is that the platform's income comes from drivers or customers. GOGOX derives most of his income from the latter.

From a technical point of view, GOGOX hopes that through scientific and technological means, such as demand forecasting, intelligent dispatch, automatic order pricing, route optimization, digital driver evaluation and wind direction management, on the one hand, without putting more cars on the road, release control capacity and increase transport supply, so as to minimize no-load distance, energy use, and carbon emissions. On the other hand, improve customer satisfaction.

For this reason, GOGOX attaches great importance to the research and development of science and technology. As of September 30, 2021, GOGOX's R & D team has 112 people, accounting for 10.1% of the total staff, and has obtained 13 patents and 20 software copyrights.

With technology, GOGOX can match the driver within an average of 11 seconds of placing an order by the shipper. At the same time, he can also track demand and order volume, and predict the number of drivers who are capable or willing to take the order. If there is a shortage, you can provide incentive coordination. At the same time, route optimization technology can be used to help drivers plan the best driving route.

In 2020, GOGOX was also rated as a high-tech enterprise by relevant departments in Tianjin, and was selected by the Ministry of Industry and Information Technology to participate in big data's industrial development pilot demonstration project.

At the same time, GOGOX made a major change in the business model, changing the previous order-grabbing system to a dispatch order system, and set up a high-quality driver system, so that high-quality drivers can get more and more predictable orders.

Another difference between intra-city freight and inter-city passenger transport is that the golden quality of passenger transport lies in the waiting time of customers, so it requires a very large supply density. On the other hand, the tolerance of freight to time is much higher, so a certain transport density of a city can be guaranteed.

As of September 30, 2021, GOGOX's high-quality drivers completed at least 1.5 times more monthly orders than other drivers. And since the launch of the quality driver scheme in November 2020, the proportion of mainland Chinese drivers fulfilling orders has increased from 3.7 per cent at that time to 45 per cent in September 2021.

Customer satisfaction mainly depends on the availability of reliable freight services.

According to Frost Sullivan's report, GOGOX's user satisfaction is in the forefront of the Asian online city logistics platform. It can be said that GOGOX has established a moat in the logistics industry by virtue of driver stickiness and freight stability. Some market participants said that the current money-burning strategies of some freight participants in the same city will not be effective after a year or so. At that time, GOGOX's early layout will show its advantages.

When the tide recedes, the advantage of who can swim will be revealed. GOGOX's value in the capital market will also be recognized by the market.

The value depression expects a reversal, and the business space leaves imagination for the valuation.

Objectively speaking, GOGOX's landing in the Hong Kong stock market at this time is not a good time, it can be said to be listed against the trend.

The listing of GOGOX comes at a time when the logic of the valuation of platform companies in the capital market has been reversed, and great changes have taken place in the operating ecology of platform companies.

In the past, there was a word in the Internet industry called "winner takes all". To put it simply, the leading companies in the industry would use their qualifications to raise as much money as possible in the market, and then use the money to expand rapidly, occupy the market, and even form a monopoly. Get the pricing power of the industry. In this model, profits are exchanged for scale. Under this model, the market focuses on indicators such as active users and new customer growth, rather than whether the company is making money or not.

Now this situation has undergone earth-shaking changes, especially as the Internet has become the focus of anti-monopoly law enforcement, the monopoly and pricing power of leading companies have been weakened. The logic of the valuation of platform companies in the capital market has also changed, and the valuation center of platform companies has declined significantly.

This will make it difficult for companies that have previously obtained higher valuations in the primary market to obtain satisfactory prices in the secondary market.

According to public data, lesbians have raised eight times since 2015 and have set a record of $2 billion in one month. It is currently valued at $15 billion.

The latest unproved news is that Full Truck Alliance Co. Ltd., who ranks behind GOGOX in terms of market share, is planning to return to Hong Kong for a second listing, submitting an application for listing within this month at the earliest, and is expected to raise about US $1 billion.

By contrast, GOGOX had only two rounds of financing before the Pre-IPO round. The financing plan for the listing of GOGOX is only about $300m. For companies with a large amount of financing in the early stage, there will be a greater burden when they go public, because early investors need to cash in, and listing will be difficult if the pricing is not high enough to satisfy the early investors.

In June 2021, there were market rumors that lesbians submitted their IPO applications to the United States in a confidential manner, but the news was later denied by lesbians, and then it was reported that lesbians were considering transferring their listing plans from the United States to Hong Kong. So far, there is still no news of the listing of lesbians.

GOGOX's previous low financing will leave more room for pricing in the listing process. The low offering price will also leave more room for GOGOX's future share price performance.

At the same time, it is well known that the current Hong Kong market is a global valuation depression, especially Internet companies have encountered strong headwinds in the past year. At present, most views are optimistic that the Hong Kong stock market will return to the average in 2022, and the share prices of Internet companies are also expected to reverse.

After the completion of the listing, GOGOX may also accelerate market expansion.

In fact, GOGOX's market strategy has shrunk in the past few years and did not blindly join the subsidy war to obtain short-term market expansion. This can be seen from GOGOX's sales and marketing expenses. GOGOX's sales and marketing expenses were 524 million yuan in 2018, 296 million yuan and 195 million yuan in 2019 and 2020, and 231 million yuan in the first nine months of 2021, down sharply from 2018.

After the listing is completed, GOGOX can use this financing to expand his business. In the prospectus, GOGOX said that in mainland China, GOGOX has developed a highly replicable expansion model and has achieved a successful track record. Whenever a new city is opened up, local salespeople are deployed to quickly build a network of local users.

The past strategic contraction has left more room for imagination for GOGOX's business expansion after listing and the subsequent valuation rise.

To sum up, the Chinese version of Barron Weekly believes that although GOGOX is not the first in the industry at present, the trillion-class golden track of inter-city freight transport has provided it with broad growth prospects. GOGOX's technology-centered logistics ecology has provided it with a competitive moat, while the Hong Kong market and Hong Kong stock Internet companies are currently in a value depression. As well as the space for re-expansion brought about by GOGOX's previous business contraction, it may become the catalyst for GOGOX's restorative return to valuation.