E-tailers’ heady GMV-based valuations a bubble in making?

NEW DELHI: Profits, cash flow and sales are passé. GMV (gross merchandise value) is the new bottom-line. 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.