• Can scale in autos deliver more than the sum of the parts?
  • Should Adevinta focus down on Europe and sell the rest?
  • How do you further verticalize EBay Classifieds?
  • Will two distinctly different cultures clash?

The battle is over. Now the hard work begins.

It’s the biggest deal in classified / marketplace history: the hard- fought, $9.2 billion cash-and-stock acquisition of EBay Classifieds Group by Adevinta.

The roadmap for maximizing value with the EBay Classifieds portfolio is reasonably straightforward, the AIM Group believes. It’s the implementation that will be challenging.

In the process — which really begins in earnest next year some time, after regulatory approvals and closing — Adevinta will become a whole new company that almost doubles in size, has a new set of owners and board members, and has to justify to the stock market that it was smart to pay one of the highest multiples ever for a major classifieds business.

A brief recap: After a fight that began in Jan. 2019 when Elliott Management torched EBay’s management, Adevinta beat two rival bidders a couple of weeks ago to complete an agreement with EBay Inc. for the $9.2 billion purchase. It was a cash-and- stock offer, beating (reported) all-cash offers from Prosus, the Naspers subsidiary, and a private equity consortium led by Hellman & Friedman. We hear Adevinta’s bid was lower than at least one other; apparently, EBay valued the opportunity to retain a major stake more highly. (At today’s share prices, that decision already looks wise.) EBay Classifieds Group includes a range of brands, such as EBay-Kleinanzeigen and Mobile.de in Germany; Marktplaats (Netherlands); Kijiji (Canada, Italy); Gumtree (mostly U.K., Australia and South Africa) and more, both verticals and horizontals, mainly in Europe but also in other regions.

It is an extraordinary deal:

  • Catapulting Adevinta from No. 11 in classified revenue globally to No. 3 (after only Recruit Holdings and 58.com).
  • Creating the No. 2 auto marketplaces group globally (after AutoHome in China).
  • Establishing a truly dominant classifieds company across Western Europe, with the leading horizontals in each of the Big 5 economies and much, much more.
  • Ending any ambition Prosus may have had to become a major player in Europe and a truly global operator across both emerging and developed markets.
  • Ending Axel Springer’s ambition to become the European leader in classifieds, and bringing a new level of competition to its home territory: Germany.
  • Creating a more formidable competitor to Hellman & Friedman’s AutoScout24 in every territory where it operates.

Without doubt this is transformational for Adevinta. The stock market has expressed its opinion of the deal in the form of a 37% bump in Adevinta’s share price.

There’s only one possible bigger deal left than this: a merger of the new Adevinta with Prosus’s classifieds assets, which many see as the ultimate endgame. But there’s a lot of digesting to be done first, and an Adevinta / Prosus deal might never happen.

You auto know this: It’s about cars …

This deal is first and foremost about cars.

The EBay portfolio derives at least 49% of its revenue from auto classifieds, far more than any other category. (See chart.) That’s before you add in associated display advertising revenue. Perhaps another 10%? Adevinta generates revenue more widely, but still takes 27% from auto classifieds, and maybe 5% from associated display.

In all, about half the revenue of the combined business can be attributed to autos. Most of this revenue is in Europe, spanning every major territory. Each autos business runs as a distinct operation, with little cross-group integration, especially at EBay.

A key question: Can Adevinta turn the whole into more than the sum of the parts?

Generally, local focus has trumped scale in running auto marketplaces. However, scale will be increasingly important in the future. “Although this wasn’t historically the case in the auto listings business, becoming more of a data business and moving into the core transaction is done best at scale. Likewise, scale can help build a significant opportunity in cross-border car trade across Europe,” Malcolm Myers, founder and CEO of marketplace m-and-a advisors European Internet Ventures, told the AIM Group.

In autos, we expect Adevinta to:

  • Set a revenue target, five years out, of maybe doubling what these products generate today — taking autos from an estimated $850 million in 2019 (including display) to, say, $1.7 billion. It will drive toward the revenue-per-capita levels achieved by auto marketplaces like Auto Trader (U.K.) and Carsales (Australia) that dominate their markets. (See chart.)
  • Take full advantage of EBay’s portfolio in Germany. Automotive leader Mobile.de and horizontal EBay-Kleinanzeigen produced almost half of EBay Classifieds’ revenue last year. For Adevinta to build a dominant position in Germany, it will have to better leverage their combined strengths.
  • Build a shared auto ecosystem. It will use its scale to move along the value chain more quickly and aggressively — delivering deeper and richer services to users and dealer-clients, e.g. in data, new cars, transactions, and stronger trust mechanisms for used-car purchases.
  • Use m-and-a tactically and strategically: bolt-on acquisitions to consolidate and deepen the businesses within their markets, and larger acquisitions in new markets to build and benefit from scale.
  • Use increased clout with OEMs and finance firms to accelerate the path to transactions and get deeper into new-car sales, car finance and OEM advertising.
  • Strengthen its approach to cross-border trade. This is an attractive area given different countries’ structures for car registration, taxes and purchase. It’s notable that a third of Mobile.de’s traffic comes from outside Germany. A transaction approach might work well for purchase at a distance.

‘Verticalization’ push at leading horizontals

Adevinta is the master of “verticalization.” It creates powerful vertical services within its horizontals and runs standalone verticals, often acquired, in close harmony with horizontals to enhance and differentiate its market positions. It then acquires verticals in adjacent spaces that can benefit from the huge user base it builds.

