Shares in Russian online retail giant Ozon surged by more than 40% on November 23 in the first minutes of trading after the most eagerly anticipated Russian initial public offering (IPO) in years.

The first-day jump gives Ozon a valuation of more than $7 billion in what analysts saw as a wildly successful launch.

Interest in Ozon’s stock market debut has been strong in the weeks leading up to the IPO. Ozon’s American Depository Receipts (ADRs), a financial instrument representing underlying shares, were sold to investors who had subscribed for the IPO at $30 each — comfortably above the $22.50-$27.50 price range Ozon had anticipated when it outlined its prospectus earlier in the month. 

Initial trading was delayed for a few hours on the NASDAQ exchange, meaning Russian investors, where Ozon has a secondary listing, were first to pile in, pushing the ruble share price up by more than a third. It was the first chance Russia’s swelling cohort of retail investors had to snap up the shares, as Russian regulations prohibited non-professionals from taking part in the IPO itself.

When trading got underway on the NASDAQ later Tuesday evening, Ozon’s shares immediately leapt 40% to stand above $42 a share.

Ozon raked in more than $1 billion from the IPO and a simultaneous private share sale to long-time investors Baring Vostok and Sistema. It is expected to put to use expanding its logistics network. That is more than double the firm’s initial plans when news of the IPO was first announced earlier this year. 

By 21:40 Moscow-time, shares had slipped back slightly to stand just under $41 — an increase of 35% on the IPO price.

Ozon’s ADRs have also been introduced on the Moscow and St. Petersburg exchanges.

On the footsteps of Amazon

Founded back in 1998 as an analog of Amazon – at that time, an online seller of books and CDs – Ozon progressively enlarged its assortment. Over the years, Ozon’s growth required considerable investments – in particular, to develop one of the largest warehousing and logistic networks in Russia. 

Ozon thus became the most well-funded independent e-commerce company in Russia, securing five funding rounds in the past ten years:

• $100 million in 2011; 
• $150 million in 2014;
• $92 million in 2018;
• $154 million in May 2019;
• $150 million in March 2020. 

The latest round involved existing investors Baring Vostok Capital Partners – whose founder US citizen Michael Calvey is still facing dubious criminal charges in Russia – and Sistema’s corporate fund, as well as Princeville Capital, a new investor.  This US VC firm brought one third of the funding, marking the first significant involvement of a US investor in the Russian digital space since 2013.

Earlier this year Ozon reportedly discussed with Sber, the state-controlled financial and technological giant, yet another investment deal. The talks stalled, however, which probably triggered Ozon to accelerate its IPO plans. 

Growth and losses

Ozon logistic center in Tver

In 2019, Ozon’s gross merchandise value (1) amounted to 80.5 billion rubles ($1.25 billion at the average exchange rate of the year), up 93% from 2018. Growth has been accelerating this year — thanks in part to the coronavirus pandemic — with GMV surging 188% year-on-year in Q2 2020, or 152% during the first half of this year. 

However, but unsurprisingly, Ozon conceded in its  IPO prospectus  that it is “likely to continue to incur losses” as it continues to “invest in order to grow, and may not achieve profitability going forward.”

The company, which is among the most well-funded tech companies in Russia, “may need to raise additional funds to finance [its] future capital needs.”

In the first nine months of 2020, Ozon’s losses reached 12.8 billion rubles (approximately $180 million at the average rate of the period). This considerable amount is explained essentially by the company’s investments in logistics, Ozon told EWDN. In the same period of 2018, losses were even higher, amounting to 13.0 billion rubles ($200 million).

Russian e-commerce on the rise

According to market research agency Data Insight, online sales of physical goods in Russia could reach 2.5 trillion rubles this year ($32 billion at the current exchange rate) and potentially some 7 trillion rubles (nearly $90 billion) by 2024. 

The market is highly fragmented. Russia’s five largest online retailers and marketplaces account for under a quarter of the total industry. By comparison, Amazon alone controls half of the US commerce market, and more than a third in key European countries.

Among Ozon’s rivals is Wildberries, the number one e-commerce company in Russia, which rakes in 100 billion rubles ($1.3 billion) in quarterly revenue over Russia’s spring lockdown. However Ozon is by far the most recognized brand among all online retailers. Other contenders for leadership in Russia’s e-commerce space include AliExpress Russia (a joint venture involving Alibaba, Mail.Ru Group, Russian telco MegaFon and sovereign fund RDIF) and Yandex.Market (which raised $1 billion earlier this year to support its ambitious plans).

Russian tech IPOs on Western exchanges

Despite the unfavorable geopolitical context, several Russian digital companies raised substantial amounts on Western exchanges in the past years — or are considering doing so in the future. 

The latest cases include HR platform hh.ru, which went public on the NASDAQ in June 2019; Yandex, which raised there $460 million in June 2020; and Mail.ru Group, which is about to raise $600 million on the London Stock Exchange. 

Another Russian digital major, ivi.ru, is also eyeing a Western IPO. The company did not make official statements about it yet, but two bankers last month confirmed to Reuters that ivi was considering going public in the short term.

Yandex.Taxi, the promising ride-hailing company of Yandex and Uber, was actively preparing its IPO last year. The listing, initially scheduled for 2020, has however been postponed due to market conditions surrounding the coronavirus pandemic.