IPO Watch: BikeExchange pedals towards ASX debut

For this week’s IPO Watch we’re speaking with Mark Watkin who is the CEO of BikeExchange which is a cycling marketplace and e-commerce company.

It’s essentially connecting consumers with bike retailers and BikeExchange makes their money primarily through a subscription fee charged to businesses to appear on their platform and they also take a cut of each transaction that occurs on the platform. BikeExchange currently operates in eight countries and as Mark tells me there’s a growing shift towards cycling that’s coming from governments given the positive impact on the environment and also from consumers particularly during COVID who have perhaps rekindled their passion for the sport.

It’s an interesting business which is seeking to raise $20 million at 26 cents per share with an expected market cap of $76 million. The offer closes on January 25^th.

Here is Mark Watkin, the CEO of BikeExchange.

Table of contents:
BikeExchange platform
Company history
Trends in cycling
Revenue model
Pricing
Addressable market
Competition
IPO funds
Cash position
Path to profitability
Pipeline for 2021

Mark, I thought it’d be best to start with you explaining how your business model works. Is it as simple as to say BikeExchange is essentially a platform which connects bicycle retailers to consumers?

Yeah, I think that’s a nice summary. I think we use the word enable a lot, we’re fundamentally a market place bringing buyers and sellers together and the legacy and history of the business has been about getting bicycle retailers onto the platform to list their inventories and trade, and reach a pretty dedicated consumer audience. That’s grown over the years in history obviously beyond the origins of Australia and we’re now in those eight countries around the world. Where the model has changed slightly in the last few years is working with the bicycle brands as well and that’s not about cutting the retailer out, it’s quite the opposite, it’s about connecting up the sort of relationship in stock and inventory between the brands distributors and the retailers, and obviously making that available to the consumer base.

I think network is a really good word that you touched on and the connection is also a really important word.

Could you give us some history about BikeExchange? It was founded, as I understand it, in 2007 and then you’ve been there personally for around three and a bit years as CEO. Was the plan to always list or has this been a case of taking advantage of this acceleration that we’ve seen in e-commerce recently?

The origins of the business, 13 years ago Jason and Sam, the co-founders, basically started it as a classified listing business and that evolved into effectively creating a marketplace business and the technology that BikeExchange runs on has morphed into a different business altogether now, a standalone business called Marketplacer. The technology that we run on is a best in class market place solution for businesses around the world. It has evolved over the years like many businesses, it’s never an overnight success, there’s no such thing. I think where we expanded around 2015 was into the other markets around the world, the USA, Europe and so forth. I think the big thing to note there is it’s not a case of just going into those markets and getting started and it all happens, it takes four-plus years to establish those markets.

There’s a fair bit of work in establishing a marketplace, there’s good learnings from each of the countries but you’ve kind of got to start from the ground up. I think that’s the way the business has grown, it’s been done on a capital light basis so we had to take our time in some of these things and areas and then I came in three and a half years ago as the co-founders had moved into the other business, Marketplacer, to focus on that and my remit was really to grow the global business and concentrate on BikeExchange’s global business.

What about yourself, Mark, how did you initially come across the position at BikeExchange? Because as I understand it you’ve got quite a background in the marketing agency sort of area for some time prior to starting the position in 2017.

That’s right, a long career in advertising and the creative industry, running agencies as well, so from a management point of view, so running the businesses and obviously pretty immersed with everything that goes on there with clients and their activities. It teaches you a lot but I got the opportunity to start talking with Jason and Sam about this role and the more we sort of chatted the chemistry was there and the opportunity was a really good one with the cross rates. The business was out, I jumped at it, and I’ve always had a big passion for sport and particularly cycling as a sort of day-to-day activity. I could just see the opportunity for the business.

Just in terms of cycling specifically what have you seen since you’ve started in terms of trends going on in transport globally, are you seeing a shift occurring in terms of people or governments turning to and encouraging cycling to reduce traffic and the impact on the environment?

Yeah, I think it’s a great topic area and one that I’m fascinated by. Those conversations, discussions, policies, changes have been happening over the last decade. I think the impacts of COVID in the last twelve plus months have accelerated a lot of those discussions and in many ways sort of – force is not the right word but we found people were reconnecting with cycling and also realising that with quieter roads and all of these measures that it was actually a really good pastime and possibility. Then you’ve got the local authorities, councils, governments, then fast-tracking projects which were maybe there on the horizon and bringing them forward. You kind of have a little bit of a perfect storm there and I think the interesting thing is that cycling – it’s a broad spectrum and it’s a broad audience.