LeBonCoin in France is the exemplar of this approach, but Adevinta’s operations in Hungary, Italy, Spain and Brazil (with OLX / Prosus) reflect the same playbook. While EBay applies this approach too, Adevinta can improve on it and may be more willing than EBay to make acquisitions to build the right portfolio of assets.

Typically, verticalization is led by autos. It’s a core strategy for growing the auto business. However, Adevinta also brings great strength in real estate and recruitment. The biggest surprise in the acquisition documents is just how small these segments are at EBay Classifieds, only 4% and 2% of revenue respectively, vs. 30% and 13% at Adevinta. Adevinta owns leading real estate classified sites across Europe and operates the multinational InfoJobs business. Real estate was the leading revenue category for Adevinta last year. Germany is the No.1 opportunity in real estate.

The EBay Classifieds Group’s dependence on auto listing and display ads, which together produce 83% of total revenue, shows substantial underperformance at its horizontals compared to peers at Adevinta and other horizontals. There is a strong expectation that Adevinta can improve performance substantially at EBay Classifieds simply by applying its core classified skills.

As well as exploiting synergies between the Adevinta and EBay portfolios, we expect Adevinta, in particular, to re-engineer sales and packaging between the verticals and horizontals, rethink pricing models and levels for business and private-party listings, and explore tactical m-and-a to quickly bolt on new services and capabilities.

The No. 1 opportunity for verticalization is Germany, in part because EBay Classifieds only started seriously commercializing EBay-Kleinanzeigen in 2017.

Italy is the second most interesting opportunity. Because of strong competition from Autoscout24.it, Adevinta has struggled in Italy to repeat its LeBonCoin strategy at horizontal Subito.it. It may now have the ingredients to tip the balance, but winning and dominating in autos is key.

Belgium and the Netherlands have great potential for further verticalization, too. EBay’s horizontals there — Marktplaats.nl and 2EmeMain / 2DeHands in Belgium — dominate in audience reach and brand value. In Belgium, low-cost acquisitions of No. 2 or No. 3 verticals could win the vertical wars. Building or acquiring in adjacent fields, as LeBonCoin has done in France, could capitalize on their existing audience flows.

Strategic initiatives: technology, overhead

Adevinta will of course rationalize technology and overheads while making the investment necessary to establish dominant leadership positions. In the deal announcement, it said it identified “$150 million to $185 million of run-rate EBITDA synergies, with cost synergies representing about two-thirds,” to be implemented over a three-year period. That suggests around a 9% reduction in the combined cost base.

General classified listings contribute just 10% of the revenue in the two businesses. In general goods, it will be important to drive transactional capability. It’s critical as a defense against Facebook Marketplace (and others). But it’s difficult to see how e-payments and delivery will work effectively for low-value items that are so common among general classified listings. This transition will be hard and slow, and probably won’t be a gamechanger along the lines of successful verticalization.

Last year, 34% of EBay Classifieds’ revenue came from display advertising, reflecting the group’s strength in this area and the power of horizontals to create massive advertising inventory. Adevinta may be able to strengthen its display advertising using some of EBay’s expertise.

Should Adevinta become Europe-centric?

With Adevinta / EBay, Europe is king. More than 75% of EBay Classifieds revenue and more than 80% of Adevinta’s last year came from Europe.

Should Adevinta focus on Europe to limit distractions and ensure it has sufficient investment capacity to achieve dominant leadership that delivers super-premium profits? The company must be considering that option.

Adevinta has a huge task ahead: integrate an acquisition of equal size with a different corporate culture, while strengthening all its businesses, old and new, and dealing with fast-changing markets and business models.

Its firepower for additional acquisitions is reduced by the debt it’s taking on to help fund the $2.5 billion cash element of the EBay transaction. It can sell assets, issue equity or add debt to fund its m-and-a. However, selling assets that don’t fit with its core strategy may be the best way to replenish its firepower.

There are strong rationales — “focus” and “firepower” — for selling the EBay properties in Australia, Canada, Mexico and Asia if suitable buyers can be found at a good enough price. The company might also want to sell its emerging-markets operations in LatAm and Africa. We explore the logic for asset sales in our country-by-country analysis below.

The cultural fit at a board level, and below

How smoothly will two distinctly different cultures work together, at the board and operating levels? After all, the transaction looks more like a merger than an acquisition: Adevinta is giving 44% of its (increased) equity to EBay in return for EBay’s classified division. Schibsted is giving up control of Adevinta and accepting EBay as a near- equal partner in the business, with equal board representation and near equal equity voting rights. (Schibsted will have a 39.5% vote; EBay, 33.3%.)

It will be interesting to see whether Adevinta dominates the management team once the acquisition is complete, or whether it’s balanced between the companies.

CEO Rolv Erik Ryssdal told the AIM Group in June that Adevinta’s global operations are run by strong local managers who keep in mind the company’s overall goals:

“It is our strategy to go deeper into the verticals as a group, but it is up to the local management to decide how that it is done. We’ve identified specific areas where we as a group should continue to expand, and there are areas where the group can play a strong role, such as rolling out transactional models,” he said.

Adevinta has happily encouraged its local businesses to make decisions on m-and-a and growth structures. Its culture is often described as “pragmatic.” Bear in mind LeBonCoin, one of the most successful entrepreneurial classified launches by a corporation, lies at its heart. (LeBonCoin was launched in 2006 by Schibsted in a joint venture with French media company Spir. Schibsted acquired Spir’s interest in 2010; it devolved to Adevinta in the demerger.)

