Initiating Coverage of a Southeast Asian Community-Based Buying Group

By Brian Lantier, CFA

We are initiating coverage of Webuy Global WBUY with a $0.85 target valuation.

Webuy Global is a community-based buying group platform that sells groceries, fresh produce, and packaged travel tours through its app in Indonesia and Singapore. The company is attempting to leverage its customer relationships to expand into additional markets where group buying has shown promise, like insurance.

The company has been able to achieve impressive revenue growth over the past few years as it has brought the community-based buy group model to underserved portions of Singapore and Indonesia. The company offered attractive incentives to group leaders and customers in the community to drive initial traction.

The company believes that its efficient supply chain management (leading to lower costs for consumers) will enable it to achieve above-market growth rates and the scalability of the model will enable the company to easily enter new product verticals. As the company grows during this period it may be challenging to identify core growth in existing operations versus growth derived from market expansion or new product offerings. The company's constantly evolving business model and growth strategy has also impacted investor confidence as the share price has tumbled post-IPO.

Indonesia presents a significant opportunity for the company given its population and the prospect of a growing middle class in the country. We think this will be part of a long-term thesis for the company though as there are many challenges that limit Indonesia's growth prospects.

Unlike some loosely similar businesses like Instacart CART in the US or Sea Limited SE or PT GoTo Gojek Tokopedia GTOFF, Webuy acts as the principal on all transactions and thus, recognizes the gross value of the transaction as revenue. The margins realized by the company are much more akin to those of a retailer or wholesaler (single digit gross margins) than technology providers which only recognize a transaction fee as revenue.

The community-based buying group model was a fairly spectacular bust in China with billions of dollars invested into the space before most of the companies collapsed in 2022 and 2023. It is unclear if companies can succeed in Southeast Asia with this same business model or if they will need to be part of a larger app platform to be successful.

The company's shares have been severely depressed since December 2023 when the share price dipped below the October initial offering price of $4 per share. A new offering of 10 million shares was priced on May 1 at $0.29 per share. The overhang related to these new shares is likely to limit the stock's upside for some time.

We are establishing a target of $0.85/share for Webuy based on a discounted multiple of our 2025 gross profit forecast but we recognize that the company has severely underperformed the broader market since its IPO and the likelihood of tax related selling at the end of 2024 is very high. The company will also need to address its share price (currently trading well below the $1 NASDAQ minimum) at some point this summer which could result in a reverse stock split. These factors could limit the shares' upside and ability to reach our target. The company's ability to expand into new business lines could provide upside to our forecasts but we will have to see consistent growth in these business lines (like insurance) before adjusting our model.

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