This brief snapshot is intended to alert you to an upcoming IPO that I believe is quite interesting. While it’s true that only 10% of Japanese IPOs trade higher than their IPO prices a few years after listing, I believe Timee has potential and deserves a spot on your secondary watch list.
Timee operates a gig worker placement platform. You might think that Japanese job placement stocks have underperformed recently. One of the reasons can be the market’s current aversion to growth-oriented stocks.
For Timee, the listing at ¥1,450 leads to FY 10/24E PE of 61x. This high P/E highlights a high expectation for this ¥100 Bn IPO (vs. the majority of Japanese IPO at a market cap of JPY 10 Bn).
Below is a short list of Timee’s comps and their next FY P/Es.
Laners 49.6x
Coconala 60.6x
Crowdworks 20.4x
Below, I outline the reasons why I believe this unique skima (gap time) gig worker platform can deserve the premium valuation.
Summary:
Timee, founded in Aug 2017, operates the job placement service “Timee,” which specializes in matching “desired working hours” with “hours needed by employers (Timee calls them clients)” for short-term jobs. Timee is characterized by its simplicity, eliminating interviews and resumes, and offering immediate payment to workers. The company does not charge initial fees or fees for posting job information on “Timee,” instead adopting a performance-based fee structure.
In 2021, it entered into a capital and business alliance with Itochu Corporation (8001). The 27-year-old founder, Rei Ogawa, is the largest shareholder, but major shareholders also include funds, MIXI (2121), and en-japan (4849).
Previous funding:
In September 2021, Timee raised ¥4 Bn in a Series D round from several investors, including Keyrock Capital Management Kadensa Capital, Seiga Asset Management, THE FUND, Itochu Corporation, and KDDI Open Innovation Fund. They also secured ¥1.3 Bn in loans from major financial institutions, led by Mizuho Bank, bringing the total funding to ¥5.3 Bn. Since its launch in August 2018, Timee has raised approximately ¥9 Bn. Additionally, Timee signed a capital and business alliance with Itochu Corporation and a basic agreement with KDDI Corporation to explore further business collaboration and expansion.
1. Explosive growth: Sales Forecast for This Term: ¥27.6 Bn, with Over 10% Operating Profit Margin for Two Consecutive Terms
Timee has shown remarkable growth. Sales were less than ¥100 MM in the fiscal year ending October 2019, but exceeded ¥6 Bn by the end of October 2022, turning profitable. For the fiscal year ending October 2023, sales increased by about ¥10 Bn year-on-year, with an operating profit margin exceeding 10%. The sales forecast for the fiscal year ending October 2024 is also an increase of about ¥10 Bn, reaching ¥27.6 Bn.
The growth is driven by workers who want this type of job and businesses that need workers even for short periods. The number of active workers and clients has grown rapidly.
During the cumulative period of Q2 2024, the number of registered workers exceeded 7.7 MM, and the number of registered client offices exceeded 254,000 locations. The total transaction amount was ¥41,962 MM (an increase of 76.5% compared to the same period last year).
2. Growing Skimagig (work during the spare time) industry – what is driving Timee’s growth?
Timee is growing by addressing Japan’s most urgent issues, 1) sluggish wage growth and 2) population decline.
1) Wage is not rising:
In May 2024, real wages in Japan declined by 1.4% compared to the same month of 2023. Since 2023, the sharpest decline in real wages of establishments with five or more employees was recorded in January 2023 at 4.1% (per Statista on 7/16/24).
The workers are forced to find side jobs to make up for the lackluster wage increase from their regular jobs.
2) Labor shortage:
The Bank of Japan‘s quarterly Tankan business sentiment survey underlines the acute labor crunch. Its employment diffusion index — the percentage of companies saying they had excess workers minus those saying they had too few — dropped to minus 35 in the December report, its lowest point since the first quarter of 2019 (as per Nikkei Asis 4/6/24).
Therefore, many companies, especially those in retail, food services, construction, and logistics, are struggling to fill the needed positions.
