For online beauty and cosmetics selling platform Purplle, FY20 has turned out to be exceptional in terms of funding as the company had raised a $30 million Series C round led by Goldman Sachs.
While most growth-stage companies usually look to scale up quickly after a large cash infusion, Purplle hasn’t grown that rapidly and its pivot to a marketplace model appears to be the handbrake.
Manash Lifestyle, the entity that operates the online platform Purplle.com, had moved from an inventory model to a marketplace model during the last fiscal and as a result, it only booked commission charged on sales and not the actual sale of products as revenue.
Purplle’s operating revenue dropped by around 14% to Rs 86.8 crore during FY20 from Rs 100.4 crore in FY19 and its annual losses surged by 512.3% to Rs 24.92 crore during FY20 from Rs 4.07 crore lost in FY19, data sourced from regulatory filings show. As per media reports the company had achieved a gross merchandise value of around Rs 350 crore during FY20.
Breaking down its revenues further, we see the impact of the company’s transition to a marketplace model as revenue from the sale of its in-house products dropped by 81.3% to Rs 13.3 crore in FY20 from Rs 71.2 crore in FY19. Such sales made up only 15.45% of the revenues in FY20 as opposed to 71% in FY19.
Purplle chose to move away from private labels, a model that is working well for its peers including Nykaa and direct to consumer brands Sugar Cosmetic and Mamaearth.
Responding to Entrackr’s queries on the reasons behind its losses, Manish Taneja, co-founder and CEO of Purplle said that it invested in people, technology and the “market side” in FY20. “This leads to an increase in costs and would keep doing that for the next few years to capture the size of the opportunity.”
Purplle’s revenue from advertisements grew by 101% to Rs 26.3 crore and collections in the form of commission and marketplace fees surged by 194.4% to Rs 47.14 crore during the fiscal ended in March 2020. These verticals made up 30.3% and 54.3% of the operating revenues respectively.
Purplle also earned a non-operating income of Rs 7.26 crore which grew by 542.5% during FY20.
Purchase of stock in trade contracted by 85% from Rs 51.03 crore in FY19 to only Rs 7.74 crore While most of its competitors including Nykaa have witnessed growth during FY20, Purplle’s scale has contracted with a significant drop in the sales of its private-label products.
It’s worth noting that the company had recently co-led a Series A round in personal care brand Juicy Chemistry along with Verlinvest.
Expenditure on advertising and promotions was the biggest cost centre making up 30.7% of the total costs incurred during the last fiscal. These costs surged by 92.1% to Rs 36.5 crore during FY20 from Rs 19 crore spent in FY19.
Employee benefit expenditure also grew by 70.5% from Rs 11.34 crore spent in FY19 to Rs 19.34 crore in FY20. These costs accounted for 16.35% of the annual expenses incurred by the company and included ESOP based payments of Rs 1.8 crore.
Other operating expenses including technology and logistics costs stood at Rs 38.09 crore while expenses on legal and professional fees ballooned 473% to Rs 10.2 crore during FY20.
Rental costs of Rs 2.52 crore pushed the total expenditure incurred to Rs 118.95 crore which grew by 12.7% as compared to Rs 105.56 crore spent in Fy19.
In FY20, Purplle spent Rs 1.7 to earn a rupee of operating revenue.
The mix of contracting revenues along with incremental costs didn’t help the financial position of Purplle and its EBITDA margins worsened from -3.4% in FY19 to -23.73% in FY20.
According to Taneja, considering Purplle isn’t keeping inventory as everything is now on a marketplace structure, the right way to look at revenue growth would be by reducing the purchase of traded goods from the revenue side as well and then compare the growth.
“We have grown by more than 85% on a year-on-year basis in FY20 over FY19,” Taneja said.
With the company claiming over 85% growth on a YoY basis, the numbers on its filings did not reflect or add up to the figure. And, Purplle hasn’t changed its accounting standard in FY20.
The online beauty space has been growing at a trotting pace and this could be noticed from the emergence and growth of several D2C brands and the growing dominance of Nykaa. Sugar Cosmetics and Mamaearth had crossed Rs 100 crore in revenue in FY20 whereas Nykaa claimed to have churned profit in FY20 with over Rs 1,850 crore in revenue.