AXIATA Group Bhd has given itself three more years — until 2022 — to build its own “unicorn”, or US$1 billion start-up. The company, which has invested about US$200 million in digital ventures since 2013, is looking to invest US$50 million in that space in the coming three years. Together, that is only 1% of group revenue and less than 4% of its five-year capital expenditure.
“It is actually not big. If we do not achieve certain milestones such as profitability, at a certain point, we cut our losses or review [the investment],” Axiata managing director/president and group CEO Tan Sri Jamaludin Ibrahim tells The Edge, describing how in 2017, Axiata Digital Sdn Bhd refocused from seven to four verticals: (i) fintech or digital financial services (DFS); (ii) digital advertising; (iii) application programming interface (API) platform; and (iv) Internet of Things.
Yet, that does not mean its digital ventures will be underfunded.
“Our strategy to fund growth now is to look for investors. We are talking to a few parties to invest together with us,” he says. He describes Axiata’s digital ventures as the group’s “most misunderstood” business.
“We started from zero back in 2013. People think we have lost a lot of money on these ventures. We had an independent party value all 29 investments in the middle of last year and we found that they were worth US$719 million, or 3.6 times our original investment of US$197 million,” he says.
“That [US$719 million] is accounting valuation. Let us talk about real investment that came in. We have four gains worth US$69 million … Sumitomo loved ADA [Axiata’s digital advertising unit] so much it put US$20 million into the company, which gave it an implied valuation of about US$110 million.”
Jamaludin says ADA — which is still 81.7% owned by Axiata — is now one of the largest independent regional digital advertising companies and has seen encouraging success as it uses data-driven analytics to push relevant advertising content through partners like YouTube and Facebook on behalf of its clients. A combination of four companies, ADA was previously known as AdKnowledge Asia Pacific, ADA, AdReach and Digital Reach Sri Lanka.
Boost — Axiata’s financial technology or digital financial services (DFS) unit — and Apigate — an API platform, a software that helps two applications to talk to each other — are “pretty good” as well, he says.
“With Boost, we try to do five micros — micro payments, micro remittances, micro insurance, micro savings and micro credit — areas banks are not so interested in,” he says, noting that Boost has over three million users and more than 35,000 touch points nationwide.
Its in-house API platform, Apigate, which is targeted to be profitable by 2021, is connected to over 100 mobile network operators and reaches over 3.1 billion users with partners such as Orange Group, Etisalat Group, Zain Group, Tencent, Gameloft, iFlix and JamCity. Put another way, Apigate allows content and service providers access to consumers for various services including voice, messaging, mobile money, location and identity.
Apigate originally started as an in-house operating unit supporting Axiata’s core telecommunication business, before it was spun off late last year and repositioned as a company with a next-generation API ecosystem platform.
Axiata’s other digital ventures include a 47.7% stake in e-commerce platform 11Street Malaysia, in which PUC Bhd agreed to invest up to RM90 million in four tranches in April this year. The deal implies a RM375 million valuation for 11Street, which recorded RM427 million in gross merchandising value at end-2017, and reportedly had 13.5 million unique monthly users in December 2017.
As is the case with most start-ups, Jamaludin acknowledges that Axiata Digital has had its share of realised losses, specifically US$78 million over three discontinued ventures. Elevenia, an Indonesian e-commerce joint venture between XL Axiata and South Korea’s SK Planet, which has been sold to the Salim group, was among the casualties last year.
Jamaludin concedes that building a unicorn on a relatively small purse is tough, especially with the likes of Chinese e-commerce giant Alibaba Group pumping US$1.1 billion into Tokopedia, another Indonesia-based e-commerce firm.
Yet, the smaller purse forces Axiata to be more creative — a key ingredient for anyone looking to grow that next unicorn. But Jamaludin assures that whether or not Axiata Digital fares well in three years, the downside is limited for investors.