You could say cycling to one person and they think of the sort of Lycra rider in a peloton and so forth but cycling is as much about getting on the bike and going down to the shops, or riding with the family, or commuting or just getting around and I think that’s the really interesting area. It’s fundamentally a mode of transport and I think that’s a big part of this next trajectory that we’re seeing, is it’s a very accessible, affordable and realistic way of getting around particularly with e-bikes and their introduction over the last few years.

You touched on there COVID and that acceleration in the cycling industry. How was BikeExchange a beneficiary, would you say, from that shift online? Do you see that financially as well as more customers accessing your platform?

I think there’s a number of behavioural changes that came with COVID which were again bubbling away prior to COVID. You look at the macro trends with shopping online both in our category and then out of category, that’s well documented and there’s been a tailwind, we’ve felt that of course. You’ve then got people moving into cycling as a pastime and then you’ve got the infrastructure trends that we’ve just talked about. It’s all environmental, it’s health, it’s convenience, those things. I suppose from our category we’ve always had e-commerce transactions on the site, we’ve seen a shift from retailers just having inquiries and lead generation to transacting onsite as well because they see the benefits of it as well as the introduction of things like click and collect, deposit payments, all of those mechanisms which support an omni-channel approach to transactions.

There’s a realistic sort of avenue there which some people are prepared to buy a bike online and have it shipped to them but some would prefer to go into the retailer as well and touch and feel the bike, and make sure it’s fitted and sized properly. That’s where deposit payments and click and collect have really worked well for us. It’s working with the consumer and their typical journey, and also supporting the retailer and the brand which has really come into its own and our model has really supported that well.

In terms of revenue generation are you taking a cut from the transactions that occur? Then I’m also aware there is a subscription fee which businesses are paying to appear on the platform, so are those the two main sources of revenue?

That’s correct, effectively those are the two primary sources, so subscription payments to access the functionality on the site and a plethora of other sort of supported services that we give our business accounts and the e-commerce transactions which is a commission on that sale and full transaction of the products whether it be a bike or an accessory. Then the third revenue bucket is media and some ancillary services so we have got a full programmatic display media platform on the site which represents a steady income stream. We have done some direct media sales as well on the site. Those are the three, it’s not a single revenue source which is good, so it’s a well-diversified revenue model for the business.

I imagine with that subscription revenue you’re getting that consistent recurring revenue which is a stable income for you.

Correct, that’s right. That’s been a good thing and we have worked hard over the last three years just to productise, as I call it, the technology offering that we have, not only to the retail stores but also to the brands and distributors in the wider industry so our full technology product suite is there to help solve and navigate through the industry which is exciting. The fourth sort of revenue stream which is on the horizon is our data and insights product, we’ve got pretty rich data and insights by virtue of the platform having an eye across the industry and then our consumer behaviour and we’ll be going to market hopefully in this next quarter with a subscription based data and insights product for the industry which is predominantly being used internally to date.

Could you explain your pricing in terms of how much of that commission you’re taking from a transaction as a percentage cut and then that subscription fee too?

Yeah, on average at the moment it’s around a 7.5 per cent average commission on those transactions and then the subscriptions it depends on whether you’re a retailer, it depends on the activity, the brand or industry and that subscription range is anything from $100 up to $4,000-$5,000 which is you’re finding that there’s good bundling of activity and support at that high end premium end of the subscription. That’s been driven by a lot of the activity that we have done in the last couple of years with the brands where we’ve created a multi-store product which is effectively connecting in with the parent brand and then connect the retailers and the dealers into that presence on the site. If you’re a consumer you can look at a certain bike and then effectively shop by postcode to see the four or five retailers that are nearest to you with that bike or product, it’s all centralised through the parent brand.

There’s a fair bit happening to make that happen behind the scenes as you’d imagine but with that we’ve been able to sort of change and evolve our subscription model. It really moves with the different technology products that we have available. That’s the sort of broad guidelines that we’ve got.

In terms of your addressable market for BikeExchange you mentioned you operate in eight countries and I think it’s four regions so what’s your addressable market and how many consumers have been on the platform?