By contrast, the EBay Classifieds Group is more strongly governed from the center. Its culture is more conservative, less entrepreneurial, more focused on delivering margin. It has an entrepreneurial past too: It’s easy to forget Kijiji was an in-house start-up. In addition to the horizontals that bear its name, Kijiji’s German and Indian sites, rebadged, became EBay- Kleinanzeigen (when strengthened through the acquisition of OpusForum) and a component folded into the launch of Quikr (now independently owned).

Somehow, however, that entrepreneurial spirit diminished as EBay became a mega- corp and struggled with disparate businesses in classifieds, ticket resales and its core marketplace business.

With two distinct cultures represented on the board of directors as well as operationally, it seems unlikely the acquirer will simply impose its culture on acquiree (if it even could). Adevinta’s pragmatism may be needed to bring the cultures together.

One potential conflict is competition between the merged classified assets and EBay Inc.’s e-commerce marketplaces.

The classified sites could compete more assertively on b-to-c transactions. Adevinta and EBay both declined comment on whether any agreement is in place to limit such competition (and on other questions about the acquisition and combined business). However, a Reuters source suggested a key reason EBay chose the Adevinta offer was to “to retain customers and prevent competition between its classified and marketplaces businesses”, along with keeping a material stake in the combined business.

Will restraint from competing against EBay’s ecommerce marketplaces become a barrier to the growth of classifieds in crossover markets? Will it create tension around the board table? Only time will tell.

The following sections focus on our assessment of potential development of the EBay classified businesses at Adevinta country by country.


Germany: Can the EBay combo be a $1 billion business?


Adevinta should be able to generate $1 billion annually in revenue in Germany with autos central to the approach, Myers said, “by applying the same rigor to monetizing verticals at EBay-Kleinanzeigen as it has with LeBonCoin in France and by moving into transaction-based models in automotive.”

In developed markets, the most common market structure in autos is a dominant marketplace, far ahead of others. Germany is a rare exception, with Mobile.de in the lead and Autoscout24 close behind.

Could Mobile.de under Adevinta build a bigger lead over AutoScout24 and deliver a financial return comparable to Auto Trader in the U.K., for example? A head-on attack on Autoscout24 would require a huge marketing investment. It could be a battle with no real winner other than Google. And German auto dealers, used to paying two sites, will want to maintain competing providers.

We think Adevinta’s best opportunity would be improving inter-operation between Mobile.de and EBay-Kleinanzeigen, especially strengthening the dealer proposition on EBay-K (as it’s sometimes called). That would play strongly to Adevinta’s experience creating powerful vertical / horizontal pairs. The combination is something AutoScout24 can’t match.

Will AutoScout24 suffer from its ownership change?

If Adevinta can drive Mobile.de and EBay-K more aggressively, it could actually turn out to be good news for AutoScout24 — at least in Germany. If prices can be raised, the whole market might move up together. The real losers would be dealers, who would have to pay more to all sites.

There’s room to grow: Average revenue per dealer (ARPD) at Auto Trader in the U.K. is €2,200 per month, higher than the combined ARPDs in Germany of Mobile.de (estimated at €500) and AutoScout24 (€340). ARPD comparisons are never a simple like-for-like, but even taking structural differences in dealer networks and market into account, Auto Trader’s performance is way ahead. This gap is also reflected in revenue per capita numbers, with Auto Trader 1.8x Mobile.de.

Can Kleinanzeigen become the next LBC?

EBay-Kleinanzeigen, the company’s horizontal, is a phenomenon. It delivers fantastically for users. It breaks the usual rule that EBay Classifieds sites are weak where the local EBay site, in this case EBay.de, is strong. (See box.) Extraordinarily, serious commercialization didn’t start until 2017.

Listing and advertising revenue at EBay-K was €106 million ($125 million) in 2018, the most recent numbers available. Its recent filing with the 2018 numbers projected at least 25% growth in 2019 and “lower double-digit sales growth rates for 2020, provided that the further spread of the Coronavirus does not lead to drastic restrictions on economic life.”

EBay-K has a strong brand perception, unlike the Gumtrees. (See below.) Its verticals are growing; it’s strong in autos, mainly private listings (based on a freemium model), and has growing traction in real estate. Its profitability is unclear as its accounts are structured for tax efficiency, not transparency, but we suspect it’s strong.

EBay-K is the real jewel in the EBay Classifieds portfolio. It has great traffic, delivers well for customers, and is still significantly underdeveloped. EBay just wasn’t very commercial about it until recently. It’s a great opportunity to pull off “a LeBonCoin:” further verticalize within EBay-K; sell and package autos better with Mobile.de, and drive its general goods business. Adevinta can make substantial progress in homes, both sale and rental — more than half of all homes (54%) are rented in Germany. (Around the globe, rental marketplaces are transitioning rapidly from listings to a more valuable online-full-service model.)

Both AutoScout24.de and ImmobilienScout24.de (which are separately owned after the AS24 spin-off), will need to be on their toes.

Adevinta can also acquire adjacent businesses that can benefit from the EBay-K / Mobile.de traffic and promotion capabilities. Unleashed from EBay, EBay-K could compete more aggressively against EBay.de. The competition in recruitment is more challenging. Axel Springer’s Stepstone and MeineStadt are strong across demographics, Indeed and Xing are doing well, and there are many niche offerings.

But what will happen with the EBay- Kleinanzeigen name? Will EBay let Adevinta keep using it? It’s unlikely the site would return to its original name, Kijiji. And the standalone name Kleinanzeigen.de is owned by another site. (It’s a small one, though — it could be a windfall for that company if Adevinta wants to buy the name.)


