Under market pressure to offer better margins, Locaweb has formed a new company to serve what it describes as mid-market customers: larger than the mid-market companies it already serves, but not giants.
The new company, called Wake, will be a wholly owned subsidiary of Locaweb and will integrate six recently acquired companies – Tray Corp, All In, Ideris, Samurai, Sintese and Squid.
The wake will serve businesses with e-commerce volume between R$1 million and R$500 million per year, totaling R$5 billion in physical operating expenses. “There is pent-up demand for this customer in Brazil,” Fernando Cerne, CEO of Locaweb, told Brazil Journal.
“If you go down the path, there’s a lot of competition, just like in the big companies. Right now we’re not chasing giants.” While Locaweb itself has focused on small and medium-sized businesses, the enterprise giants are now being served by the likes of VTEX, Shopify and Salesforce.
Project Wake’s design began with the arrival of Alessandro Gil, a former CEO of VTEX, who joined Locaweb a year ago as CEO of Enterprise Platforms – SaaS and Commerce. Since then, Gil has also worked to consolidate and increase cross-selling between the group’s companies.
Now he has been promoted to Vice President of Enterprise Solutions at Locaweb and will become Wake’s CEO. Although there is a lower upfront margin compared to the SMB business – due to spending on a more personalized service – Wake’s target customer has lower production and higher revenue.
“Over time, the margin increases,” Gil said. Integration and higher margins have been frequent calls from investors in recent months — which has weighed on the company’s stock (along with the whole bleak picture for Brazil in general and technology in particular).
Locaweb has lost 50% of its market cap over the past 12 months, with its stock trading at R$5.17 today. The company is valued at B3 at BRL 3 billion. XP downgraded Locaweb to “neutral” from “buy” due to the slowdown in business and deemed the merger of the 12 companies acquired since the IPO “difficult”.
The target price has fallen from R$12 to R$7.50. BTG sees a difficult fourth quarter for the company while maintaining its buy rating and has lowered its price target to $10 from R$18. And the bank is more optimistic because it sees Locaweb cheaper compared to its overseas competitors like VTEX and Shopify.
For Cirne, the market demands profitability, but Locaeb will still be a growing company. We’re not going to be a company that grows at 6% a year. Our margin will grow faster than sales, but we will still be a growing company.