Profits, cash flow and sales are passé. GMV (gross merchandise value) is the new bottomline. Or so it appears in the world of e-commerce start-ups that are drawing eye-popping valuations.
As venture capital and private equity funds pump in billions of dollars into India’s fledgling e-commerce industry driven by an optimism of an fast-expanding mobile Internet universe, questions are quietly being heard: is this increasingly beginning to resemble the “dot com” bust of 2000?
Unlike text-book rules where companies are valued largely on the basis of profits, EBIDTA (earnings before interest, depreciation, taxes and ammortisation) and existing and potential cash-flows, the GMV has become the operating guide in new-economy start-ups.
Flipkart, one of India’s largest online marketplaces currently boasts of a GMV of $4 billion (about ` 25,200 crore). Effectively this means that goods worth $4 billion are traded annually through its site, involving thousands of sellers and millions of buyers. “Our current GMV is $4 billion,” a company spokesperson told HT in an emailed response, but did not respond to queries on valuation and profits.
Snapdeal, another e-commerce marketplace that has attracted major venture funding, said that it “hit an annualised run-rate of $3.5 billion GMV last month.”
“Snapdeal has grown at a rapid pace in last few years. We crossed $1 billion in GMV in August 2014, $2 billion in GMV in October 2014 and hit $3.5 billion last month,” a Snapdeal spokesperson said in an emailed response.
The spokesperson, however, said the company would not comment on Snapdeal’s valuations or on its profits or losses. Experts said that GMV can be a misleading gauge as it does not say much about the company’s financial health. Industry sources, who did not wish to be identified, said that on a rough estimate losses amount to 30-40% of the GMV.
According to RBSA Advisors, a global independent valuation and transaction advisory firm, “GMV is not reflected in their (e-commerce companies’) financial statements; there is little correlation between the GMV and the net revenues.”
Source: Hindustan Times