 "India's e-commerce startup losses grew 293% to Rs 7,884 crore in FY15")
The losses of the top 22 online start-ups in the country soared by 293 per cent at Rs 7,884 crore for a combined revenue of Rs 16,199 crore for the financial year ended March 2015.
Bloated spending on advertisement to attract customers in an increasingly competitive atmosphere led to the whopping hike in losses. This year, losses could mount further as these startups continued to spend money on advertisements and discounts to lure customers.
According to a study by brokerage Kotak Institutional Securities, combined revenue grew by 191 per cent, with online market places such as Flipkart, Snapdeal and Amazon India leading the pack with a revenue growth of 475 per cent.
The online market places such as Flipkart, Snapdeal and Amazon, were the only ones in the list to post a drop in loss margins, to 158.4 per cent from 197.9 per cent in the previous financial year.
The real estate sector, thanks to what many have called the “frivolous marketing” of Housing.com, posted the biggest hike in loss margins, up 738.4 per cent during FY15 from 325.2 per cent in FY14.
While the top three e-tail players, Flipkart, Snapdeal and Amazon, posted a massive combined loss of Rs 4,984 crore, revenue growth outpaced the growth in losses. These companies, which are often seen as the torchbearers of India’s start-up sector, seem to moving slowly towards building sustainable businesses, as has become more apparent in the past few months.
Both Amazon and Snapdeal posted individual revenue growths of 500 per cent, and according to the Kotak report, hit gross merchandise values (GMV) of $2 billion each. Flipkart had a slower growth during FY15, with revenues going up by 400 per cent and an estimated GMV of $3 billion.
“We also note that Flipkart seems to have lost market share in FY15, as Amazon and Snapdeal ramped up sales. We believe recent initiatives of the company such as adding sellers aggressively, greater focus on its logistics business and opening it for third-party business, and the introduction of new categories (Flipkart Nearby, second-hand goods) is intended to help it maintain its lead over its peers, as well as add new revenue streams,” wrote Kawaljeet Saluja and Garima Mishra in the report.
In the online classifieds space, three major players Sulekha, AskMe and Quikr, showed marginal growth in revenues. Quikr’s revenue grew to Rs 24.8 crore from Rs 20 crore.
Sulekha went to Rs 98.5 crore from Rs 80.9 crore, and AskMe’s revenues grew to Rs 43.4 crore from Rs 42.7 crore. Losses, however, went up massively, with Quikr and AskMe posting a combined loss of Rs 704.9 crore during FY15, up from Rs 380.9 crore in the previous year.
Sulekha’s profits for the corresponding period were not available.
The report suggests that the massive rise in losses despite lack of revenue growth in the classifieds sector was because of high investment in employees, technology, as well as on advertising.
Food technology is one of the sectors has seen quite a few players resort to cost-cutting and lay-offs during 2015.
Zomato, which posted revenue of Rs 96.7 crore during FY15 had an employee cost of Rs 130.3 crore, while FoodPanda, with revenue of Rs 4.6 crore, had an employee cost of Rs 5 crore. Earlier this week, however, Zomato said it has reached operational profitability in six markets, including India.
Undercutting costs, investing in growing their businesses and high employee costs led these companies to lay off employees and even shut operations in a few locations.
Medical technology start-up Practo was “the standout performer” as its revenues increased more than 1,000 per cent, while loss margin declined significantly, the report said.
The company posted a loss of Rs 12.9 crore during FY15 on revenue of Rs 25.4 crore.
The revenue and loss figures for the company during FY14 were Rs 2.2 crore and Rs 9.9 crore, respectively.
“Going by heavy discounting as well as advertising intensity by various e-commerce companies over the past few months, we believe FY16 losses for our sample set would be higher than FY15 losses,” wrote Saluja and Mishra.
Housing.com has reduced its staff and cut costs on advertising, which should prompt competitors to do the same.
It’s a similar story at to food tech firms such as Zomato and TinyOwl, which could lead to more stability in the sector. E-tailers such as Jabong and Myntra have begun to focus on in-house brands that provide better margins.
