Can Movile become the Tencent of LATAM?
In Latin America, mobile ecosystem giant Movile has built its empire through acquisitions. Its real competitors (and growth opportunities) aren’t companies in the same segments as Movile, but they’re those that have dominant solutions in categories Movile doesn’t, such as mobile payments and retail mcommerce.
If this market landscape sounds familiar, that’s because these moves have been made by Chinese unicorn Tencent, which dominates the mobile platform category in APAC. Investment and M&A activity positions Tencent as an acquirer of not just companies, but whole markets, much like Movile is doing in LATAM.
Can Movile mirror Tencent’s success in LATAM and dominate multiple spheres of the market ecosystem like messaging, payments, and mcommerce? In order to answer this question, let’s analyze Movile’s growth, acquisitions, and opportunities.
Movile’s dominance in LATAM
Movile is based in San Paulo, Brazil, a market with more than 200 million people that is approaching 100% smartphone saturation. Currently, smartphones account for about 60% of the 690 million connections on LATAM mobile networks.
Through a series of funding rounds since its inception in 1998 (most recently a $124 million venture round led by Naspers), Movile has financed several acquisitions of smaller companies that, together, provide small but essential components of Movile’s growing share of the LATAM mobile ecosystem. Two of these acquisitions, Rappido (delivery/transportation) and iFood (food delivery), have each since gone on to raise financing and acquire multiple companies of their own.
Today, the still privately-held Movile empire is valued in excess of $1 billion and is flush with cash; At least $53 million of the latest round is going straight to monetizing the Rapiddo Marketplace. “Included in this ambitious plan is a payment platform similar to PayPal called Zoop, which handles all digital payments and makes the Rapiddo Marketplace a single platform that can integrate many, if not all, of Movile’s other applications,” said Nathan Lustig, writing for TechCrunch. “If a path does not yet exist, Movile will simply build, acquire or bundle its way to make it happen.”
This buy-and-build approach to growth (strategically acquiring some businesses and technologies while building others), allows Movile to aggressively expand its market reach while incrementally increasing engagement and revenue per user.
Walking in Tencent’s footsteps
Over in APAC, Tencent knows the buy-and-build approach well. One of the biggest acquisitions Tencent has made is gaming powerhouse Supercell, which it purchased back in 2016 for $8.6 billion. The Supercell acquisition beefed up Tencent’s global games strategy by adding it to its portfolio of gaming companies, which includes Riot Games and Miniclip. As of this writing, Tencent, which was founded in China in 1998 and went public in 2004, has a market capitalization of about $430 billion.
But unlike Movile, Tencent has been very successful in establishing a number of paid services and apps, contributing to earnings of about $22 billion in 2017. This is one of the areas where Movile has a long way to go. To do so, it needs to establish paid services and create apps that users want and that developers and brands can monetize.
One way Movile could achieve this would be to try to recreate Tencent’s greatest success: WeChat. Widely adopted by smartphone users throughout China and many other parts of APAC, WeChat has been a catalyst for explosive growth and monetization, and it provides the model that Movile (and really every global mobile tech) must evolve upon.
Assuming that Movile is able to continue adding paid tools, services, and apps that are well-received, it may not be long before the company can build its average revenue per user enough to show strong growth and secure additional funding, or perhaps even go public.
Massive potential—but not on Tencent’s scale
Movile’s bet with the Zoop payments system looks like a smart way to carve out a piece of the mobile payments pie. But remember: LATAM is a red hot fintech market, and this could be one of those cases where it turns out that buying would have been wiser and cheaper than building.
In any case, the smaller size of the LATAM market ultimately restricts Movile’s growth opportunities to about one-seventh of Tencent’s, making it more difficult for quick user acquisition and organic growth. While Movile’s $124 million in funding is a nice pile of cash to fund growth, Tencent’s $22 billion in annual revenue is a much bigger warchest from which to fund an M&A strategy.
While Movile appears poised to continue its aggressive growth strategy—riding on the success of Rappido, iFood and Zoop—it’s difficult to imagine a scenario where Movile grows to have Tencent’s annual revenue or market capitalization. China’s population of 1.38 billion is more than double Latin America’s 639 million, limiting Movile’s scale. What’s more likely for Movile is slow, steady growth and more funding, or perhaps an IPO or exit of its own. But Movile still has the potential to become the dominant mobile platform in LATAM if it continues on this growth trajectory.