The Indian startup isn’t the only company in Rocket’s portfolio that seems to be in trouble
For the three months ending December 31, Jabong, which competes with Myntra and other e-commerce companies that sell clothes and accessories, posted a loss of about $297,000, Rocket Internet said.
That compares to a loss of about $6.9 million in the fourth quarter of 2014.
The fourth quarter, however, is traditionally a strong three months for retailers, because it coincides with the Christmas shopping season. In India, it also coincides with the festive season that culminates in Diwali.
Gross profit margins for Q4 improved by 14 percentage points, driven by a lower level of discounts.
On a year-on-year basis, Jabong posted a loss of $7 million, compared to $24 million in 2014.
There’s definitely no strategy to exit India, said Rocket’s APAC JV head
So far, so good. Rocket even explained a 19 percent drop in revenues in Q4, saying it was the result of fewer discounts. In retail, sales and revenue typically get a boost when companies run promotions and discounts, but those discounts eat into their margins and bottom line.
Gross merchandise value (GMV) too fell about 19 percent to $56.8 million.
Online retailers often use GMV, or the value of all goods sold before discounts and such, as a measure of performance. That is because they typically make revenues from the commissions they get from sellers.
Jabong CEO Sanjeev Mohanty has said it is trying to break even sooner than rivals, as the company tries to match bigger rival Myntra in performance. Sanjeev was named chief of the company in November, after its founders quit.
Jabong’s performance makes good sense till we check their losses before interest, taxes, depreciation, and amortization (negative EBITDA), and pit it against the total disclosed funding for the company.
Negative EBITDA for the financial years 2014 and 2015 run upwards of $120 million, Rocket Internet’s annual report suggests. Total disclosed funding for Jabong stands at $115 million, as per Tech in Asia data.
Even on a conservative estimate, that typically means the company is dangerously close to looking at an empty coffer, despite the assurances of better margins and narrower losses.
Jabong did not immediately respond to emails seeking comments. A Rocket spokesperson pointed to its Global Fashion Group’s consolidated cash position of $86.3 million, but did not comment further. The Global Fashion Group consists of six companies, including Jabong.
The Indian startup isn’t the only company in Rocket’s portfolio that seems to be in trouble. The incubator has been having an especially hard time in India, with Rocket showing signs of exiting the country.
The incubator has reportedly even approached Amazon looking to sell off Jabong, but in vain.
However, Hanno Stegmann, the co-CEO of Asia Pacific Internet Group, the Asia-Pacific Investment joint venture of Rocket Internet and Ooredoo, steadily denied any exit plans from India.
“There’s definitely no strategy to exit India and it’s wrong to say that we’re struggling there,” he told Tech in Asia.
Editing by Terence Lee and Judith Balea
This post was originally published on Tech in Asia.
Featured image credit: Perspecsys Photos