“We believe more firms will follow suit as funding becomes scarce; this may result in eventual consolidation and emergence of stronger players within various categories,” wrote Saluja and Mishra.
Bloated spending on advertisement to attract customers in an increasingly competitive atmosphere led to the whopping hike in losses. This year, losses could mount further as these startups continued to spend money on advertisements and discounts to lure customers.
According to a study by brokerage Kotak Institutional Securities, combined revenue grew by 191 per cent, with online market places such as Flipkart, Snapdeal and Amazon India leading the pack with a revenue growth of 475 per cent.
The online market places such as Flipkart, Snapdeal and Amazon, were the only ones in the list to post a drop in loss margins, to 158.4 per cent from 197.9 per cent in the previous financial year.
The real estate sector, thanks to what many have called the “frivolous marketing” of Housing.com, posted the biggest hike in loss margins, up 738.4 per cent during FY15 from 325.2 per cent in FY14.
While the top three e-tail players, Flipkart, Snapdeal and Amazon, posted a massive combined loss of Rs 4,984 crore, revenue growth outpaced the growth in losses. These companies, which are often seen as the torchbearers of India’s start-up sector, seem to moving slowly towards building sustainable businesses, as has become more apparent in the past few months.
Both Amazon and Snapdeal posted individual revenue growths of 500 per cent, and according to the Kotak report, hit gross merchandise values (GMV) of $2 billion each. Flipkart had a slower growth during FY15, with revenues going up by 400 per cent and an estimated GMV of $3 billion.
“We also note that Flipkart seems to have lost market share in FY15, as Amazon and Snapdeal ramped up sales. We believe recent initiatives of the company such as adding sellers aggressively, greater focus on its logistics business and opening it for third-party business, and the introduction of new categories (Flipkart Nearby, second-hand goods) is intended to help it maintain its lead over its peers, as well as add new revenue streams,” wrote Kawaljeet Saluja and Garima Mishra in the report.
In the online classifieds space, three major players Sulekha, AskMe and Quikr, showed marginal growth in revenues. Quikr’s revenue grew to Rs 24.8 crore from Rs 20 crore.
Sulekha went to Rs 98.5 crore from Rs 80.9 crore, and AskMe’s revenues grew to Rs 43.4 crore from Rs 42.7 crore. Losses, however, went up massively, with Quikr and AskMe posting a combined loss of Rs 704.9 crore during FY15, up from Rs 380.9 crore in the previous year.
Sulekha’s profits for the corresponding period were not available.
The report suggests that the massive rise in losses despite lack of revenue growth in the classifieds sector was because of high investment in employees, technology, as well as on advertising.
Food technology is one of the sectors has seen quite a few players resort to cost-cutting and lay-offs during 2015.
Zomato, which posted revenue of Rs 96.7 crore during FY15 had an employee cost of Rs 130.3 crore, while FoodPanda, with revenue of Rs 4.6 crore, had an employee cost of Rs 5 crore. Earlier this week, however, Zomato said it has reached operational profitability in six markets, including India.
Undercutting costs, investing in growing their businesses and high employee costs led these companies to lay off employees and even shut operations in a few locations.
Medical technology start-up Practo was “the standout performer” as its revenues increased more than 1,000 per cent, while loss margin declined significantly, the report said.
The company posted a loss of Rs 12.9 crore during FY15 on revenue of Rs 25.4 crore.
The revenue and loss figures for the company during FY14 were Rs 2.2 crore and Rs 9.9 crore, respectively.
“Going by heavy discounting as well as advertising intensity by various e-commerce companies over the past few months, we believe FY16 losses for our sample set would be higher than FY15 losses,” wrote Saluja and Mishra.
Housing.com has reduced its staff and cut costs on advertising, which should prompt competitors to do the same.
It’s a similar story at to food tech firms such as Zomato and TinyOwl, which could lead to more stability in the sector. E-tailers such as Jabong and Myntra have begun to focus on in-house brands that provide better margins.
“We believe more firms will follow suit as funding becomes scarce; this may result in eventual consolidation and emergence of stronger players within various categories,” wrote Saluja and Mishra.