Why eBay Raised Its Stake In India's Snapdeal?

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India's e-commerce firm Snapdeal.com has raised close to $134 million in the latest round of funding and like before, eBay ( EBAY ) was the leading investor. The U.S. e-commerce giant had earlier invested close to $50 million in the same company.  These investments also includes a commercial partnership under which eBay will get access to Snapdeal's 20 million registered users, logistics software and distribution network. It makes sense for eBay to raise its stake as Snapdeal.com is expanding rapidly and expects to grow its gross merchandise volume from INR5 billion in 2013 to INR30 billion in 2014. We expect India's e-commerce market to see explosive growth as buyers develop comfort with online purchases and the Internet usage increases.

Our price estimate for eBay stands at $59.70 , implying a slight premium to the market price.

 


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The Indian Online Retail Market Can See Tremendous Growth  

According to research conducted by PricewaterhouseCoopers (PwC) in 2012, the retail market in India stands at over $350 billion and is growing at a healthy compounded annual growth rate ( CAGR ) of 15-20%. Foreign retailers are showing interest due to a large market, a growing number of aspirational buyers, increasing personal income and the lack of organized retail penetration. As far as the online retail market is concerned, it is still at a nascent stage, but seems to have picked up significantly in the last couple of years. The consulting firm McKinsey expects India's e-commerce market to grow at a rapid pace for the next few years amounting to $2 billion by 2015. The firm also estimates that the country will have roughly 38 million active online shoppers by then.

Marketplaces Model Is Likely To Gain Popularity In India

Looking at the long term potential and current growth in India's e-commerce market, it appears that there may be enough room for several retailers and competition shouldn't be a big concern. Moreover, the restriction on pure play foreign retailers such as Amazon ( AMZN ) is likely to limit their services in the country. Indian regulations do not allow foreign online retailers to have a fully-owned Indian arm that sells merchandise directly in the region. This is why Amazon cannot sell the merchandise that it owns, but can essentially act as an aggregator for other retailers. This can limit the company's control over its profits and supply chain, but plays right into eBay's strengths. eBay has been in Indian market for a while and already dominates the U.S. market when it comes to a marketplace model where it acts as a medium between individual buyers and sellers (including businesses).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: EBAY , AMZN , CAGR

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