This article was originally published on WeChat in Chinese, translated into English by the Momentum Works team. 

When Shopee started in 2015, its product and interface were very similar to another ecommerce platform in Singapore – Carousell: 

In full swing

At that time, Shopee was focused only on C2C ecommerce, allowing everyone to upload products and start selling easily. 

That was also the vision of Carousell, founded by Quek Siu Rui, Marcus Tan and Lucas Ngoo in 2012. 

The first product sold at Carousell was reported to be an Amazon Kindle – for S$75 (US$55). 

Early investors of Carousell included Quest Ventures, Rakuten and Golden Gate Ventures. In 2014, Sequoia India joined, leading US$6 million series A and US$35 million series B. 

At that time, Carousell was in full swing while few believed in the prospects of Shopee. At the end of 2015, Vulcan Post published an interview about Chris Feng, CEO of Shopee and felt compelled to include Carousell name in the title: 

Prophecy

In that interview, the journalist asked Chris whether he saw Carousell as a competitor. His answers: 

“Carousell was very lucky in the sense that they started early in the Singapore market. It’s good that they educate the market, ultimately it’s like a welcome present. I don’t see them as a competitor long term — they will be niche players, second-hand market, for a very long time, and it’s okay to be like that…In some sense we do look somehow similar, but I think we’ll evolve very differently as time goes.”

Singapore-born Carousell also expanded regionally, entering markets including Australia, New Zealand, Hong Kong, Malaysia, Indonesia, Taiwan and Canada. In 2018, Rakuten and EDBI led a US$85 million investment in Carousell, which also saw the participation of earlier investors. 

In April 2019, Carousell announced the acquisition of OLX Philippines, as well as an investment from OLX’s parent, Naspers-owned Prosus. Later that year, Carousell acquired Telenor-owned classified group 701Search. The second acquisition brought Carousell Mudha, the largest listing site in Malaysia, as well as OneKyat of Myanmar and Chợ Tốt in Vietnam. 

This month, Carousell announced a US$100 million investment from Korea’s STIC Investment. The investment gave Carousell a valuation of US$1.1 billion, and, of course, unicorn status. 

However, if you have noticed, Shopee’s parent’s valuation has already approached US$190 billion. Chris’s words in 2015 became prophetic. 

Carousell’s monetisation problems

Second hand classifieds is a good sector in developed markets like the US and Japan. Some companies went IPO, while others have very good cash flow. 

Also, this is a market where leading players can maintain large profits with very small operations teams. Craigslist, whose interface dreads any Asian product manager, achieves US$600-700 million revenue with a team of just ~50:

Perhaps this is the reason why investors have been so enthusiastic about this sector, and Carousell. 

However, Carousell has always faced the issues of market size and monetisation. 

Many of us in Singapore are loyal customers of Carousell. In a developed city, everyone has spare items to get rid of – and many love browsing for hidden gems. However, in other markets across Southeast Asia second hand is a market with low trust – and new items were abundant thanks to its proximity to the World’s Factory. 

There are a couple of ways a second hand platform monetises: advertising, payment/logistics services, and protection (authentication/insurance etc.)

Ordinary consumers are not paying for advertising. Carousell (without its 2019 acquisitions) is not particularly strong in property, used cars and recruitment – the three most lucrative classified categories. In each of these sectors, more focused players occupy the largest mindshare, and advertising dollars. 

How about C2C ecommerce sellers? Well, there are Shopee, Tokopedia, as well as TikTok and Instagram. 

As for fulfilment, Carousell has not been able to own the transactions. For insurance and authentication, more niche sectors such as watches and sneakers have their own communities (and gradually, platforms), leaving Carousell as an outsider. 

What’s next?

Earlier this year there were rumours that Carousell was talking to a few SPACs for US listing. That would not be a surprise – SPAC was so hot earlier this year, and all the unicorns in Southeast Asia that we know of have been approached by at least a handful of SPACs. 

The question is, who had solid revenue and numbers? 

In fact, through the OLX PH and Mudah acquisitions, Carousell has taken in some good assets. The question one needs to think about is why Naspers and Telenor wanted to sell those? 

Businesses with good cash flow but limited growth potential are more suitable for Private Equity players. In such a sector, Carousell would have no problem cementing its status as the leading regional player. 

The question is how to go beyond that to really prove its value – trust the leadership has thought about it a lot, and would have a plan.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.