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Valuation of online retail Companies on the basis of Real Value

AMAZON Vs. FLIPKART

Introduction

We all know online shopping in India is growing at a very fast clip. At the same time, there is an intense competition in e-commerce space, especially among the top 3 players. Another aspect that everyone is probably aware about is, all this aggressive pricing and discounts are being paid by Venture Capitalists’ pockets.

Flipkart and Amazon, all of them have raised investments or have commitments of $1 Billion or more. This money is being burned to acquire new customers, offer discounts and pump up products on offer. While we are all aware that these sites are losing money, you will be amazed to know the quantum of loss these ecommerce players have incurred.

Summary of Volume of Sales & Registered users

[Data Source: Techcircle] Note: All figures are in INR Crore

GMV & Losses Comparison

Flipkart Amazon0

50

100

150

200

250

300

350

400

450

179 168.9

400

321.3

Net Profit Losses

Company

Rs.

In

Cro

res

Please note that the revenue figures above are not the price of products sold (GMV), as these are all marketplaces, and their revenues come from commissions they get from sellers or listing fees that they charge to list the products on their site.

GMV or Gross Merchandize Value represents the price of products sold and net revenues is just a fraction of that!

Flipkart leads the race with net revenue of 179 crore followed by Amazon at 168.9 crore and Snapdeal at 154.11 crore.

However, when it comes to losses, Flipkart leads by a much bigger margin and their loss for 2013-14 stands at Rs. 400 Crore. Comparatively, Amazon losses are pegged at Rs. 321.3 crore and Snapdeal had least losses of 3 with 264.6 crore

If an e-commerce site sells a mobile phone for Rs 5,000 through a third party and keeps a margin of Rs 500, the GMV is on the basis of the bill and not the margin

GMV is an annual figure of all goods sold on the site, but the value is derived from the latest monthly figures

GMV is not the right indicator of value always!

So far, no e-commerce company in India is listed, though there’s talk of Flipkart planning an Initial Public Offering in 12-18 months. Also, these companies do not give official targets, only setting internal goals. Often, GMV turned out a key figure in assessing the value of an e-commerce company, an official said. As such, at a GMV of $4 billion (Rs 24,000 crore), Flipkart could be valued at about $12.5 billion (Rs 75,000 crore) or higher, while Snapdeal, with a GMV of $2 billion (Rs 12,000 crore), could be valued at about $5 billion (Rs 30,000 crore).

A source said, “The valuation shooting up because of GMV is a short-term phenomenon.” Though GMV and revenue are the only indicators of valuation as of now, investors will soon ask about the profitability. For 2013-14, the cumulative losses of Flipkart, Snapdeal and Amazon India were more than Rs 1,000 crore. All these companies have maintained they were in a growth mode, adding it was a conscious choice to not look at profitability then.

So where are we headed to when we say Real Value?

The research firm Forrester estimates that e-commerce is now approaching $200 billion in revenue in the United States alone and accounts for 9% of total retail sales. The corresponding figure is about 3% in Asia-Pacific.

Globally, digital retailing is probably headed toward 15% to 20% of total sales, though the proportion will vary significantly by sector. Moreover, much digital retailing is now highly profitable.

What we are seeing today is only the beginning. Soon it will be hard even to define e-commerce, let alone measure it. Is it an e-commerce sale if the customer goes to a store, finds that the product is out of stock, and uses an in-store terminal to have another location ship it to her home? What if the customer is shopping in one store, uses his smartphone to find a lower price at another, and then orders it electronically for in-store pickup? How about gifts that are ordered from a website but exchanged at a local store? Experts estimate that digital information already influences about 50% of store sales, and that number is growing rapidly.

Harvard Business Review 2011-12 (The future of shopping)

As it evolves, digital retailing is quickly morphing into something so different that it requires a new name: Omni channel retailing. The name reflects the fact that retailers will be able to interact with customers through countless channels—websites, physical stores, kiosks, direct mail and catalogs, call centers, social media, mobile devices, gaming consoles, televisions, networked appliances, home services, and more. Unless conventional merchants adopt an entirely new perspective—one that allows them to integrate disparate channels into a single seamless Omni channel experience—they are likely to be swept away.