Italy: Can automotive tip the balance for Subito?


Adevinta hasn’t achieved the success in Italy that it’s had in France and Spain. We estimate its 2019 revenues in Italy at $51 million vs. $392 million in France and $200 million in Spain.

Adevinta’s core asset in Italy is horizonal Subito. In trying to verticalize Subito, it has focused on autos, which has become a major contender. But it hasn’t been able to move ahead of canny competitor AutoScout24.it. The EBay deal would bring vertical Automobile.it into the fold with access to the huge resources of Mobile.de.

Could it tip the balance in the fight for supremacy? The common perception among Italian industry insiders is that the auto classified market is split relatively evenly between Subito Motori, the name for Subito’s auto listings, and AutoScout24, backed by Hellman & Friedman. Subito has around 172,000 used-car listings from dealers, is especially strong in low-priced vehicles and is popular in southern Italy. (See table.) AutoScout has around 246,000 dealer listings and is stronger in the mid to premium market.

In France, LeBonCoin won first in private listings, leveraged that into a traffic lead and then into a revenue win. In Italy, Subito is massively ahead on private sellers, with around 212,000 private listings, almost double the 114,000 on AutoScout. The gap has widened since 2018, when Subito had 198,000 private listings and AutoScout 131,000, but it hasn’t provided a knockout blow.

AutoScout.it saw revenue of €43.7 million ($48.1 million) last year, up 17% from €37.3 million in 2018, based on public financial records. This compares to €39.1 million for Subito, down 1.6% from €39.7 million. Subito’s challenges, however, were in its broader display advertising business. Adevinta reported on Subito: “Good development in cars. Market share gain and ARPU increase.” However, the fact that AutoScout generates more revenue than Subito overall demonstrates its value in autos in Italy. It probably has around 2x revenue leadership in cars.

However, if Adevinta adds Automobile.it, the No. 3 auto site in Italy, it could change the race. A strong vertical next to a leading horizontal will let Adevinta implement a strategy similar to Adevinta Spain, where auto site Coches.net worked with Adevinta’s horizontal Milanuncios and eventually became a dominant market leader.

Observers say Automobile.it has been relatively stagnant in recent years, with limited investment from EBay. It is entirely dealer focused; private auto listings are directed to EBay sibling Kijiji.it. With Adevinta’s knowledge in autos, regional classified expertise and support from Subito, the business could be reinvigorated. Its traffic is solid for a No. 3, at 6.3 million visits in June to AutoScout’s 10.5 million.

Combined, Automobile.it and Subito Motori are undoubtedly No. 1 in Italy by monthly visits. So Automobile could be positioned to strengthen Subito with mid-price and premium cars. The ultimate goal must be to break away from AutoScout and create a commanding lead. At that point, prices could be increased and in time super-premium revenues and margin achieved.

We estimate Automobile.it revenues including display at below $10 million, possibly as low as $5 million. Post- acquisition, AutoScout24 will still have a comfortable revenue lead in Italy, but Adevinta could close the gap quickly. The opportunity to win in autos and move Subito to the next level makes Italy the most interesting prospect behind Germany for the merged Adevinta / EBay assets. However, Italy is a generally tough market for increasing classifieds pricing, so growth will take time.

Kijiji in Italy: Minor help at the margins

Kijiji.it, the No. 2 horizontal in Italy, is also an EBay site. It has no sizable presence in any vertical; it’s strongest in general goods like electronics. Its revenue is negligible — €4.2 million in 2018, up just 2.5% from 2017. At 8.5 million visits this June, vs. 54 million at Subito, it’s a tiddler, but still a useful supplement.

Kijiji will most likely become a distribution and promotional partner for Subito and (as now) Automobile.it, and as another way to generate new listings. It may also be used as an experimental platform for service innovations, as Adevinta has used Vibbo in Spain to help develop Milanuncios. We expect it to be run for cash, gently withering away over time as value is transferred to Subito.


Netherlands: Is Marktplaats most similar to LeBonCoin?


In the Netherlands, Adevinta is acquiring one of the most impressive businesses in the EBay Classifieds portfolio –– leading horizontal Marktplaats. With a dominant lead in autos and a public profile similar to LeBonCoin in France, Adevinta has a real opportunity to build a transactional heavyweight.

Marktplaats’ biggest strength is autos. It’s No. 1 with a significant lead in listings, dealers, traffic and (no doubt) revenue. We understand most of its resources have been dedicated to this category.

Two auto businesses compete directly with Marktplaats:

  • Automotive MediaVentions, a joint venture between DPG Media (51% owner) and Telegraaf Media Group (49%) (a subsidiary of Mediahuis). It has three brands in the market: AutoTrack, AutoWereld and GasPedaal, and is the clear No. 2 by traffic. (See chart.) DPG’s recent acquisition of editorial site AutoWeek.nl (bought as part of Sanoma Media) will also help, as it now carries AutoTrack listings too.
  • AutoScout24, pushed to No. 3 when the joint venture was agreed last year, and looking increasingly vulnerable with just half the traffic of the JV.

With its substantial lead, Marktplaats doesn’t need to add an auto vertical to defend itself. In any case, it’s unlikely AutoScout (the only credible acquisition target) would be available or that regulators would permit such a purchase. To further strengthen its position, Marktplaats is more likely to build out a richer experience for users and dealers alike, lay the groundwork for auto transactions, and expand along the autos value chain, all potentially helped by the Adevinta / EBay classifieds acquisition.

