Sep 06, 2016

Revenues kick in for Flipkart's high margin advertising business

Online retailer Flipkart’s advertising business finally seems to be catching on, growing at a healthy clip and pulling up the retailer's sagging margins.


Online retailer Flipkart’s advertising business finally seems to be catching on, growing at a healthy clip and pulling up the retailer’s sagging margins.
Flipkart’s advertising business, which lets marketers advertise to the company’s user base, is clocking nearly $6 mn in revenue every quarter and has a healthy 9%  11% EBITDA margin, according to sources.
For the company gearing up to take on two of the world’s largest e-commerce companies Amazon and Alibaba in its home turf, this must come as a relief after an unsuccessful attempt earlier.
The online retailer had first said it will chase revenues through advertising, a strategy out of the playbook of Alibaba and Amazon, early last year. It even acquired two digital advertising companies– AdIquity and Appiterate in March-April 2015. That didn’t work out well for the retailer, as the founders, seen as acqui-hires, quit in less than 6 months.
Since then, the company has brought in senior advertising executives into the fold. In March this year, Mint reported that Flipkart was selling $1 mn worth of ads a month. Which means the company’s advertising business has nearly doubled in the three months that followed.
The good thing about advertising business is that much of its revenues will go straight to the bottom line as it does not take a lot of recurring investment once set up. Flipkart has been trying to improve its bottomline over the last few quarters (read a detailed report by us here: Project Fixkart Part Deux).
To marketers, Flipkart’s pitch is that they can advertise products to over 74 mn registered Flipkart users who generate over 1 billion monthly impressions. It also offers branding solutions to its customers. Companies like Ford, L’Oreal, Sensodyne and Royal Enfield have been advertising with Flipkart.
Digital advertising spend in India is mostly hogged by Google and Facebook. In January 2016, the world’s largest media buyer GroupM said that digital ad expenditure is expected to grow 40% in 2016 to Rs 6525 cr on the back of investments in cross-screen campaigns. Digital is about 11.3% of total advertising spend in India.
For Flipkart, however, the opportunity is to bring its existing seller base to its advertising platform to sell better. Ravi Garikipati, head of Flipkart’s ads business told the newspaper at the time that nearly a quarter of Flipkart’s 100,000 sellers have used its advertising service. 
Last month, Flipkart announced that Kalyan Krishnamurthy, who has been brought in from Tiger Global (it’s largest investor) will now lead its marketplace, retail and advertising business. FactorDaily had written about Krishnamurthy’s comeback and rise in the organisation in an earlier article. You can read that here.

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jayadevan is a writer of FactorDaily.