CHENNAI: The twitter spat on Friday between the founders of Flipkart and SnapDeal, has revealed more about the bubble in e-commerce industry in India.
Both of Flipkart’s key operating firms reported net losses, nearly `1,933 crore, the last financial year and SnapDeal reported a net loss of `1,300 odd crore.
The strain is showing in the re-evaluations of valuations that have started cropping up.
Morgan Stanley marking down its valuation was a blow for Flipkart, which is estimated to have a market share of 45 per cent in an industry with a conservative gross merchandise sales estimate of $13.5 billion per year. Snapdeal's share is estimated at 26 per cent, followed by Amazon India at 12 per cent.
SnapDeal, however, has done slightly better than Flipkart in the valuation game - the number rising to $6.5 billion after its recent $200 million fundraising round. What struck an odd note with observers however, was that its valuation was lower than its estimated gross merchandise value (GMV) of $7 billion.
Experts are quick to point out the oddities. Some segments of the e-commerce landscape in India (like e-tail), they say, are more mature than others (such as wellness services). ‘’The valuation of the more mature segments will continue to be driven by GMV and revenues, rather than profit,’’ points out Ashvin Vellody, Partner – Management Consulting, KPMG In India, adding that for the early stage companies, valuation is dependent on value proposition, uniqueness and intellectual property.
Many companies leverage network effect as well, an interesting lever to watch out during valuations.
So when, Flipkart founder Sachin Bansal tweeted out on Friday, “Alibaba deciding to start operations directly shows how badly their Indian investments have done so far,” he was only highlighting the existence of a bubble. The valuation of Indian e-commerce companies never having been put to the test so far.
Snapdeal's Kunal Bahl's caustic retort, “Didn’t Morgan Stanley just flush five billion worth market cap in Flipkart down the (toilet)? Focus on your business not commentary,” only reiterated and expanded on the former's - that inflated valuations were indeed a bubble.
The strain is showing. With many brick-and-mortar retailers like Aditya Birla and Reliance already beginning to explore business opportunities online, pure e-commerce players like Flipkart, Snapdeal and their ilk could well get sucked up in the resulting swirl of mergers and acquisitions.
Further, the government that has so far stayed away from the e-commerce space, is now mulling examining the report of a committee setup in 2014, that examined the mega deals announced by the companies like Snapdel and Flipkart.
And once companies begin taking scalpels to each other, the secrecy surrounding the true valuation of India's ecommerce giants might well get stripped away.
Rerun of spat in early 2015
A war of words, both online and offline, between the two is not new. In early 2015, Bahl had fired the opening salvo during an interview when he referred to “a company” whose valuation was ridiculously high. A little while later, Bansal tweeted that India should not be blamed for SnapDeal’s failure to hire great engineers after his rival’s co-founder Rohit Bansal was quoted as saying that, “Not too many product companies got built here (India)”.