Can Adevinta help Marktplaats verticalize beyond autos?

In real estate, Funda dominates the Dutch market, with 32 million visits in June. It is majority owned by the NVM, the largest association of real estate agents in the Netherlands, and agents hold the rest of the equity. Funda is run commercially but isn’t profit-maximizing. It turned over $36 million in 2018.

Given Funda’s ownership and approach, it’s difficult to see how Marktplaats could achieve a decent yield in real estate. Funda has easily beaten other competitors. Its leading vertical competitor, Jaap.nl, owned by MediaHuis, is tiny, with only 1.6 million visits in June. Just through sheer presence, Marktplaats probably generates more on traffic. But its growth options are limited unless NVM and the agents decide to sell, which is doubtful.

In recruitment, too, opportunity for Marktplaats is limited. Indeed.com and DPG Media dominate. Typically, horizontals struggle to verticalize in recruitment.

Expansion into adjacent spaces

Marktplaats is the EBay Classifieds leader on traffic by population, and beats every Adevinta site too. It is also the most transactions-oriented by a good distance. In the Adevinta playbook, that’s where you grow by bolt-on acquisitions in adjacent fields. (See box.)

Under EBay management, we’re told, m- and-a was discouraged, especially in the Benelux markets, where possible acquisitions were probably deemed too small to add to EBay’s bottom line.

Marktplaats and other EBay horizontals have focused on organic growth through product and partnerships.

Once Adevinta takes over, there’s a genuine opportunity for Marktplaats and the other EBay horizontals — 2DeHands / 2EmeMain, EBay-Kleinanzeigen, Kijiji, Subito, and others — to follow the LeBonCoin model and accelerate growth through acquisitions in adjacent fields.

Belgium: Weaker auto position, less polished product

In Belgium, horizontal 2EmeMain / 2DeHands is impressive, but not as strong as its Dutch cousin. Its weaker position in autos and limited rollout of transactional features have resulted in a more basic classifieds offer.

2EmeMain / 2DeHands is almost certainly No. 1 in autos by traffic, but likely a little lower on revenue than primary rival AutoScout24.be. There are two smaller businesses: GoCar, the No.3, operated by CTR-Media (a 50 / 50 joint venture of Rossel Group and Roularta Media Group), and MediaHuis-owned Vroom, the No. 4. There’s room for further consolidation. Both the media-group owners have joint ventures in auto classifieds, so are clearly open to partnering.

2EmeMain / 2DeHands should be looking to challenge all out for leadership in autos. Its basic service offers plenty of options for development, including vertical-specific tools for dealers and private sellers, e.g. finance and insurance, history checks, car valuation, stronger new-car sales, comparisons and editorial. Dealer relations can also be strengthened. However, to have a realistic chance of overtaking AutoScout24 and establishing dominant leadership, it probably needs to acquire a complementary vertical. If any vertical is or could be available, it would most likely be GoCar.be, the No. 3. It’s a more likely target than Vroom, as MediaHuis is actively diversifying its assets and sees classifieds as key to that strategy.

“I would expect Adevinta to really invest in the Benelux markets to push for growth at the expense of the No. 2’s and No. 3’s across the various verticals. These smaller players would then be easier to acquire under this pressure,” Myers told the AIM Group.

In real estate, Axel Springer’s ImmoWeb is a strong No. 1 (but not as dominant as Funda is in the Netherlands). With its experience battling Axel Springer in real estate in France with LeBonCoin, Adevinta may consider a challenge in Belgium. With MediaHuis unlikely to sell its No. 2 real estate classified Zimmo, the No. 4 Logic- Immo.be (owned by IPM Group) could be a viable acquisition target.

In recruitment, dominant positions by Indeed and the DPG / MediaHuis joint venture limit opportunities for Adevinta.

2EmeMain / 2DeHands is less polished than Marktplaats and will require resources to build it into a LeBonCoin-strength business in Belgium. As with Marktplaats, both transactions and m-and-a in new fields may be real opportunities.


Canada: Lack of a winning vertical is a handicap


In Kijiji.ca, Adevinta is acquiring a dominant horizontal in a mature economy with a sizable population (around 40 million people). This is the most difficult asset to judge from the outside. It clearly isn’t as challenged as the Gumtrees (see below); it delivers low- to mid-table revenue per capita; it hasn’t achieved vertical market leadership like EBay Classified’s German and Benelux businesses. Overall, it may be underperforming its potential, but it’s hard to tell.

Can it be verticalized more effectively?

Kijiji has actively verticalized in autos, its strongest category, including the launch of KijijiAutos.ca in 2018. However, the Kijiji / KijijiAutos combo is well behind market leader AutoTrader.ca in listing volume and dealer clients, and probably in traffic (even accounting for auto traffic on the horizontal). We estimate that Autotrader.ca also yields a multiple of Kijiji’s autos revenue. For now, the closer competition is for second place, between Kijiji and CarGurus. Kijiji is comfortably ahead in that race, including on revenue.

Competition from CarGurus may have invigorated Kijiji, even if it hasn’t significantly closed the gap with Autotrader.ca. “AutoTrader has been the dominant force for many years and, while both CarGurus and Kijiji have both been making significant strides in the past few years, AutoTrader still seems to be the leader,” Courtney Burgess, marketing manager of Whitby Oshawa Honda in Whitby, Ontario, told the AIM Group.

