Cashback Industry: Where’s the Money?

Where’s the money? It’s a critical question for every business, especially startups, as so many are in the cashback industry.

In this post, I’ll take a look at some of the key financial findings from our 2015 Cashback Industry Report and provide a perspective on where the money is and where it will be in the future as this industry grows.

How big is the cashback industry?

One of the things we know is that e-commerce is huge, estimated by eMarketer globally at more than $1.5 trillion in 2014 and projected to reach more than $2.357 trillion in 2017.

AT Kearney, projects global “e-tail” or retail e-commerce at more than $840 billion in 2014, 20% growth over the previous year. We also know that cashback and other online performance marketing (OPM) tactics represent about 10% of this economic activity.

While there have been no formal studies into the size of the cashback industry globally, we estimate it exceeds $84 billion conservatively. That’s a lot of cashback, coupons, contests, vouchers, daily deals, discounts and other OPM.

Forrester further projects B2B e-commerce will reach another $1.13 trillion in the US alone by 2020. Imagine the impact when B2B sellers discover the power of cashback for delivering sales?

What’s clear is the cashback industry will continue its substantial growth as part of the rapid expansion of global e-commerce. It’s hardly surprising VCs are investing in e-commerce and cashback companies alike.

Who are the Cashback unicorns?

We started looking into the cashback industry when Tokyo-based Rakuten bought US cashback powerhouse Ebates for just over $1 billion in November, 2014. Ebates’ 2013 revenue was $2.2 billion. The purchase included Ebates’ subsidiaries FatWallet and Ex­trabux.

Quidco in the UK generated more than $1.22 billion in revenue, representing by itself 1% of UK online e-commerce.

While it’s difficult to confirm revenues for private companies, other big players in the global cashback industry include (revenue figures are 2014 unless otherwise indicated):

• US-based Snap by Groupon (acquired and formerly Snapsaves), Market America (sales of $649 million), RetailMeNot ($264.7 million), Shopathome.com ($75.9 million), Swagbucks ($30 million sales)
• UK’s Quidco ($1.22 billion) and TopCashback
• Rakuten in Japan ($5.66 billion)
• India (2014 rev): Flipkart ($4 billion), Snapdeal ($2 billion), Jabong ($127 million)
• South Korea: OK Cashbag ($1.54 billion), Coupang ($320.9 million), Wemakeprice ($169.7 million)
• Singapore: Lazada ($384 million)
• EU: Ladenzeile, Germany ($181.5 million), Beruby, Spain ($22 million), iGraal, France ($15 million)
• Latin America: Linio ($139.2 million),
• China: VIP.com ($3.77 billion), Geihui.com ($57.6 million).

Many of these private companies do not report financials and media coverage is not available to estimate sales and revenues in most cases. But the numbers do reflect the growth of e-commerce and the potential for cashback industry growth as well.

Billion dollar unicorn valuations

Here are several more “unicorn” numbers to consider. The two biggest Indian e-commerce companies have valuations putting them in the big leagues and attracting substantial VC investment. Flipkart – $15 billion valuation (India), Snapdeal $5 billion (India), Global Fashion Group (Rocket Group including Lamoda (Russia), Jabong (India), Zalora (Singapore) – $3 billion, Coupang – $2 billion (South Korea), Lazada – $1.3 billion (Singapore), Zomato – $1 billion valuation (India).

Mergers & acquisitions will grow

In our 2015 report, we predict the future will be busy with mergers and acquisitions within the cashback industry. With these kinds of numbers, you’d expect that as some founders and VCs divest while other companies make strategic acquisitions.

Rakuten acquiring Ebates, Groupon taking over Snapsaves, and the purchase of Checkout 51 by Murdoch publishing group. Each represents a strategic acquisition in the early stages of this developing industry.

The need to build scale for operations efficiency and profitability will drive many future mergers. A good example is the recent acquisition of Active Junky in the US by Purch, a digital and e-commerce company.

Successful companies will buy lesser companies to build sales and reach, to diversify or acquire competing or new technologies.

The profitability problem

Finally, let’s talk about the elephant in the room – the problem of profitability in the e-commerce and cashback industry. First a few examples to highlight the challenges.

Flipkart is the poster child for e-commerce success in India, valued at more than $15 billion and attracting more than $1 billion in VC investment. While operating since 2007, it has yet to turn a profit despite sales of more than $4 billion in 2014. Its burn rate is estimated at more than $40 million per month.

Indian coupon site Mydala finally reached profitability after five years of operation and 2014 sales of more than $13.9 million. Cashback company Pennyful.com claimed sales grew 300% in 2014 and expects to become profitable in 2015 after four years of operation.

In Singapore and across SE Asia, Lazada more than tripled sales to $384 million in 2014 but losses more than doubled to $146.7 million in 2014. There were encouraging signs as Lazada’s transactions quadrupled to 6.9 million in 2014 and the number of customers grew three times to 3.9 million.

According to a Reuter’s story: “Flipkart doesn’t disclose its financials but is losing 2.23 rupees for every rupee it generates in net revenue, according to Techcircle.in. UBS estimates it will take the industry until 2020 to generate an operating profit.”

Profits remain elusive for even some of the strongest e-commerce players.

Future opportunities

On the bright side, consumers want cashback rewards. New technologies, smart investment and innovative marketing points to new opportunities in the future.

So where is the money in the future?

The developing markets in India, China, SE Asia and Latin America hold great promise for savvy e-commerce and cashback companies. With growing disposable income, combined with tech-savvy younger generations in these large markets, there are big opportunities ahead.

The question is does the money belong to the biggest, the first to market, the fastest, and smartest or the best financed?

Time will tell and the Cashback Industry News will be there to bring you the news, analysis, insight and opportunities.

Author: Douglas G Hall, Publisher