Are job cuts at Snapdeal a precursor to its merger with Alibaba or Paytm?

If Snapdeal follows the rule of the game, the company would deny any kind of merger talks with rival Paytm, or with investor Alibaba, unless a deal is concluded, at least verbally.

But according to an industry source close to the company, the job cuts at the e-commerce firm may just be a precursor to it. “That’s the logical step forward,” the source added. After all, nobody wants to remain a distant third (Amazon and Flipkart are way ahead of Snapdeal in terms of market share).

Snapdeal did not comment on the story.

“Did we make errors in our execution? No doubt about that,” founder and CEO Kunal Bahl wrote in a letter to employees on Wednesday. He went on to say that Snapdeal grew the business without figuring out the right “economic model”, and diversified before “perfecting the first or making it profitable.”

So, while the company raised considerable capital ($1.56 billion), it lost focus. “We started doing too many things, and all of us starting with myself and Rohit, are to blame for it,” he wrote.

Bahl also announced that both he and co-founder Rohit Bansal will take 100% pay cuts.

From a close challenger to Flipkart, Snapdeal has become a distant number three. What’s worse, the e-tailer is under immense pressure to reduce losses (which has been going up), and keep its market share intact, which has been fast dwindling.

Rumours also have it that Alibaba, the anchor investor in a $500-million fund-raising round in Snapdeal in August 2015, is in talks with its other investee company Paytm, as well as Snapdeal, to form a large e-commerce firm. That would mean a financial clean up at Snapdeal.

Meanwhile, Paytm has separated its marketplace business from its payments bank and wallet business, which has been spun off into a different entity. Alibaba is likely to invest about ₹1,700 crore into the Paytm-Alibaba merged entity to build the e-commerce business.

Paytm refused to comment on any merger talks with Alibaba.

According to industry experts, a three-way merger is the way forward. “It will offer a new lease of life to everybody involved in the business… However, a lot will depend on the structure, who will control and who will hold what stake,” said Sanchit Vir Gogia, CEO and chief analyst of Greyhound Research.

“Kunal (Bahl) is doing what should be done with the lack of funding available. He has taken a call to make the company profitable,” said Subramanya SV, co-founder of Fisdom, and former partner of Bessemer Venture Partners (a Snapdeal investor).