A recent Morgan Stanley report expects the Indian Internet market to grow from $11 billion in 2013 to $137 billion by the year 2020, translating to a 43% annualized growth. Within the industry, e-commerce is expected to grow from $2.9 billion in 2013 to $102 billion by 2020, making India the world’s fastest growing e-commerce market in the world.
Driven by such positive statistics, New Delhi-based Snapdeal is delivering very strong growth. Snapdeal was founded in 2010 by high school friends Rohit Bansal and Kunal Bahl to soon become India’s “Amazon and Groupon all rolled into one.” The company pivoted from being a daily deal site to become the second largest online marketplace in the country.
Snapdeal earns revenues through commission on sales made on their website. They do not charge any listing fee from merchants, instead they charge a commission ranging from 5%-15% of the sale value. Recent market reports estimate that they are trending at annual Gross Merchandise Value sales of $3.5 billion. In 2014, Snapdeal had recorded revenues of INR 168.1 crores (~$26.5 million) and saw losses double to INR 264.6 crores (~$41.6 million). They have over 40 million users accessing goods sold by over 100,000 retailers.
Their losses haven’t stopped them from raising funds at high valuations. They have raised $1.1 billion in funding so far from investors including SoftBank Internet and Media (SIMI), Ratan N Tata, Tybourne, PremjiInvest, Myriad, BlackRock, Temasek Holdings, Saama Capital, eBay, Nexus Venture Partners, Kalaari Capital, Intel Capital, Bessemer Venture Partners, SoftBank Capital, Ru-net, and IndoUS Venture Partners. Their latest round of funding was held in October 2014 when they raised an undisclosed amount through a private equity round. Snapdeal is now estimated to be valued at $5 billion-$6 billion. That is a significant growth over $165 million that they were valued at back in 2013. Snapdeal is now evaluating its options to list in the US stock exchanges by the year 2016-17.
Snapdeal’s Growth Plans
Snapdeal realizes that while e-commerce is a high growth market in India, it is still a very small portion of the total retail sales in the country. Market reports estimate that India sees a mere 1% retail sales conducted through e-commerce. To address the remaining 99% market share, Snapdeal is working on an omni-channel business platform that will help small businesses go online. Post the launch of the platform, Snapdeal will offer customers the choice to either purchase goods through Snapdeal and have them delivered through their local neighborhood retailer or directly go to the local retailer’s website and purchase goods from there.
Earlier this year, Snapdeal also entered the digital payments marketplace with the $450 million acquisition of mobile recharge firm FreeCharge. Mumbai-based FreeCharge has over 20 million users who use their services to recharge mobile phones and pay utility bills. The acquisition will help SnapDeal not only enter the digital payments space, but also gain access to a mobile-focused customer segment since nearly 80% of FreeCharge’s users conduct transactions through mobile phones.
Snapdeal may have strong growth plans, but their skyrocketing valuation still seems rather unjustified. India’s e-commerce players are receiving multi-billion dollar valuations on the basis of the market opportunity that the industry offers. VCs seem to be forgetting the basic premise that a business needs to be run for profit and are instead focusing on getting a bigger pie of this high growth opportunity. Snapdeal continues to offer heavy discounts to customers and is making significant investments in their business, making profitability a distant dream. I have serious doubts of being able to sustain these valuations and am of a strong belief that this valuation bubble will burst.
This segment is a part in the series : From E-Commerce to Web 3.0