South Africa’s Naspers has agreed to merge its two Russian online classified Web site with Avito in a $570 million deal that will make Avito the world’s third biggest classified site after Craigslist and China’s 58.com.
As part of the deal, Naspers’ Web sites Slando.ru and OLX.ru will be merged into the Avito brand, reports the Financial Times. Naspers will also invest $50 million in cash into Avito, giving it an 18.6 percent stake in the newly created group. Other investors include Kinnevik Investments and Vostok Nafta, both Swedish investment funds, Northzone Ventures (an early investor in Spotify).
Avito, which launched in 2007, is now expected to hold 25 percent share of the Russian classified market in terms of traffic and 15 percent share in terms of revenue. Last year the company generated $30 million in sales. Now that it has secured a large and stable user base, the company plans to start focusing on revenue generated from users and advertisers. The Web site currently has 140,000 users listing items each day, 40,000 of whom have never used the Web site before. In order for Avito to boost its revenue, it needs to have more sales coming from professional sellers who set up “stalls” to sell used goods on the site. About 4,000 small businesses currently pay for that kind of service, while it is free for consumers to list an item (they can pay for extras such as highlighted ads or more prominent search results).
Boosting its reach is also an important part of Naspers’ growth strategy because one of the major challenges facing Russian e-commerce businesses is the lack of online transactions, since most deals are completed offline. Avito’s main opportunities for growth comes from increasing Internet penetration in regions outside of Moscow and St. Petersburg. Last May, Sonali de Rycker, a partner at Avito investor Accel Partners, said that 90 percent of Russia’s growth in Internet usage will come from the regions–and that users outside of major cities will be especially keen on Avito.
“Classified works well because of the urban concentration and lack of retail services in the regions,” de Rycker told the Financial Times. “We like the model because once you are number one it has a snowball effect–it’s really a winner-takes-all market.”
Russia surpassed Germany in late 2011 to become the largest Internet market in Europe. Domestic companies–including search engine Yandex, Mail.ru–dominate in Russia, creating an insular online marketplace similar to that of China’s. Investors are eager to grab a slice of the Russian pie–last May, Avito raised $75 million from local private equity firm Baring Vostok and Accel, along with existing investors Kinnevik and Northzone.