Fallen-Angel Snapdeal Looks To Make A Comeback With Its IPO

E-commerce company Snapdeal is reportedly planning to launch an initial public offering (IPO) . It is one of many digital start-ups looking to raise funds from the buoyant public markets. Once India’s second-largest e-commerce company, it has been struggling to survive following the rise of Amazon and Flipkart. At its peak, the company was valued at $6.5 billion but today, it is looking to be valued at around $2.5 billion post-IPO.

Started in 2010 by Kunal Bahl and Rohit Bansal, the company was a daily deals platform which pivoted into a marketplace by 2012. In 2011, it had raised funding worth $12 million from Nexus ventures. By 2015, it had marquee names like BlackRock, Premji Invest, Softbank, Foxconn, Intel Capital, Temasek and others. Softbank became one of the largest investors with a $647 million investment in Snapdeal.

With virtually endless funding and increasing competition, Snapdeal began spending heavily on advertising campaigns, discounts, cashbacks and other marketing strategies to grow its customer base. It also spent millions of dollars on acquisitions — acquiring 11 companies in total. The FreeCharge acquisition in 2015 was touted as one of the largest acquisitions in the e-commerce space at that time, with Snapdeal spending around $400-500 million on the acquisition.

But the cash burn soon emptied Snapdeal’s coffers and the company was facing a cash crunch by 2017. It was on the verge of a collapse and was put up for sale. Soon, Flipkart and Snapdeal were planning to merge at a small fraction of Snapdeal’s peak valuation, according to a deal put together by Softbank, which was a large investor in both companies. But the company rejected the bid and decided to continue as an independent company.

It soon began revamping operations to minimise losses and survive. It shed excess staff and moved away from non-core operations selling FreeCharge at a valuation of $60 million, almost a 90 per cent loss from the acquisition price. Dubbed as Snapdeal 2.0, the company managed to cut losses by 95 per cent while revenue grew by 85 per cent over the last three years.

It has been operating in the value e-commerce segment, where purchases are driven by value rather than by brand power. The company focuses on selling lower margin products like apparel and home decor, which contribute to around 70 per cent of the company’s revenues. But while Snapdeal was just surviving, Amazon and Flipkart had grown by leaps and bounds to become the largest players in the e-commerce space.

In 2015, Snapdeal had held almost 30 per cent of the Indian e-commerce market, but today, its competitors have multiplied and its market share has fallen. Reliance, Amazon and other giants are also looking to capture a piece of the Indian e-commerce markets. One of its earliest competitors, Flipkart, has also been acquired by Walmart, which ensures constant funding. Surviving in the current scenario without a source of funding would be quite difficult for Snapdeal.

An IPO would be one of the best options given the buoyancy in the stock markets. Given the scarcity premium in the stock markets when it comes to digital unicorns, the company can certainly raise a large sum of money through the IPO. The company’s publicly-available financial figures indicate that it has managed to reduce its losses and increase its revenues. Such positive developments would aid the company in standing apart from other loss-making companies that are looking to list on the stock exchanges.