Snapdeal achieves $3.5 billion sales run rate

Online marketplace Snapdeal has hit a sales run rate of $3.5 billion this month, what is known as gross merchandise value (GMV) in e-commerce parlance, bringing it closer to the scale of Flipkart
Snapdeal achieves $3.5 billion sales run rate

E-tail giant Snapdeal has hit a sales run rate of $3.5 billion this month, what is known as gross merchandise value (GMV) in e-commerce parlance, bringing it closer to the scale of Flipkart, the country's largest e-tailer.Snapdeal spokesperson told media that sales done by merchants on its platform had risen four times in the current month as compared to the same period last year, propelling the etailer's numbers.

Backed by Japan's SoftBank Corp- Snapdeal fights directly with Bengaluru-based Flipkart which is said to be currently clocking $4.5 billion in GMV (inclusive of Myntra) and Amazon which is closing in on the $2 billion mark. GMV is the overall sales done by merchants on an e-commerce platform, without factoring discounts, out of which the e-tailer gets between 5-20% as margin depending on the category which qualifies as its revenue.

While talking to TOI, Kunal Bahl, co-founder of the Delhi-based Snapdeal said, the e-tailer had been highly capital efficient while getting to this number having invested a fraction of the funds compared to other players. "Our focus on building a pure-play marketplace versus an inventory-led or hybrid business models like others has played a key role in our rapid growth. Also the fact that we didn't always have access to easy capital, ensured that we built a capital efficient culture," he said.

Snapdeal since 2011, when it pivoted from being a daily deals site, has been operating as a marketplace.

All told, Snapdeal has raised $1.1 billion from more than a dozen investors like eBay, BlackRock, Temasek among others while Flipkart has amassed funds to the tune of $2.5 billion since it started operations as an online  book sellers in 2007.

Even as GMV numbers grow, ecommece players have been beset with excessive cash-burn in the range of $20-30 million per month which has led to the need of constant capital infusion from investors.

The bulk of the capital for both the ecommerce majors came last year amid a frenetic fund-raising environment which saw $4 billion flow into Indian consumer internet firms. "We've invested some of the funds on acquisitions, although these were done largely in stock. The acquisitions, which focus on technology, expansion into new categories and logistics, are forward looking and will materially enhance buying and selling experiences in our company's ecosystem going forward," Bahl said. Snapdeal bought out online recharge platform FreeCharge last month for an estimated $400 million along with a string of other acquisitions totally ten in all. Valued at $5 billion, Snapdeal has also been aggressively hiring leadership talent from both within the country and the US, the latest being Gaurav Gupta as VP - Engineering , amid a handful of top-level exists from the company.

A recent Goldman Sachs report said that India's ecommerce market which is expected to grow to $220 billion by 2013 is currently burning cash at an average rate of 1.35X of the GMV sold. With this discounting strategy, we note that these 3 e-tailers (Flipkart, Snapdeal, Amazon) now account for nearly 80% market share in the e-tail space, led by Flipkart at 45%, the report said. "We estimate that the e-tail industry will need at least $20 billion of incremental cash infusion to sustain before it reaches a steady state in 2020," analysts at Goldman Sachs said. Snapdeal posted a loss of Rs.264.6 crore on revenue of Rs.168.1 crore in 2013-2014 as per filings to the Registrar of Companies.

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