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Why all eyes are now on Snapdeal

07-August-2014
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Why all eyes are now on Snapdeal

The Indian e-retail sector has never been this lucrative. Growing at nearly 90% by some estimates, the sector is expected to worth $8-9 billion in the next couple of years according to Accel Partners.

Investors and e-commerce companies are gearing up to be part of this expanding market.

Amazon’s $2 billion investment and Flipkart’s $1 billion new funding are probably just a taste of things to come and the pressure is definitely on the likes of Snapdeal, currently nipping hard on the heels of these two, to splurge cash and strengthen its position.

Snapdeal, which is expected to cross $1 billion in gross merchandise sales this year, has so far raised around $340 million in funding. Its current crop of investors include its existing investors include the likes of eBay, BlackRock, Intel, Nexus Venture Partners, among others. Recently, a media report suggested that one of India’s most well-known and respected industrialists might be looking at getting a stake in the company. Though this report has so far not been confirmed, it shows the interest Snapdeal is generating.

The reasons for this are myriad. One is obviously the market potential of e-retail in the country. Says Praveen Sengar, Principal Research Analyst at Gartner, “Retailers, brands and manufacturers have not invested in e-commerce yet so we will now see the market pick up momentum with everyone jumping on to the bandwagon.” This will lead to the market maturing along with consolidation, says Sengar.

A maturing market will see more strategic investments and a more profit-oriented business model. So far, the likes of Amazon, Flipkart, Snapdeal et al have been raising funding or investing on the promise of future profits. Most, if not all, e-retailers work on the idea of capturing the largest portion of the market instead of churning profits. This can be seen if one looks at the earnings reports of players like Flipkart and Amazon. For example, for the year end March 2013, Flipkart reported losses of Rs 281.7 crore despite revenues of Rs.1,180 crore. This is due to increased spending as Flipkart tries to increase its market share. Despite this, the company, post its latest round of investments is valued at $7 billion according to some reports. Compared to this, Snapdeal, which is valued at an estimated $1 billion, reported losses of Rs 134.7 crore, according to media reports.

Snapdeal has also been talking about launching an IPO, which could be as early as next year if media reports are to be believed. If this is true, it might be a reason why it is concentrating on remaining as profitable as possible. In an earlier statement to media, Kunal Bahl, CEO of Snapdeal had said he expects the company to be profitable by 2015.

Speaking of IPOs, Chinese giant Alibaba’s upcoming US IPO could also be a factor why investors might want to get a slice of Snapdeal sooner rather than later. With Alibaba’s IPO expected to be among the largest ever launched for an internet company, it is understandable that Snapdeal will be viewed as a good horse to bet on, especially with their understanding and presence in the Indian market and the similarity that both companies have in terms of their business model.
 

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