Amazon India Records About $1 Bn In Losses As Battle For Ecommerce Superiority Heats Up

Global ecommerce player Amazon’s India Unit, Amazon Seller Services, registered loss of close to a billion dollars for the fiscal year 2017-18, according to a Ministry of Corporate Affairs filing accessed by Inc42. Locked in an extended battle with homegrown ecommerce company Flipkart (now acquired by Walmart) for dominance in India, Amazon also posted a surge in its expenses for the financial year.

Amazon noted in its filings, “The company continues to invest in establishing infrastructure, opening new fulfilment centres, and technology advancement due to which company loss increased to $862.26 Mn (INR 6287.2 Cr). The company also continues to invest in launching new products and services for its customer and sellers. The company is confident in its future growth.”

In the same time period, the company’s expenses rise to $1.55 Bn (INR 11305.3 Cr), an increase of 39.4% from $1.1 Bn (INR 8087.2 Cr) recorded in the previous financial year.

Meanwhile, the company’s total income reached $688.19 Mn (INR 5018 Cr) for the year, after a 43% growth in from revenue of FY17 at $466.6 Mn (INR 3256.6 Cr) in FY17. The company’s operational revenue noted an increase of 57% reaching $675.85 Mn (INR 4928 Cr). At the same time, Amazon recorded ‘unearned revenues’ rising to $10.39 Mn (INR 75.8 Cr), which mostly entails payments in advance for Prime memberships and advertising.

Amazon’s Expensive Bet On India

In FY18, the surge in expenses can be attributed to a marginal increase across several functionalities:

• The company’s legal professional expenses increased 47% reaching $157 Mn (INR 1145 Cr)
• Logistics cost for Amazon took a leap of 20% reaching $405.63 Mn (INR 2957.7 Cr)
• The company’s advertising expenses picked up the pace again reaching $289.24 Mn (INR 2109 Cr), an increase of 16% from the previous financial year
• Expenses on salaries increased to $102.65 Mn (INR 748.5 Cr), an increase of 35% against FY17
• The royalty costs also increased nearly three times to $37.02 Mn (INR 270 Cr)

Indian Ecommerce: Making Tough For Amazon Inc

In 2016, Amazon Inc chief executive Jeff Bezos said that the company would invest an additional $3 Bn in India, boosting its committed investment in the country to over $5 Bn. After Flipkart and Walmart announced their megadeal this year, Amazon pumped in an additional $385.8 Mn (INR 2,700 Cr) into the marketplace.

In May 2018, a Citi Research report said that Amazon India was expected to reach $70 Bn in gross merchandise volume (GMV) and $11 Bn in net sales by 2027. The same report valued Amazon India at $16 Bn.

Citi Research estimates that Amazon India is currently in second place in the Indian ecommerce market with about $5 Bn in GMV.

While announcing its global performance for Q3 2019, Amazon had cited late Diwali sale in India as one of the reasons for the slow global growth for the company. This further confirms the increasing dependence of Amazon on India for its growth and shows the bigger reason for its endeavour to put up strong challenge against players like Flipkart.

Interestingly, Amazon’s major competitor and arch-rival Flipkart posted an increase of 700% in its consolidated loss for B2B and ecommerce units— Flipkart India and Internet. At the same time, for another upcoming major competitor— Paytm Mall— the net loss grew 150 times against its loss of the previous year.

Financials of the leading ecommerce firms in FY18 clearly indicate that the Indian ecommerce sector is still dominated by discounts. For instance, the recently released ICEA-McKinsey Report 2018 stated that while ecommerce sale of mobile phones in US accounts for only 2%, 45-50% of the mobile handsets bought in India are through online sellers. Here, the major contributing factor to the growth is said to be the steep discounts, given by the online retailers during their sale events.

So far, the Indian ecommerce retailers are said to be surviving on back of their deep-pocketed investors. While Flipkart is eyeing for an IPO by 2020, will Amazon be able to spend enough in the upcoming quarters to take a lead on its arch rivals?

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