If there is no new entry, it will be a two-horse race (between Flipkart and Amazon) by the end of the year," said Satish Meena, a senior analyst. Jeff Bezos, Amazon founder and CEO
BENGALURU: Amazon Inc reported significant losses in its international business for the quarter ended September due largely to an expensive bid to wrest leadership in the Indian online retail market. The Seattle-based company said losses in the international business unit were $541 million in the third quarter, as compared with $208-million loss during the same period last year.
The bruising battle in one of the world’s most competitive online retail markets, where Amazon is estimated to be outspending local market leader Flipkart nearly threefold, is set to continue in the next quarter.
Asked by analysts to explain the reason for the increase in losses in the international business, Amazon’s Chief Financial Officer Brian Olsavsky said, “By far the biggest individual thing is investment in India.” He indicated the investments (in India) will continue as the company is “very excited about the initial reaction from both customers and the sellers”. “That is essentially the international margin guidance in Q4,” Olsavsky told analysts on Thursday.
Amazon has been ramping up investments in India including launch of a slew of international products like its annual subscription service Prime. It has also signed deals with large Indian movie studios like Karan Johar’s Dharma Productions, Mukesh Bhatt’s Vishesh Films and Chhota Bheem maker Green Gold Animation for the launch of its video service.
Besides, it has also picked up a tender for the digital rights for the Indian Premier League indicating its plans to invest more in a market where the online retail is expected to grow to $80-100 billion by 2020.
“We are very encouraged by what we see in India but it is still very early on. Our most recent highlights will be the launch of the Prime programme in the past quarter, and it is now one of the top-selling units on Amazon India,” said Olsavsky on the call. An Amazon India spokeswoman said, “(We) are committed to invest aggressively over the long term to transform how India buys and sells.”
Share prices slide
Share prices for Amazon tumbled as much as 6% in after hours trading on Thursday, as the company missed expectations of Wall Street analysts by reporting a net profit of $252 million.
The company’s North America sales unit reported a steady increase in operating profits to $255 million, while Amazon Web Services, its cloud business, increased profits to $861 million in the September quarter.
Amazon reports its results in three segments — North America, international and cloud services. The company also said international losses increased due to expansion of warehouses, adding selection and digital content. Amazon’s other major international markets are developed countries like United Kingdom, Germany and Japan.
Biggest operating loss
This is the biggest operating loss that Amazon’s international business has reported in its history, according to company filings reviewed by ET. Previously the biggest loss for the segment came in September 2014 quarter, when the Seattle-based online retail giant lost $224 million.
India is the next big retail opportunity for Amazon, after having failed to make much headway in the Chinese ecommerce market dominated by local powerhouse Alibaba.
Amazon’s India unit will account for over a fifth of the American online retail giant’s total international sales by 2025, hitting $81billion in gross merchandise value (GMV) and $2.2 billion in operating profits. The Indian market will be Amazon’s largest after home base US, said a recent report by Bank of America Merrill Lynch.
The report, dated September 13, also said that Amazon is losing $1 billion in India annually right now. In June, Amazon founder and CEO Jeff Bezos announced scaling up investment in the country to $5 billion, which is more than the combined capital raised by local rivals Flipkart and Snapdeal, which slipped to third position earlier this year.
“Winning the India market will be expensive, and Amazon knows this. From the last six months their burn rate has increased, which is now showing in the results,” said Satish Meena, forecast analyst at Forrester Research.
Amazon India has ramped up investment since 2015 as it looks to increase its market share, even as Flipkart has been focussed on cutting burn rate since the start of the year.
Flipkart Marketplace, a Singapore-based subsidiary and investment holding company, received equity infusion of Rs1,629 crore in fiscal 2016 as compared with Rs 5,456 crore a year earlier, ET reported earlier this month. Contrasting with the reduced investment into Flipkart’s ecommerce business, US-based Amazon’s main India unit, Amazon Seller Services, received capital infusion of Rs7,463 crore in fiscal 2016, up from Rs1,888 crore in the previous year. Amazon Seller Services’ total infusion stands at about Rs9,600 crore.