Since it launched commercial services in Singapore just three years ago, Circles.Life has come a long way.
By shaking up the telco market with flexible no-contract plans and digital-first customer experience, Circles has captured more than 5 per cent market share based on media reports.
Much larger incumbents such as Singtel have been forced to dramatically change their offerings in response, which has been great for consumers.
Five per cent market share implies big bucks for the new company.
Singapore has 5.4 million total post-paid telco subscribers and an average revenue per user (ARPU) of about US$30 per month if we exclude handset subsidies included in some plans.
This means that Circles.Life is close to generating revenue at an annual run rate of US$100m or more.
If we then look at the valuations for many high growth tech companies, we see that growth companies can frequently trade at many multiples to their annual revenue.
Hence Circles.Life is on its way to becoming a US$1bn+ market value “unicorn” either by taking more market share in Singapore or expanding abroad.
International expansion, particularly in Taiwan, makes a US$1bn+ market valuation for Circles.Life feasible
Given the company’s recent commercial services launch in Taiwan and a reported upcoming launch in Australia, we believe that Circles.Life is a strong contender to become one of Singapore’s next unicorn startups in the not-too-distant future.
We visited the Taiwanese cities of Taipei and Taichung to examine Circles’ launch in the country.
Similar to Singapore, Taiwanese customers are tech-savvy digital natives. Over 84 per cent of Taiwan’s population are online shoppers, and 64 per cent of them prefer to shop on their mobile devices according to export.gov by The International Trade Administration (ITA).
Taiwan’s telco industry also exhibits a structure similar to Singapore. It is currently dominated by three major players – Chunghwa Telecom, Taiwan Mobile, and Far EasTone – which collectively hold over 90 per cent of the market.
As seen in the photos that we took of ads in Taipei’s Xinyi district, Circles.Life is approaching Taiwan with a very similar playbook to its Singapore strategy, targeting millennial customers who favour digital user experiences.
Similar to how Singapore’s traditional mobile operators were relatively stagnant in their offerings before Circles.Life’s launch, Taiwanese telcos have exhibited limited innovation in their services to date, instead choosing to compete primarily on pricing and phone subsidies.
As seen in the chart below, the average revenue per user (ARPU) has fallen across the board in Taiwan over the last couple of years ever. This is because Taiwanese telcos began a price war with “unlimited data plans” priced as low as NT$499 per month.
Monthly telco plans in Taiwan are much cheaper than in Singapore due to the lower consumer income level of Taiwan vs. Singapore, averaging about US$16 per month.
However, thanks to Taiwan’s much larger population of 29.3 million telco subscribers vs. Singapore’s 5.4 million, Taiwan’s total market opportunity is about three times the value of Singapore.
Taiwan telco market is 3x the size of Singapore.
From what we saw of Circles.Life’s Taipei office, mobile app, and advertised plans, Circles.Life is replicating its Singapore strategy. This means offering no-contract plans, instant plan customisation, immediate in-app customer service, real-time bill transparency, and same-day SIM delivery.
Plan comparison: Circles.Life is competing on service and digital experience, not price.
According to Circles.Life, the company is already seeing strong results since its June soft launch in Taiwan.
The Company’s Net Promoter Score (NPS), a metric that tracks customer satisfaction and loyalty, was reportedly around positive 35 versus its Taiwanese counterparts’ average score of negative 30.
One factor that could be driving this is the company’s in-app live customer service feature, which reportedly has achieved a response time of just 27 seconds in Taiwan (It’s even better in Singapore at just 20 seconds).
Circles.Life could generate US$300m of additional annual revenue in Taiwan with just 5 per cent market share.
With a millennials & customer service strategy similar to Singapore and similar market dynamics as well, it appears feasible that Circles.Life could replicate its Singapore success in Taiwan.
If we consider Taiwan’s average monthly telco spend of US$16 and its 29.3m total telco consumers, then we can estimate Circles.Life’s total Taiwan telco revenue opportunity at US$5.9bn in annual sales.
This means that if Circles.Life can just capture 5 per cent market share in Taiwan, as they already have in Singapore. This would then generate US$300m of additional annual revenue for the company from this new market.
Given Circles.Life’s higher funding available for marketing than three years ago, and experience gained from their first launch, we believe Circles.Life could achieve a 5 per cent market share in Taiwan within a shorter time frame compared to Singapore.
With the current 5 per cent market share of Singapore and the potential of achieving 5 per cent of Taiwan Telco market over the next couple of years, Circles could command a “unicorn” valuation.
If we assume that Circles.Life can achieve a market value equal to three times its revenue (a price to sales multiple of 3) then with 5 per cent of Singapore and 5 per cent of Taiwan Circles.Life could achieve a US$1.2bn market valuation. (US$400m x 3)
We note that many high growth tech companies can command price to sales multiples from investors approaching ten times or even in the low teens. So a 3x multiple, or even a 4x multiple, is attainable relative to investor valuations achieved by tech companies in the real world.
Moreover, if Circles.Life continues to capture market share in Singapore then it becomes even easier for the company to justify US$1bn or higher unicorn valuation since the company will have even more revenue for any multiple to be based on.
In the valuation matrix below, we give some examples of how with ais 2x, 3x, or 4x multiple, Circles.Life could achieve a US$1bn market value or higher.
If Circles.Life can capture a 5 per cent market share in Taiwan and continue its success in Singapore; then there are many feasible scenarios whereby Circles.Life could become Singapore’s next unicorn.
Any additional revenue from new markets like Australia would only expedite a Unicorn status.
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Image Credit: Circles.Life