Kijiji is weak at the premium end of the market. Mitch Gallant, GM at Capitol Ford Winnipeg, told us his company recently stopped listing with Kijiji to cut costs. Kijiji raised rates and the dealership decided the ROI was insufficient because Kijiji primarily serves the low-cost used-car segment.

While Kijiji’s auto business can probably be improved, we suspect that’s at the margin (although maybe material in revenue). Challenging AutoTrader.ca directly would be a high-cost, high-risk venture. There are no shortcuts, like a complementary vertical to buy. AutoTrader.ca is as streetwise as its namesake in the U.K. and will defend its position strongly. (In fact, its CEO came from Auto Trader in the U.K.)

Real estate looks like a dead end for Kijiji in Canada. The No. 1 is run by the Canadian Real Estate Association, funded by membership dues rather than normal commercial charges. This effectively limits returns at any competitor: Total CREA dues for all its services for Realtors last year were $31 million (U.S.). Would the CREA sell? It’s hard to see how that would be in Realtors’ long-term interest.

Kijiji’s recruitment proposition is limited. Dan Gasser, marketing specialist at Eagle Professional Resources, told the AIM Group he doesn’t use Kijiji and that most recruiters turn to Indeed, Monster.ca and LinkedIn for staffing needs. It’s a tough market to enter.

How does Kijiji compare to its peers?

Despite Kijiji’s dominance as a horizontal, there are reasons to question its overall performance:

  • The Canada business turns in less revenue than Benelux despite its higher population. On a per capita basis, revenue is 27% below Benelux.
  • Its traffic per capita (1,668 monthly visits per 1,000 population) puts it at No. 4 among EBay Classifieds sites, 46% below top performer Marktplaats in the Netherlands and 13% below EBay- Kleinanzeigen but at a similar level to 2EmeMain and 2DeHands in Belgium. (See earlier chart).

Facebook Marketplace has taken a big bite out of Kijiji’s business in Canada, in both general goods and autos. Facebook has high penetration in Canada, as in most English- speaking markets. (See chart.) Canada was a Facebook Marketplace launch market in 2017. Facebook carries extensive auto listings, and not just low-end.

Kijiji research suggests the proportion of used goods transacted on Kijiji declined substantially from 2017 to 2018 as a result of Marketplace. (See chart.) The dip was also reflected in traffic. Total monthly visits to Kijiji.ca gradually declined from 73.1 million in April 2018 to 61.1 million by June 2020.

Craigslist is also a major challenger. Craigslist traffic in Canada is concentrated on the west coast, particularly around Vancouver. It delivered 17 million visits overall in Canada in June, to Kijiji’s 61 million.

Kijiji has also lost ground in autos over the last few years due to CarGurus’s launch in Canada and associated defensive moves by AutoTrader.ca.

The company might face some demographic challenges, but we’re not convinced:

  • Canada’s low population density makes face-to-face transactions difficult, we were told. But 82% of the population lives in cities! OK, Canadian cities can be pretty small and far apart, so that makes some sense. However, the high cost of postage, due to the low population density, apparently encourages people to trade face-to-face rather than ship goods.
  • The English / French divide: Francophones represent 20% of the Canadian population. However, French-language competitor LesPAC generates just 2.8 million visits per month to Kijiji’s 61 million. LesPAC is strongest in Quebec and in Francophone areas of the Canadian Maritimes. Kijiji is available in French and English.

One more difficult to quantify factor: As at Subito in Italy, Kijiji hasn’t established a No. 1 position in any vertical. That’s going to affect all-around performance.

Is it a keeper? Or should Adevinta sell?

Does Kijiji stay? Or go? It’s a business far away. Not in the European core. Limited options to transform. High risk / high investment to go for a major transformation.

This could be a business to sell.

But could Adevinta find a buyer at a high enough price given its acquisition cost? There’s no obvious trade buyer for the business; a private equity sale is more likely. But private equity will face just the same strategic challenges in developing the business. The investment thesis is unclear.

“Ultimately, this is a business that Adevinta can either keep and grow, or sell if a good offer came in,” Myers told the AIM Group. “It is hard to think of an owner better placed to build up Kijiji than Adevinta, although the benefits to Adevinta of focus around fewer larger markets might ultimately be the trigger to a sale.”


Can Adevinta challenge Auto Trader in the U.K.?


Gumtree in the U.K. is different from Marktplaats, Kleinanzeigen and EBay Classified’s other top performers. Of the significant sites, it is by far the worst performer in terms of traffic and revenue per capita. (See charts.) Its brand is perceived as low end. It faces the strongest EBay branded site in Europe and it’s having a tough time with Facebook too.

Even so, Gumtree is the only significant horizontal in the U.K., generating £66 million ($88 million) in revenue in 2018, or about 10% of EBay Classifieds’ total. Revenue was down 1.5% from 2017. (See chart.)

Gumtree comes paired with an auto vertical, Motors.co.uk, the No. 4 in the market. EBay acquired Motors from Cox Automotive last year. It also has an integrated sales proposition with EBay Motors (EBay.co.uk’s cars division). However, the future of that relationship is unclear.

Gumtree’s strength in autos is at the low end. It has not built dominance in private- seller listings vs. Auto Trader, the market leader, the way horizontals elsewhere have launched their assaults on the auto market. Auto Trader offers freemium ads for private sellers, protecting itself from Gumtree and other threats.

It would be very difficult to build a LeBonCoin-like site in the U.K. LeBonCoin won the hearts and minds of the French from its early days; Gumtree simply doesn’t resonate the same way. The U.K. also has two of the strongest verticals globally in cars and homes, Auto Trader and Rightmove, which dominate their markets like few others. For the British, they’re synonymous with used cars and homes for sale. And there are no minor but useful second or third tier verticals that Adevinta could roll up into a more interesting competitor.

