Tiki may suffer from losses for three more years

0 Comment

As startup enterprises are commonly suffering losses, with examples of firms running in the red for an entire decade, Tiki may have a long three years ahead.

Repeated losses
After seven years, Tiki has accumulated nearly VND600 billion ($26.43 million) in losses, including VND308 billion $13.56 million) in 2016 and VND284 billion ($12.5 billion) in 2017.

Its revenue in 2016 reached VND62.4 billion ($2.74 million), up six times against 2015. However, the e-commerce platform took losses of nearly VND179 billion ($7.9 million) in the same year due to overly high sales expenses. Accordingly, sales expenses in 2016 were over VND222.5 billion ($9.8 million), tripling against 2015.

In fact, Tiki JSC only reported revenue from services, as well as e-commerce trading recorded by its subsidiary Tiki Trading. In 2016, the subsidiary’s revenue hit VND817 billion ($36 million) with the gross margin of 9 per cent. Despite this, Tiki Trading suffered a loss of VND41 billion ($1.8 million) as sales expenses exceeded the business’ profit.

Dry spell may not be over
Suffering losses to succeed later is quite common for startups, while startups reporting profit from the get-go are really rare. Investors pouring money into the firms commonly expect returns in 5-10 years.

Tiki CEO Tran Ngoc Thai Son also stated that the losses are part of the firm’s long-term development plan. Tiki is expanding its scale of operations by investing in infrastructure, warehouses, human resources, and technology.

Maybe due to the firm belief in their development potential, Tiki and other e-commerce platforms receive high valuationes. In 2016, Tiki was appraised at VND1 trillion ($44 million) despite only being in business for six years. At the time, VNG Group poured VND383 billion ($17.02 million) to acquire 38 per cent in Tiki for VND104,000 ($4.57) per share. Thanks to this, Tiki recorded a surplus of nearly VND340 billion ($15 million) in late 2016.

Different from other firms, the value assessment standards for startups like Tiki revolve not around profit, but market share, revenue, per customer purchase value, and the rate of returning customers.

According to Financial Times, Tiki has annualised gross merchandise value—an indicator by which ecommerce sites measure their sales—of about $240 million, and delivers across Vietnam.

Due to the satisfying revenue despite the losses, Tiki has even received foreign investment. In the middle of January 2018, Chinese-based JD.com poured VND1 trillion ($44 million) into the e-commerce platform.

In the world, many of the contemporary giants look back on a difficult first decade. These include US-based Tesla Motors and sandwich chain Charleys Philly Steaks. For seven-year-old Tiki, three more years of losses is well within the realm of possibilities.

Source: VIR