Profitability remains elusive for Amazon in India, despite $6.5-billion investment: Bernstein

Even after making investments of $6.5 billion in India through the last eight years, profitability remains elusive for the e-commerce major in the country with negative EBITDA margins of 5-10 percent, according to a report by brokerage firm Bernstein.

The company also faces immense competitive pressure in the fast-growing categories like smartphones and apparel, a weaker value proposition in 'new' business areas like social commerce and quick commerce, limited traction in tier II and III cities, and an unfavourable regulatory environment for foreign retailers.

Smartphones have been the fastest growing but lower margin category for Amazon. The company is estimated to have a leading percent 45 market share in the category driven by strong brand relationships. In fashion, Flipkart (including Myntra) is estimated to be the dominant player with around 60 percent market share, while Amazon enjoys around 25-30 percent. AJio (part of Reliance Retail) is growing strongly with around 15 percent market share.

However, Amazon is falling behind on user engagement metrics like downloads and daily active users while Meesho is leading the charge on this front and Flipkart has seen traction in recent months with the launch of its social commerce app Shopsy, according to the report.

“We see strong traction in engagement metrics for new player Meesho targeting value end of e-commerce (focus on Tier-II and beyond markets) and long tail categories like fashion, home and accessories, and beauty and health products. Meesho is differentiating by not charging commissions,” it said.

The brokerage expects the e-commerce market in India to grow at an annual rate of 30 percent to reach $130 billion by 2025. The number of internet users in India is expected to grow to 1 billion by 2025 with 33 percent of them (330 million) becoming online shoppers, and the total addressable market is expanding with new opportunities in social commerce and quick commerce leading the charge.

“Who can forget Bezos' 2014 visit standing on top of a colorful lorry announcing a $2 billion investment? But nearly a decade later, Amazon India's report card is decidedly mixed,” said the report.

Flipkart had raised $1 billion at the end of July 2014. The heat was on Amazon India and the very next day it announced an investment of $2 billion. Amazon had launched its services in India in 2013 and it seemed the American giant wanted to get even with its rival who had a head start.

Bernstein estimated that at present Walmart-owned Flipkart leads the Indian e-commerce market with annual sales of $23 billion in 2021, Amazon is the second-biggest player with $18-20 billion of gross merchandise value (GMV) last year and Reliance comes next with e-commerce sales of around $4.6 billion.

“The regulatory market in India remains highly nationalised, prioritising local business over international entrants. Global marketplaces like Amazon are forced to run a marketplace structure in India charging commission on their platform (Amazon Seller Services),” the brokerage analysts wrote.

“Without the ability to operate and fully own a 1P business, Amazon instead has turned to taking minority stakes in local offline retailers – More (49 percent stake) and Shopper stop (5 percent),” the report added.