So Gumtree can’t become LeBonCoin. Regardless, the first step on the path would be to challenge in autos, Gumtree’s strongest vertical. We think there’s an opportunity for someone patient to build a stronger second player. CarGurus is competing to be that No. 2 against Gumtree, Motors.co.uk and EBay Motors. CarGurus is a patient company; it took 13 years in the U.S. until it could contest the No. 2 spot with Cars.com.

Given its experience elsewhere, Adevinta might execute more effectively in autos than EBay, with the assets at hand and a strong freemium core. However, the first push is more likely to be competing with CarGurus to decide which one gets to challenge the big guy. The next step might be consolidation of the No. 2 and No. 3 to build a company that can actually take a run at Auto Trader.

Either way, Auto Trader is unlikely to be toppled from its perch, certainly not by a head-on classified competitor. While EBay Classifieds and CarGurus are building listing competitors, Auto Trader is way ahead on its journey, growing data capabilities, expanding along the value chain into b-to-b, laying the groundwork for transactions.

Beyond cars, Gumtree has a decent business in blue-collar, local and low-wage jobs, and some activity in rentals and flat shares. As apps are increasingly taking blue-collar and local jobs, and rentals are moving to more innovative full-service models, Gumtree may need to be reimagined, rather than just built out further. (In the U.K., almost all home sales are through agents, so freemium private-seller listings aren’t a route into homes as they have been in other markets.)

Gumtree needs reinvention. Turning it around will be one of Adevinta’s hardest challenges. Or perhaps its future is simply one of managing decline and running it for cash?


Australia: A challenging portfolio to make good?


While on the surface the Australia-based EBay Classifieds assets — Gumtree.com.au, CarsGuide and Autotrader.com.au — seem attractive, they’re going to be a real challenge for Adevinta.

Gumtree is the leading horizontal in the country by a huge margin: around 30 million monthly visits versus 6 million for Locanto.com.au, the No. 2. Its strengths are in general goods and automotive. However, like Gumtree in the U.K., revenue per capita is much lower than leading horizontals in other developed markets (see chart on page XX), and its brand perception is down- market.

In general goods, Gumtree faces significant competition from Facebook Groups and Marketplace. And there’s little evidence that improving the user experience, e.g. by offering online payments or deliveries would encourage more paying users into the category. (Carousell tried for many years to penetrate the Australian market with a slick mobile-first App, without success. It’s given up.)

In autos, the combination of Gumtree, CarsGuide and Autotrader are a No. 2 auto offer, behind CarSales. But CarSales has such a dominant position that it’s now seen off both News Corp. and Cox Automotive, which have each operated CarsGuide. The launch of Autotrader Australia by Cox effectively just diluted CarsGuide’s audience. Both sites were sold last December to EBay Classifieds for a rumored A$80 million (U.S. $56 million). Gareth James, an equities research analyst at Morningstar, told the AIM Group that CarSales will be tough to beat “unless someone comes out with something that’s particularly revolutionary with a disruptive way of doing things. … If it’s a disruptor, it would need to be someone who could use data in an incredibly clever way.”

In a recent submission to Australia’s competition regulator, AP Eagers, Australia’s largest dealer group, said it spent 84% of its total classified advertising budget on CarSales. Of its remaining budget for online classifieds, about 13% was spent on AutoTrader / CarsGuide and just 3% with Gumtree.

“We ordinarily use Gumtree and AutoTrader only for lower-cost used vehicles,” the company said. “This is because advertising on CarSales is cost prohibitive at this end of the market and potential buyers are more accustomed to using these sites.”

This position was despite the fact that Eagers had a financial incentive to use Autotrader / CarsGuide. Eagers was the largest shareholder in DealerMotive, a dealer consortium that owned 50% of CarsGuide with News Corp. and 30% of the combined AutoTrader / CarsGuide entity with Cox. When EBay acquired the assets from Cox Automotive, DealerMotive ceased to be a shareholder.

Bringing the Gumtree and Cox assets together to more effectively challenge CarSales is clearly the right move. But can the three sites really make a big difference, even under Adevinta management? No disrespect to EBay or Adevinta, we think CarSales is too tough a nut to crack. Progress will be at the margins.

Limited opportunities in jobs, real estate

Real estate and recruitment are even longer shots. Real estate is served very well by two dominant, well-run verticals, RealEstate.com.au and Domain. Recruitment is likewise very well-served by Seek and, to a lesser extent, Indeed and LinkedIn. Gumtree attracts just low-end advertisers with limited ability and willingness to pay for listings — small retail shops, restaurants, cafes, etc. And these are gradually moving away to Facebook, anyway.

Where does that leave Adevinta? There’s opportunity to monetize Gumtree’s listings and generate revenue as the distant No. 2 in automotive. But it’s not likely to repeat the success it had with LeBonCoin — the opportunity just isn’t there.

Given how remote the Australia business is from Adevinta’s other companies, there’s a strong chance it could sell Gumtree et al. Private equity is the most likely buyer.

Hellman & Friedman and TPG Capital both tried to acquire Fairfax Media in 2017; H&F also bid on Trade Me in 2018. But, as with Kijiji in Canada, is there enough of an investment thesis to secure a transaction at the right price? Apax, which owns Trade Me in (relatively) nearby New Zealand, also might be interested. But Apax likes to take winners and make them even better. Would it be interested in a horizontal in Australia with a weak brand and verticals?

