War with Flipkart drives up Amazon's international losses

Seattle-based online retail giant Amazon’s international losses soared to $936 million in the three months that ended September on account of its bullish investments in India to overtake rival Flipkart.

The retailer’s international business unit has seen quarterly losses grow to nearly a billion dollars from $541 million in the same quarter last year and $56 million in Q3 of 2015. At the same time, quarterly revenues have continued to climb from $8.2 billion to $13.7 billion in the past two years.

When asked about the rising international losses during an investor call, Chief Financial Officer Brian T Olsavsky said: “It is international expansion, primarily in India where we’re continuing to add benefits. We launched Prime there a year ago, and we’ve had more Prime members join in India than in any other country in the first 12 months.”

Amazon’s investments in India have been on the rise and have accelerated further in 2017 after rival Flipkart closed two massive funding rounds led by SoftBank and Tencent earlier this year. Flipkart claims to have put together a war chest of $4 billion to take on Amazon over the next few years.

While both firms have been locked in a battle to win customers by offering discounts, Amazon has also deployed significant capital in building infrastructure that will enable quick deliveries through its Prime loyalty programme. Analysts have estimated that Amazon had over five million Prime members in India in the first half of 2017.

“We had the first Prime Day there (in India) this year, Prime Music, and Amazon Business is also expanding in India. So a lot of positive momentum and investment is going on in India. We are very pleased with that. We also recently announced Echo and Alexa are available in India,” Olsavsky said, when questioned about how Amazon was deploying the capital in India.

Unlike in the other markets, Amazon has to battle a third player in India — Alibaba. The Chinese e-commerce giant is becoming aggressive in India through its investments in the e-commerce arm of digital payments player Paytm with its Paytm Mall.
 

Analysts expect investments in the sector to soar with the global giants fighting for supremacy. Being the last large untapped open market in the world, India is extremely important for the firms. Morgan Stanley expects the market to grow to $200 billion by 2026. Despite the massive multi-billion dollar investments Amazon is making in India each year, the company maintains that the market is still in its infancy and would require even more investment to grow. Analysts had earlier opined that e-commerce in India had found stability and players would look to push for making profits, but both Flipkart and Amazon seem to be proving them wrong.

“E-commerce in India is a fraction of what it is in other geographies such as China. It will require investments over many years to make it what it should be where millions of customers are shopping for millions of dollars. It is still very early; there would be a lot of new innovations that would come, it is a long-term marathon,” said Amit Aggarwal, Senior Vice-President and Country Head (India) at Amazon, in an interview with Business Standard on Thursday.