Vietnam’s e-commerce websites are still receiving heavy investment to develop despite big losses, but when will these projects stop losing?
The Vietnamese e-commerce market is one of the leading markets in the region for investment. According to Nielsen, the annual growth speed of the e-commerce market is 22% and is expected to hit US$10 billion in annual revenue by 2022 from the current US$4 billion.
The Vietnamese e-commerce market shows huge potential for development and receives great attention from new investors.
In a recent report by Topica Founder Institute, e-commerce attracted US$83 million of foreign investment through 21 deals. Startup SEA (used to be Garena, which was termed as a unicorn in Asia), ranked first among investors pouring capital into Vietnamese startups in 2017.
SEA spent US$64 million acquiring 82% of the shares in Foody, a food delivery website and app.
CyberAgent Ventures, a Japanese venture investment fund, continues its activities in Vietnam. In 2017, four deals were implemented successfully to invest into Foody, CleverAds, Tiki.vn, and Vexere.
Besides, Telenor, a Norwegian telecommunications corporation, spent US$109 million acquiring 701Search, which manages Chotot.vn.
Tiki.vn received US$54 million of Series C financing from JD.com and STC Investment.
Although both Tiki and JD refused to reveal the value of the deals, industry insiders said that JD.com poured nearly VND1 trillion (US$44 million) into Tiki.
Theleader.vn quoted president of JD.com’s international business Winston Cheng as saying that he is very excited to continue widening in Southeast Asia through the co-operation with Tiki, a company with deep understanding of Vietnam and outstanding reputation for customer service. They have a mutual business philosophy to gain market share by the customer’s affection.
E-commerce holds great potential for investment in Vietnam. However, the competition in the sector leads to a non-stop pour-lose-pour cycle of investment.
Looking at VNG Corporation’s annual financial statement, Tiki reported a loss of VND282 billion (US$12.38 million) in 2017, triple its charter capital and seven times higher than the loss in 2016.
Hence, Tiki’s total losses two years after receiving investment from VNG were VND320 billion (US$14.05 million).
Tiki holds a large portion of the e-commerce market in Vietnam along with Lazada and Shopee. Tiki started off as a website selling only English books in 2010, then received investment and expanded to various items, such as electronics, fashion, and household appliances.
However, Tiki has been continuously reporting losses for the last eight years. According to enternews.vn, Lazada and Shopee also seem not to earn any profit in this market. However, they receive heavy investment to offset losses.
Lazada Southeast Asia received US$2 million in 2016-2017 from Alibaba, the biggest competitor of JD.com in China, while some projects even had to be closed such as Beyeu, Deca, Lingo or Foodpanda.
Double-digit growth in recent years, along with a high rate of young population using smart phones and internet enable investors to be bullish in the Vietnamese e-commerce market and to continue pouring money into this market.
While online shopping shows great potential, it remains very small next to general commerce, while developers have to pour a great deal of money into increasing the number of goods categories, reducing price, promotions, warehouses, and customer care to attract customers.
Thereby, e-commerce websites will suffer from negative growth until sales grow large enough to offset these expenses.
As a result, those with enough money will weather the storm, while the rest will drown.
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