A regional operator is a less likely acquirer. Carousell, for example, is focused on growing its presence (and profitability) in Southeast Asia, and has largely retreated from Australia. None of the existing Australia-based verticals have the operational need to acquire Gumtree and the auto assets.

It’s clear why EBay insisted on selling EBay Classifieds as a whole rather than breaking it up. It could have been left with a number of challenged assets, perhaps only saleable at bargain basement prices.


Mexico: Build real estate leader, or sell out of LatAm?


The only EBay Classifieds asset in Latin America is Mexico-based Vivanuncios. It’s notionally a horizontal, but operates only in autos, real estate and services. Unusually, it doesn’t offer general-goods listings (or recruitment).

Its homepage is focused solely on real estate listings. Autos and services don’t even make the homepage navigation; they’re buried in “more categories.” Property is the primary source of Vivanuncios’ revenue.

EBay says Vivanuncios “is the indisputable leader in the real estate category.” Sorry, we’re going to dispute that. We believe Navent-owned Inmuebles24.com is ahead. Inmuebles24 has traffic similar to Vivanuncios overall (around 3.7 million visits in June; see table) and is more focused on serving real estate agents. Whether we’re right or wrong, it’s a close race; neither is the knockout winner.

Adevinta operates horizontal Segundamano, which is No. 2 to MercadoLibre in general classifieds in Mexico. MercadoLibre’s listings are integrated within its e-commerce business. No separate traffic numbers are available for MercadoLibre general classifieds, but we estimate it’s comfortably ahead of Segundamano.

The combined Adevinta / EBay business will be No. 2 in classifieds in Mexico behind MercadoLibre. The real opportunity is to turn Vivanuncios into a focused real estate vertical, run in combination with Segundamano to build an absolute winning No.1 in real estate. Pairing the two should also help the horizontal.

However, the business is small. We estimate combined revenue last year at $8 million to $12 million (U.S.). While Mexico is similar to Argentina, Brazil and Chile in GDP per capita and internet penetration, per capita traffic to leading classified sites in Mexico is much lower. (See chart.) This applies for horizontals, autos and real estate sites. We believe this is cultural, possibly relating to trust and risk in transactions. E-commerce also has a lower penetration of retail in Mexico (3.7% in 2019) vs. Argentina (7.6%), Brazil (6.6%) and Chile (5.6%), as measured by FMCG Kantar World (pre-pandemic). Credit card penetration is low in Mexico at 0.25 cards per capita vs. Brazil at 1.06. Basically, Mexico isn’t attuned to buying and selling online. That hits classifieds too.

The market is also tough from a competitive standpoint. Most notably, MercadoLibre, powerful in e-commerce, classifieds and payments, is looking over your shoulder, with a massive 109 million visits per month across its Mexico businesses. However, it’s difficult to be focused on two things, and at Mercado Libre the e-commerce business is likely to remain the priority, followed by payments, with classifieds a distant third.

It’s notable that MercadoLibre had been No. 2 in real estate, including its vertical MetrosCubicos. But it lost traction when it integrated that service into MercadoLibre. Now, real estate on MercadoLibre (Inmuebles.MercadoLibre.com.mx) and MetrosCubicos combined don’t make the top four by traffic. (Perhaps it’s time for an activist investor to follow the EBay strategy and encourage MercadoLibre to divest its classifieds business?)

In autos, Segundamano’s strongest vertical segment, MercadoLibre has a decent lead, though the market is still early stage and fragmented. Segundamano / Vivanuncios combined would be coming from a weak position to try and win the category. In time, perhaps the No. 2, Seminuevos (owned by LatAm autos), or No. 3, SoloAutos (owned by CarSales), might come up for sale. That could make a difference.

In all, Adevinta will have a much more interesting business in Mexico once the acquisition is completed, but it faces a long, tough long haul to build it into something of real value.

Stick it out? Or sell and focus on Europe?

With so much to play for in Europe, should Adevinta keep Mexico, or sell and focus elsewhere?

If Adevinta decides to sell, Prosus would be a natural buyer because of its concentration on highly populated emerging markets. Adevinta might even be tempted to sell all of its LatAm operations, including its 50% stake in OLX Brazil (co-owned with Prosus). However, the challenge in selling emerging- market assets is that the price realized today may undervalue their true worth if held long term.

A more creative solution might be to mimic the Prosus model of trading the Mexico assets and other Latam / Africa assets for a stake in an expert local group (as Prosus has done with Emerging Market Property Group and Encuentra24), letting someone else operate the businesses in exchange for a share of the overall business. However, while this might eliminate some distraction, it wouldn’t reduce debt to increase acquisitions firepower in Europe.

Perhaps the most audacious approach might be to trade LatAm for Europe with Prosus, carving up the world as they have before. Prosus owns three high grade European businesses that would suit Adevinta well: Autovit and vertical Storia in Romania, OLX and verticals Otomoto and Otodom in Poland, and Standvirtual and vertical Imovirtual in Portugal. That would really define Adevinta and Prosus!


The smaller Gumtrees: An opportunity to rationalize?


In addition to Gumtrees in the U.K. and Australia, EBay operates four smaller Gumtree horizontals. These are tiny businesses for companies like Adevinta and EBay Classifieds. They don’t fit a Europe- centric, auto-centric strategy. The Ireland, Poland and Singapore sites are operated centrally from Amsterdam. Post-acquisition may be the time to rationalize.

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