For us we’ve been in Australia for 13 years as you touched on a little bit earlier so we’re fairly mature here and if you look at it in terms of the number of retailers we’ve probably got about 75 per cent of the retailer base on the platform. When you go to the EU and the US it’s more like single digits up to 10 and that clearly presents a big runway of opportunity for us. As I said, it takes four-plus years to establish these markets so we have done a lot of hard work to get them there and we’ve got a really solid foundation to grow off but the retailer base is obviously in that EU region; Germany which is our predominant market, Belgium, Netherlands and then North America you’re in the thousands, 4,000-5,000-6,000 per country. It’s a good opportunity for us there and we’re making good headway and obviously the process that we’re underway at the moment is all to help that scaling in those two bigger regions.

Is the plan to establish yourself in those initial eight countries first and then potentially expand to other countries, is that on the horizon?

Yeah, I think it’s absolutely about we’ve got the presence in those eight countries now, we’ve done the hard work so the foundation is there. It’s making what we’ve got work really hard, that’s front and centre. I think in time there is opportunity to expand into other regions and I think first and foremost improving in the regions that we’re in. For Europe, it might be hub and spoking into other European countries where we centralised operational resourcing in our Germany sort of head office as it were. For Latin America it’s the same, we’re in Colombia now but we will absolutely look to hub and spoke into those other Latin America countries. I think the EU and North America both present terrific opportunities and growth for us to start with as does Latin America.

What sort of competition is there? Because your website says you’re the world’s largest bike marketplace. Are there many other platforms like yours out there?

I think when you look comparatively there’s no one doing it like we’re doing it on that sort of marketplace level for a single category. Of course there’s competition and that can be easily sort of broken down into the online pure plays, and there’s many of them around the world, some doing it really well. You’ve then got the more mass retailers that have got bikes and that can be more at the budget end of the market and the unbranded end of the market in each of the countries. Some of the department stores, the bigger department stores, can achieve fairly good volumes on that end of the bicycle market. Then you’ve got the bigger retailers as well who are doing it well as well. You break it down like that and then obviously you’ve got the brands themselves, the bigger bike brands who have a direct e-commerce offering that are enabling their dealer bases at the moment.

Propositionally for us we always say we’ve got breadth of market and breadth of choice for the consumers. We’ve got 1,500 plus brands globally on our platforms so for you and I as a consumer, and the consumers that are out there, ease, convenience and choice is a fundamental. We do want that breadth of choice and typically shopping for a bike for many people is a technical purchase so we want to be able to help with that and help them navigate through that journey. That’s where our sort of point of difference is and that works well for us with our consumer base that comes to us.

You’re raising $20 million in the IPO so could specify what those funds are going to be used for?

It’s reasonably straightforward with brand and acquisition, marketing and performance marketing. We’ve spent very little on marketing to date, a capital light business and have been very diligent with marketing spend. Our traffic has been generated organically predominantly over the years which is testament to our well optimised site and so forth so brand and acquisition, marketing, product development and technology development which sits sort of over and above our core platform, and enhancing that consumer journey. Resources and headcount in particular, there’ll be some key skills that we bring in to enhance the team. We’re a small team, predominantly small team, 40 people globally at the moment and building that out, sales force and customer success which is predominantly looking after organic growth.

Then you’ve got working capital for the business and then there’s inevitable costs associated with getting an IPO process to market and to the close.

What sort of cash position does that leave you in post IPO? Are you comfortable that will be enough to fund this growth?

Absolutely, we’re very comfortable with that raise and what it will allow us to do in those key areas. We spent a lot of time in the last three years restructuring the business, getting it sharp and focussed, and getting it very purposefully focussed on being a marketplace so again getting it to that really strong foundation so we’re now very confident with the ability to build up off that foundation and being able to focus on capital growth coming into the business across those areas, and help realise some good growth.

Do you have a time estimation or a runway for when you might become profitable, is that in the near future or is the sole focus on growth at the moment?

I think the sole focus is on growth but I think a good horizon of two-plus years would be a good soft measure at the moment. I think absolutely in the short term it’s about deployment of this capital and getting the growth and ensuring the initiatives that we want to enhance start to give a return.

Just finally what’s in the pipeline for 2021 once you’ve finished the IPO and listed, what’s something investors should be looking out for?

I think it’s absolutely building on those key areas that we have touched on, that’s the first and foremost thing which again is that account subscription growth, generating the TTV from e-commerce and more transactions, that’s a really important thing. Further growth in those two big markets because that’s the big growth potential for us. I think then the data and insights launch that we’ve got coming presents a really good opportunity. Then the big ancillary product launches which compliment our existing offering which is just to build upon that product suite that we’ve got.

Mark, thanks very much for your time.

Thank you very much, thanks for the opportunity.

That was Mark Watkin, the CEO of BikeExchange.