It was not long ago that Kunal Bahl, CEO and co-founder of Snapdeal, announced that by the end of the current fiscal, that is 2015-16, his company will overtake Flipkart as India’s largest e-commerce company.
That was March 2015 and eight months later Bahl said that the mission was on track, especially with all the investment Snapdeal had made over the past year.
But that is far from being true, especially after Snapdeal’s fund raising round on Monday.
India’s second largest e-commerce player raised $200 million at a valuation of $6.5 million from Canadian pension fund Ontario Teachers’ Pension Plan and Iron Pillar, a newly floated venture capital firm. At the time of raising capital Snapdeal’s gross merchandise value (GMV) was $7 billion on an annual basis. GMV is the total value of goods sold on a platform minus promotions and discounts.
Cut to Flipkart. In November the company said that it was valued at $15.2 billion, which is almost two-and-a-half times Snapdeal’s valuation. On the GMV front, Flipkart’s comes in at $10 billion.
Analysts also think it will take Snapdeal a while to overtake Flipkart. “That will not happen for the next one-and-half year. The market has become a lot more cautious from an investor’s perspective. Any lofty aims that anyone has, need to stay put for a while. Right now the focus should not be of becoming number one but becoming profitable,” said Sanchit Vir Gogia, chief analyst and CEO, Greyhound Research.
What is ironical is that Snapdeal’s GMV is more than its valuation. That had not been the case so far. In its hyper growth days e-commerce companies were valued at 2-3 times their GMV. “Most e-commerce companies will face a challenge in sustain valuations based on some multiple of turnover. It is a question of time when gross margin and profitability replace GMV as the most important metric of valuation,” said Arvind Singhal, chairman of Technopak Advisors.
Bahl needs to take a cue from Binny Bansal, Flipkart’s new CEO. Bansal is known to be an operations’ guy, who focusses on new areas such as payments, logistics and supply chain and overlaying them with better customer service — things that seem to keep Flipkart ahead of Snapdeal.