Company outlook | Hepsiburada: Trading up to the challenges

Hepsiburada (D-Market Electronic Services & Trading) is the second-largest e-
commerce player in Turkey, with c17% share in a USD13bn market (2020). Turkey e-
commerce is expected (according to the Hepsiburada IPO prospectus) to grow at 35%

CAGR over 2020-2025e, one of the highest among EM countries, supported by a young
consumer base, inflation and structural factors. Hepsiburada offers one of the widest
ranges of assortment among competitors, has a well-developed marketplace (c59% of
GMV- gross merchandise value – in 2020), strong logistic capabilities and increasing focus towards value-added services to drive the network effect. We estimate a c51% CAGR in GMV over 2020-25e with a c13% increase in Hepsiburada market share by 2025e.

It’s not too late when it’s an evolving market: Hepsiburada was the leading e-
commerce player in Turkey, however with Alibaba (BABA US, Buy, CMP USD1Emerg95.19) taking over Trendyol in 2018, the market landscape changed dramatically. Supported by investments into customer acquisitions, Trendyol overtook Hepsiburada to become the market leader. With consumer demand increasing with COVID-19, Hepsiburada, which started a renewed investment phase in 2H20, is launching a whole suite of e-commerce related services to capture market share and solidify its number 2 position in the country.

Investing for growth, increasing TAM and defending market position: Hepsiburada’s strategy is directed towards driving network effect through an integrated ecosystem, end- to-end solutions for merchants, and improving service level for consumers. Hepsiburada is strengthening its overall value proposition through development in logistics capabilities, monetising on advertisement opportunities and building up a payment system. The company is also targeting expansion of services across new verticals like travel, grocery and international merchants. Backed by a solid foundation of 20 years, Hepsiburada is well-positioned to capitalise on the growth opportunity in the Turkish e-commerce space.

Valuation: We value Hepsiburada using a DCF model at USD19/share, with upside of
c44%. We see strong GMV growth potential for Hepsiburada with focus on improving
customer/ merchant value proposition. We expect the company to reach EBITDA
breakeven by 2023e and net income by 2024e. The stock is trading at an EV/GMV of
0.72x (2022e) which leaves room for upside when compared to peers in EM markets
(even after considering a c10% discount for Turkey). We provide sensitivity and scenario
analysis (page 13) and a top-down comparison with EEMEA e-commerce players (page
29). Our blue-sky scenario implies a fair value 21% above our target price. Key risks and catalysts: Downside risks include an increase in competition, failure to strengthen its value proposition and attract more customers and suppliers to its platform.

Key positive catalysts include: stronger than expected increase in the number of active
buyers, order frequency and increase in marketplace suppliers.



Source: HSBC Global Research