Amazon’s Techniques

It's been almost 3 years since Amazon, the $75 billion American e-tailer, launched a full-fledged online marketplace in India.

Amazon made a soft launch in India in February 2012. It dusted out a property it had bought in the US way back in 1998, Junglee, and launched it in India as a price-comparison website.

In fact, it's taking its sister site -- the two share infrastructure - to the next level, tailoring it to flank its main marketplace (amazon.in). Amazon has not adopted this double-play strategy in any of its other 12 markets. It's a strategy none of its rivals in India have adopted. "Comparison shopping sites have not worked globally," says Niren Shah, managing director, of Norwest Venture Partners, a venture-capital fund. "But Amazon faces tough competition from local players and is now using Junglee as a flanking strategy - a test platform to try out categories and products before offering them on amazon.in."

Competitive Profile Matrix• CPM identifies the firm’s major strength and weakness in relation to another firm’s strategic position• Critical success factors (CSF) ensure success for an organization

Flipkart’s Techniques

• Membership cards and premium facilities.

• Extended range of academic books.

• Providing Sponsorships.

• Vernacular language option on websites.

• Better featured user interface.

• Cost cutting on packaging.

• Flipifts

• Liquor

.Industry condition: very high potential.Investor’s trust .Services and warehousing.Payment options.Established brand

.Entry of international on-line competitors in Indian market.Customers are not comfortable with online payment.Not profitable operationally.Time to build confidence among the customers.Middle management retention issues.

STRENGTHS

WEAKNESS

2001201120210

100

200

300

400

500353

430 464

Youth population (million)

youth population (million)

35%

40%

16%

6%3%

Internet users by age

15-2425-3435-44

Internet users by age (source: survey)

TARGETING

FLIPIFT’S COMPETITORS

Archies

Indiangiftsportal.c

om

Red moments

iFEELCafepress.co

m

FLIPIFT’S:-

•All consumer goods, generic gift products, customized goods.

•A different section for generic and customized products under flipift

•Presto, customized gift manufacturer and retailer-sole provider of customized goods

•Will also be supported by IP tracking systems to enhance repeatability.

BOTTOMS UP.COM- Online liquor Store

FLIPKART

RETAILERS

CUSTOMER

ORDERS PLACED WITH FLIPKART

ALLOCATION OF ORDERS WITH RETAILERS

RETAILER CONFIRMS THE AVAILABILITY OF STOCK

RETAILER DELIVERS

SATISFIED CUSTOMER

•Initially in Mumbai and Delhi

•Mandatory registration

•Uploading Identification proof mandatory

•Minimum order of Rs. 1000/-

Competitor Analysis

The largest competitor as of now in India is Flipkart with highest score

(3.25)

Currently, product options on Amazon are limited while competitors

has expanded

(Flipkart offers a wider range of products)

Flipkart has 80 per cent share of the online book market in India

Flipkart now has a wide reach in the Indian market and the delivery

time is just four business days

20

Logistic management

About 60% of online sales come from tier two cities. To reach the customers quickly company needs to have an effective logistic management. Flipkart seems to be Amazon’s only real competition. Flipkart’s quick delivery system, along with the option of cash-on-delivery has led to large Flipkart loyalists

Diversification

Diversifying into other products will help the company to check the entry of competitor e.g. going into food, clothes etc. so that expenses are also distributed and adverse conditions in one sector can be borne by other one. Flipkart has more diversified range of products as compared to Amazon.

Flipkart V/s Amazon

Comparison based on other parameters

AMAZON 80 percent of Amazon’s product

reviews were positive. people who received free products from publishers, agents, authors, and manufacturers liked them.

FLIPKART In India Flipkart is in operation since

2007, and from then for most of its products in popular categories, a lot of customer reviews giving a fair idea of the product are available.

Glowing reviews: 

Value-added differentiationAMAZON

Amazon.in works hard to achieve value-added differentiation through customer-focused information services. Amazon.in's site retains customer preferences and provides automated customization for users

FLIPKART

Flipkart lag in value added differentiation and should focus on the customer preferences and give them advantage of customization of product.

Price Control

AMAZON

Amazon still manage to get a hold on its price differentiation when compared to other physical or online store

FLIPKART

But with flip kart , they are still not getting it. Customer still find a wide gap in price between flip kart and other online store.

Thank-You!