The above economic forces combined have created the need for the skimagig industry which Timee estimates to be worth ¥3.9 Tn. The rationale for this TAM calculation is below:
In Japan, it is estimated that there are 21.31 MM non-regular workers and 14.69 MM regular workers who are interested in side jobs. The market size for gig work services is estimated by Timeeto to be ¥3.9 Tn.
The estimate is based on the potential replacement of existing labor markets by the government data as below:
Part-time wages: ¥19.5Tn
Non-regular workers such as temporary workers and contractors: ¥19.3 Tn
Labor shortage: ¥1.9 Tn.
From a total ¥40.7 Tn of the above 3 numbers, removing long-term assignments and assuming only ½ of the jobs can be filled by gig workers, the company gets ¥10.3Tn total available markets. Applying 30% of Timee’s fees to this number, Timee’s total addressable markets can be estimated at ¥3.9 Tn. The company’s current sales are less than 1% of this estimate, indicating the company has a long runway.
3. Why Timee?
Unlike traditional job services, Timee allows clients and workers to enter into direct employment contracts on a daily basis.
From the worker’s perspective:
- You can work at your preferred time
- No interviews or resumes required
- No skills or experience needed
- Immediate payment after completion of work.
From the client’s perspective:
- Easily find people who can work now. A job can be listed ONE HOUR prior to actual work begins.
- Plenty of excellent workers with proven track records and repeaters
- Comprehensive labor/payroll management by Timee. The pre-work contract is automatically prepared by Timee’s platform. Workers are paid immediately after completing their jobs. Clients send the total payments plus a 30% fee to Timee on a monthly basis. This arrangement simplifies clients’ working capital management.
- Extensive support from dedicated personnel
Supported by both workers and clients, the 2Q 24 hired ratio (hired workers/wanted workers) is 88% vs. 18% for a typical part-timer hired ratio.
For FY10/24, the company plans to deepen its relationships with existing customers in logistics, food and beverage, and retail, while also expanding into new areas such as hospitality, nursing care, and insurance. The increase in Timee’s commission revenue will offset the rise in personnel and advertising expenses, leading to a significant increase in operating profit.
4. Risk – Competition
In a potentially large growth market, competition also becomes fierce. Currently, Timee is the top runner, but Mercari started “Mercari Halo” in 3/24. They announced that the number of registered users reached 2.5 MM in the first month of service and surpassed 5 MM by the end of May. Large internet companies with a huge customer base and capital strength are strong in making an inload, even if they are latecomers. In the smartphone payment market, PayPay rapidly expanded the market by utilizing various campaigns, and Mercari is also using point-giving campaigns. In fact, reasons for using Mercari Halo include points and the ease of registration for Mercari users. By effectively utilizing capital strength and customer base, acquisition and retention costs can be reduced.
In 5/25, Recruit Hldgs announced the launch of “Townwork Sukima (tentative name)” in the fall of 2024. Recruit already has a customer base of workers, as well as a customer base of businesses where workers work through Townwork and payment services, and also has the human resources necessary for sales.
These larger companies with solid balance sheets can undercut Timee with lower fees than Timee’s 30%.
Against these giants, Timee offers the below competitive advantages:
1) Specialized Focus
Timee’s platform is specifically designed for part-time job seekers and employers. This specialization allows Timee to tailor its features and services to meet the unique needs of this market segment, unlike Recruit, which covers a broader range of employment types.
2) Advanced Matching Algorithms
Timee employs sophisticated algorithms to match job seekers with suitable positions based on their skills, preferences, and availability. This technology-driven approach ensures more accurate matches, reducing the time and effort required for both job seekers and employers.
3) Market Penetration and Brand Recognition
Timee has gained a large mindshare in the Japanese gig work sector.
4) Clients’ diversification desire
If large companies monopolize the market as a result of competition, the clients’ bargaining power will decrease in the medium to long term.
If competition intensifies, business capital alliances with each other may make sense for both Timee and its larger peers.
[Disclaimer]
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