Losses pile up for ecommerce companies; investors’ money down the drain?

Money is slipping away from online marketplaces, digital start-ups and ecommerce-focused companies’ pockets as fast as sand slipping through fingers.

Industry experts have predicted that Amazon India would touch a whopping $1 billion loss by the end of FY 2016-17. The American ecommerce giant’s operational losses touched a new high in 2016. Experts suggest that this is a direct result of Amazon’s investments in its India unit and high cash-burn rate in a bid to compete with home-grown etailers Flipkart and Snapdeal.  

“Amazon is playing the market-share game in India. The internal directive to employees is not to bother about customer acquisition costs but to single-mindedly pursue growing market share to gain market leadership. To achieve this, Amazon is expecting to incur losses of $1 billion at the close of FY17 at the rate of about $80 million a month, which is almost four times the $261 million loss it incurred in FY15,” sources revealed.

Then to add salt to the wound, Flipkart emerged as the winner during the October Diwali sales, in spite of Amazon spending big bucks on marketing, incentives, discounts and scaling up their operations.

Ecom Express’ FY15-16 loss crossed the Rs. 100 crore mark

It’s not just the marketplaces that are losing money. Ecommerce-centric logistics company Ecom Express’ loss for FY 2015-16 is Rs. 104 crore. The company’s loss doubled from Rs. 49.4 crore in FY 2014-15 to Rs. 100+ crore in the last fiscal year.

While the firm’s revenue doubled too from Rs. 151.25 crore in FY15 to Rs. 359 crore in FY16, its expenses have gone up too (Rs. 463 crore) in order to meet the demands of ecommerce biggies Amazon, Flipkart, Snapdeal and others.

Snapdeal’s investor Softbank’s profitability affected due to India investments

After online marketplaces and ecommerce-focused companies, the losses are passed onto the investors who put in the money. Japan-based investor Softbank’s India investments are turning out to be the roadblock in their path to profitability. Softbank’s India investments include online marketplace Snapdeal, taxi-aggregator Ola, branded-hotel aggregator OYO and ad-tech firm InMobi.

The firm’s loss touched $558 million in the first two-quarters of FY16-17.

“This (loss) was mainly due to a loss recorded as the amount of changes in the fair value of the company’s investments in India, from March 31, 2016, till September 30, 2016,” Softbank stated in its financial report.

Is this the reason, why Snapdeal’s Mumbai team was moved into a co-working space?

Flipkart’s CFO left the company due to continued losses and inability to raise funds?

The heavy losses of another ecommerce giant, Flipkart compelled its Chief Financial Officer Sanjay Baweja to leave the company. Industry watchers say that Baweja resigned from Flipkart due to the mounting losses and inability to attract investors amid series of devaluations. Flipkart’s inconsistent financial reports could also be one of the major reasons why the etailer’s CFO quit.

What’s clear though is that, right from ecommerce leaders to start-ups, from investors to ecommerce-focused companies, all have recorded heavy losses consistently. Would this downward trend ever end? And will any investor pour funds in these money-guzzling ecommerce firms?