Barely months after registering an impressive 222% jump in gross merchandise value (GMV) for the April-June quarter, India’s second largest e commerce website, (the now $4.8 Billion valued) Snapdeal has registered a five fold increase in its losses. These losses were unearthed by TOI, from data extracted from Hong Kong Stock Exchange.
Compared to the previous year, which saw Snapdeal account for INR 270 crore worth of losses, the number for the current financial year stands at a staggering INR 1,350 crore. The primary reason for the loss is not Snapdeal’s fall in sales, but its over-the-top expenditure. The company had reportedly given apart a sum of over 150 crore per month as discounts, while channeling the remaining for its marketing expenses and acquisitions. And we know why that much money has been spent — to counter Flipkart.
The news comes just days after its most influential shareholder eBay, sold 1/3rd of its 9% stake in the company. But, funding wise Snapdeal has been rife with activity as it netted $ 500 million from Alibaba and Foxconn recently, thus valuing it at $4.8 Billion.
However, the trend may not just be confined to Snapdeal and the country, as there has been a similarity in this trend across the e commerce sector, for a long time. Amazon for example, had dotted on a similar path before it registered a substantial profit last month. But then, Amazon’s strategy is altogether different, as Jeff Bezos is known to put all profits earned, into further expansion thus not reflecting much on the balance sheet.
Its Indian wing though, Amazon India, has not been so lucky as it netted a loss of INR 320 crore barely a year after it began operating in the country. Amazon however has a long-term strategy in place, with the company announcing a further $5 Billion investment into its India operations.
Snapdeal’s cash-burn can be attributed to its acquisitions and investments as well. The company had earlier invested in Zumbi, an online chat portal and Bewakoof, an online apparel start-up and had acquired a total of nine companies which includes eSportsBuy, Shopo, Doozton, Wishpicker, Exclusively, RupeePower, MartMobi Technologies, and its most expensive buy, Freecharge.
If you look at the overall e-commerce sector though, it has always be an unpredictable domain and has kept investors vary of its valuations. The rise in customer complaints, thanks to shipping of bricks instead of smartphones and other absurd reports have fueled this on going debate.
This however has not completely halted the progress of this sector, with its top two players, Flipkart rising its valuation to $15 billion, while Snapdeal accounting for $4.7 billion. All this money is also being channelized to keep money-guzzlers up and running as they shell out massive discounts and marketing expenses to outcompete each other. To put things in perspective, Flipkart spends close to $40 million each month to offer festive discounts on its products and also on marketing strategies.
However, as has been a continuing debate for long, it’ll be interesting to see how this entire Indian e-commerce market pans out. Infibeam, the recently listed e-commerce startup from Gujarat, has perhaps been the sole example of a rather profitable model out of e-commerce business.