India’s top 22 online commerce startups reported a 293% growth in losses at Rs 7,884 crore for the year that ended in March 2015 on combined revenue of Rs 16,199 crore. Losses soared due to bloated advertising spends as startups rushed to grab customer eyeballs in the face of growing competition.
Combined revenue growth was up by 191% for the period, with marketplaces Flipkart, Snapdeal and Amazon India leading growth with a revenue growth of 475%. The marketplace firms were the only one among online commerce services to post a drop in loss margins, to 158.4% from 197.9% in the previous year, a study by brokerage Kotak Institutional Securities has revealed.
The real estate category, thanks to frivolous marketing spends of Housing, posted the biggest growth in loss margins, up to 738.4% during FY2015 from 325.2% in FY2014.
Housing, which is backed by Softbank and witnessed a management change after founder Rahul Yadav was evicted following a boardroom battle last year, posted a loss of Rs 279 crore on revenue of Rs 12.7 crore, up from Rs 48.9 crore in the year earlier period.
While the top three e-tail players Flipkart, Snapdeal and Amazon, posted a massive combined loss of Rs 4,984 crore, revenue growth outpaced growth of losses. These companies, which are often seen as the torchbearers of India’s startup sector do seem to be slowly moving towards building sustainable businesses, something which has become more apparent in the past few months.
Both Amazon and Snapdeal posted individual revenue growths of 500%, and as per the report, hit gross merchandise values (GMV) of $2 billion each. Flipkart saw slower growth during FY2015 with revenues going up by 400% and an estimated GMV of $3 billion.
“Further, we also note that Flipkart seems to have lost market-share in FY2015, 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 introduction of new categories (Flipkart Nearby, second hand goods purchase and sale) 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 revenues 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 FY2015, 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 due to high investments 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 layoffs during 2015. Zomato, which posted revenue of Rs 96.7 crore during FY2015 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. Undercutting costs, investing in growing their businesses and high employee costs led these companies to layoff employees and even shut operations in a few locations.
Medical technology startup Practo was “the standout performer” as revenues increased 1,000%+, while loss margin declined meaningfully, the report said. The company posted a loss of Rs 12.9 crore during FY2015 on revenue of Rs 25.4 crore. The revenue and loss figures for the company during FY2014 stood at 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 FY2016 losses for our sample set would be higher than FY2015 losses,” wrote Saluja and Mishra.
Housing has reduced its staff and cut costs on advertising, which should prompt competitors to do the same. It’s a similar story when it comes to food tech firms such as Zomato and TinyOwl, which could lead to more stability in the sector. Lastly, e-tailers such as Jabong and Myntra have begun to focus on in-house brands that provide better margins.