The valuations of E-Com ventures are truly mind-boggling. Flipkart, after its latest round of fund raising, is valued at nearly $15B (Rs. 90,000+ crore). Snapdeal is valued at $3B (Rs. 18,000 crore). This is astronomical for sites that are essentially an interface between suppliers and buyers.
Even a car portal site like cardekkho.com, which posts classified advertisements for vehicles, is commanding a valuation of $300M (Rs. 2000 crore) while housing.com, a site for posting classified real estate advertisements, is valued at Rs. 1500 crore. This madness is causing even obscure companies with half-baked websites like Logix Micro to command premium valuations.
(Image Credit: ET)
None of these E-Com companies are anywhere close to breaking even, let alone make a profit. Instead, they are bleeding cash, day after day.
The business model consists of high-decibel advertisements and giving aggressive discounts to woo customers. The idea is to notch up “Gross Merchandise Value” even though it comes at the cost of suffering heavy losses.
Snapdeal is reported to have suffered a loss of Rs. 1500 crore in fiscal year 2014-15. Snapdeal is supposed to be 30% behind Flipkart and Amazon in terms of Gross Merchandise Value. This suggests that the losses of Flipkart and Amazon may be much higher.
Even Amazon.inc, which has been in existence for the past 15 years or so, reported only a meager quarterly profit for the last three months of 2014. It warned that its finances are “inherently unpredictable” and that it could make an operating loss of up to $450m.
This sorry state of affairs is causing great concern amongst traditional brick n’ mortar investors and also amongst some entrepreneurs who have made big money from the internet.
Ramesh Damani was at his polite best stating that he would stay away from e-com ventures as their valuations are in “nose bleed” territory.
Samir Arora of Helios Capital was blunt. “Investors in e-com ventures are guaranteed to lose money over time” he declared in his typical forthright manner.
He also mocked the investors of e-com ventures in his tweet:
“What do you call valuations of Indian internet companies? Kehte hai isko hawa hawaii, hawa hawai, hawa hawaiiiiiii.”
What do you call valuations of Indian internet companies? Kehte hai isko hawa hawaii, hawa hawai, hawa hawaiiiiiii.
— Samir Arora (@Iamsamirarora) March 5, 2015
The same criticism was leveled earlier by Alok Kejriwal, founder of Games2Win.com. He called the online retail business “a treadmill of promise” where you have to do something to “help you scrape through another quarter in terms of funding, financing and promise”. He also pointed out that on Flipkart’s GMV of $1B, it had lost nearly $250M. “Its’ a question of who blinks first” he warned about the intense rivalry between the online retailers.
The latest to sound a warning about “why this tech bubble is worse than the tech bubble of 2000” is Mark Cuban. Mark Cuban is one of the earliest internet entrepreneurs, known for having sold broadcast.com in 1999 to Yahoo for a whopping $5.7B.
“If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today” Mark Cuban warns about the private equity invested in unlisted e-com companies. “I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher” he warns in a grim tone.