Hepsiburada - net beneficiary of e-commerce regulatory overhaul
/Turkish e-commerce boundaries redrawn
The amendments made to Turkish e-commerce code in July are likely to alter the industry landscape materially in the years to come. There has been limited press and analyst coverage. We briefly go over the changes in this note with a specific focus on how they will play out for Hepsiburada’s operation in the industry.
Executive summary
• The new e-commerce code is a major reset and likely to reshape the competitive landscape and the boundaries in the years to come.
• Regulatory overhaul on advertisement schemes, one of the most important and punitive revisions, will go into effect in about 5 months.
• Hepsiburada should be a net beneficiary of the July 2022 code and continue gaining market share with a three-year view.
• Importantly, Hepsiburada’s market share gains are likely to come in at the expense of its main competitor, on our preliminary assumptions.
A list of amendments to the e-commerce code
The Turkish Parliament passed an anti-trust amendment to the e-commerce code introducing specific rules to curb monopolistic behavior and prevent companies from commanding excessive market shares in the space. The changes will be implemented in phases over a 2.5-year period. The anti-trust amendments to the code as signed into law and published in the Official Gazette on July 7, 2022, include
limits on ad spending and practice of discounts and rebates, which go into effect on January 1, 2023,
restrictions, based on e-commerce transaction volume size, set at TL60 billion for 2022 but adjustable annually thereafter, over engaging in business practices including, importantly, operating online payment platforms and alternative invoicing systems, which become effective from January 1, 2024,
banning private label sales on any e-commerce platform, which goes into effect on January 1, 2024.
requiring those e-commerce platforms to obtain a fee-based license to operate when and if transaction volumes exceed certain thresholds, which goes into effect from January 1, 2025. The license fees will be progressively higher, higher is the transaction volume/value varying between 0.03% and 25% of annual Net Transaction Value.
requiring e-commerce platforms to make payments in full to merchants within five working days from the date of delivery to the end-user.
enforcement of the new rules and regulations including any non-compliance fees and penalties.
Hepsiburada - Potential for market share gains
It is too early to assess the full impact of the changes on Hepsiburada’s e-commerce business. Full implementation of any anti-trust legislation over any industry including enforcement takes time and practice. We should be able to communicate a more substantive view early next year. However, our intuition earlier on is such that Hepsiburada should be a net beneficiary of the anti-trust amendments to e-commerce law.
Hepsiburada is an important player in the Turkish e-commerce industry but lags the sector leader, which, in our view, has more to lose from the new rules. On all the amendments we have listed above, we believe Hepsiburada scores better than Trendyol, its main competitor, does. Importantly, Hepsiburada’s market share in transaction value is modest relative to Trendyol, which significantly outspends other players in the industry.
Based on our preliminary assumptions and expectations, Hepsiburada should narrow the market share gap with Trendyol. The latter currently commands an estimated 45-50% of the e-commerce market by transaction value. It is not inconceivable the two will have comparable market shares in e-commerce in not-so-distant future with Hepsiburada gaining while Trendyol losing market over time as ad spending and merchandise discounts to drive business normalize.
It would be premature to draw any conclusions on margin outlook until at least 1Q23. We would expect
(1) volume growth to become a more important driver for future earnings, and
(2) earnings predictability to improve as Hepsiburada’s customer acquisition costs stabilize.