When a well-recognised consumer brand approaches the public markets, investors often assume they understand the business simply because they are familiar with the name from years of everyday use. This assumption, however, can be misleading, as demonstrated by the recent Snapdeal IPO, where the entity being listed encompasses far more than the single marketplace platform most shoppers recognise. As one of several notable names contributing to a busy pipeline of primary market activity, this particular Upcoming IPO has prompted many investors to look more closely at the layered corporate structure behind the familiar consumer-facing brand before forming an investment view. A closer examination of the businesses bundled within this offering reveals a more complex picture than the brand name alone suggests.

Jump To

• Three Distinct Business Engines Under One Roof
• Why This Matters To You
• Looking At The Breakdown Of Revenue Streams
• Competitive Risks For Each Segment
• Putting It All Together

Three Distinct Business Engines Under One Roof

The firm presenting this offering is composed of three disparate but related business segments. The online marketplace has evolved from an almost universal product category into a niche of value-priced fashion and lifestyle.

The focus on the price-sensitive customer has seen the company evolve towards targeting the youth and value-conscious customers in smaller towns and cities. The company has a separate software segment which offers e-commerce solutions, which is business-to-business in nature, as opposed to direct sales to consumers of the marketplace segment. The third segment is the creation and building of owned consumer-branded labels in the value space, as opposed to being a marketplace.

Why This Matters To You

As an investor, it is important to understand the breakdown of this offering in terms of these three components. The three segments do not have comparable exposure to the marketplace, margins or competitive risks.

The marketplace business is extremely competitive and operates in one of the most competitive segments of India’s e-commerce space – retailing. The software enablement segment has a different revenue model and hence different risks and rewards. It is also a smaller contributor to overall group revenues. The third segment is the newest and has the most risks, but also the potential to have the highest margins if the strategy of creating consumer brands in value retailing is successful.

It is common for firms to have multiple segments and for the offering documents to tout the benefits of having a diverse revenue base that is not dependent on any one business line. But investors need to understand the pros and cons of each segment highlighted in the prospectus, as the firm is essentially looking to have investors bet on multiple balls in the air.

Looking At The Breakdown Of Revenue Streams

It is important for the investor to evaluate just how much each business contributes to overall firm revenues and profits, as it is an important determinant of the true strengths of the firm. In most cases, firms that have multiple business segments will have one that is more established and contributes disproportionately to revenues, compared to the others which may be newer or in earlier stages of development. This is important because it means that while the offering documents may suggest a balanced and diversified firm, the reality is that it is actually focused on one particular area, with the others being merely aspirational.

Competitive Risks For Each Segment

Each segment highlighted in the prospectus will have its own competitive risks. The online marketplace faces competition from other firms in the value e-commerce space as well as overall competitors in the retail space who have moved into value retailing. The software enablement segment faces competition from other firms in a developing market for small business e-commerce solutions. The consumer branded segment faces competition from other established firms as well as a proliferation of digitally-native firms that have emerged in recent years in India’s value retailing segment.

Putting It All Together

Investors need to look beyond the deep-rooted brand image of the company’s marketplace segment and delve deeper into the offering documents to understand the nuances of the business that are relevant to their investment decision. Looking at the breakdown of revenues between the different segments and competitive positioning will give a far more comprehensive overview of the firm than what most offering documents do. As India’s digital commerce and retailing spaces continue to develop it is likely that more firms will adopt this multi-segment approach, and this will be particularly common in the exchanges where most initial public offerings take place today.

Key Takeaways

• The Snapdeal IPO showcases a corporate structure that includes more than just the familiar online marketplace, consisting of three distinct business segments.
• The three segments include an online marketplace focusing on value-priced fashion, a B2B software segment providing e-commerce solutions, and a segment for creating owned consumer-branded labels.
• The marketplace segment operates in a highly competitive environment within India’s e-commerce space, targeting price-sensitive consumers in smaller towns and cities.
• Each business segment faces its own unique competitive risks, with the software enablement segment being a smaller revenue contributor compared to the marketplace.
• Investors are urged to examine the revenue contributions of each segment, as one may dominate overall firm revenues while others are still developing.
• The article highlights the necessity for investors to understand the complexities behind the brand name and the true strengths of the firm by examining detailed offering documents.