Why is OfferUp worth over 1.2 Billion dollars ?

It is Q3 2016. Bellevue, WA based OfferUp is now officially the first Unicorn in the online classifieds businesses. The local C2C buying and selling market is rapidly transitioning away from Craigslist to OfferUp, LetGo and Close5.

Estimated funding till date for OfferUp, LetGo, Close5 and 5 Miles

As of this writing, the mobile-first classifieds battle in the US has intensified. We have seen one major consolidation between LetGo and Wallapop and over half a billion dollars in investment committed by the four remaining participants to take over the US Classifieds market.

OfferUp and LetGo have created a meaningful degree of brand awareness across the major metro markets. LetGo and Close5 TV commercials have aired more or less all over the country. Naspers’ CEO Bob van Dijk got his first major US press coverage this week, talking up the opportunity to disrupt Craigslist.

To the average viewer, and the uninformed e-commerce observer this may appear to be a stretch. Surprisingly, even some eBay Corp. folks may not get it. Offerup, Close5 and LetGo are free services, why is there so much investment into a model that seems to not even try to make any revenues, never mind profits? But to my uninformed friend, I say: “It eventually does. This is not a game for the faint at heart”

The simple reality is that, Online Classifieds has been pre-dominantly a european game, and Bob van Dijk gets it. He ran some of the largest eBay Classifieds assets in Europe before he went to Naspers.

Classifieds is a winner takes all business. The 2 big participants in the competition, eBay and Naspers, run big classifieds empires across the globe and have a strong sense of how big the US classifieds opportunity can be.

2015 Revenue estimates for Craigslist & The Big 3 Classifieds conglomerates

The major players generate ~$200M in revenues in some of their bigger european markets like Germany & France. Comparing some simple GDP Per Capita and Digital Advertising Spend numbers, you arrive at figures far exceeding a billion dollars in revenues for the classifieds winner in the US.

2015 Annual Revenues for Avito, Blocket, Vibbo, Finn, Le BonCoin wrt to total digital advertising spend in their markets

The cost structure for operating a classifieds business is very simple. It is an online-only business, you need talent and technology. Russia’s AVITO, the third largest classifieds site in the world reports close to 50% EBITDA in a typical quarter. Which puts the US Classifieds winner in position to generate somewhere close to $500M in profits/year, as a mature business.

OfferUp is in a strong position to create a +1B annual revenue business in the 3–4 year horizon

OfferUp is currently leading the race. Nick Huzar and his team have shown rigor and consistency. They have kept a low profile and focussed on the US customer and US alone (LetGo is in other markets). They have the most mature product and user base, and the strongest prospects to clinch the prize, in the next 18–24 months. Major monetization could take a couple of years.

Not to underestimate Naspers’ willingness to fight this hard, and dig deep into its pockets & write bigger checks to create their first major presence in the US. Their desire to win the US would be far greater than $1.2B, and we haven’t even explored eBay’s interests in protecting its US C2C businesses.

All of these scenarios are a win-win for OfferUp & the latest valuation looks like a good deal.

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