Purplle posts Rs 128 Cr revenue in FY21, losses jump over 2X

Purplle posts Rs 128 Cr revenue in FY21, losses jump over 2X

The financial year 2020-2021 changed the status quo for the beauty and cosmetics segment in India as more buyers from tier II and III cities moved online for their purchases due to the pandemic-led lockdowns. Even with relatively contracted demand due to emphasis on the purchase of essential commodities, online marketplaces in the beauty segment witnessed strong growth during FY21.

Built on the lines of Nykaa, cosmetics marketplace Purplle was one of the few platforms which managed to grow their scale during the fiscal ended in March 2021.

The Mumbai-based company’s revenue from operations grew by 40.2% to Rs 128.2 crore during FY21 from Rs 91.4 crore earned in FY20. Purplle had raised its Series C round led by Goldman Sachs right at the start of FY21 which funded its growth CAPEX during the year

The eleven-year-old company operates as an omnichannel seller of beauty products and also retails products under its private label but these sales made up only 6.4% of its annual revenues in FY21 as compared to 14.6% in FY20.

This decline was evident by the fact that the company is moving towards a pure marketplace model and the sale of products contracted by 38% YoY to only Rs 8.2 crore in FY21.

Provision of advertising and visibility services to cosmetics brands across its platform is the largest revenue vertical for the Goldman Sachs-backed company, accounting for 61.7% of the annual revenues. Collection from these services grew by 52% to Rs 79.02 crore in FY21 from Rs 52.06 crore made in FY20.

Purplle also has a membership subscription for customers which offers a host of features including exclusive sales and free delivery incentives. These incentives also drive repeat customers on its platform and sale of these subscriptions grew by 150% YoY to Rs 1.3 crore during FY21. The company also collects royalty from companies retailing on its platform which made up 30.5% of the total collection. Such income grew by 61% to Rs 39.04 crore in FY21 from Rs 24.25 crore in FY20.

Further, the company also collected non operating income of Rs 10.91 crore from interest on its financial assets during the fiscal ended in March 2021.

Following the cues of market leader Nykaa, Purplle also harnesses social media instead of conventional media channels for visibility. The company spent extensively on customer acquisition and as a result advertising is the largest cost centre for Purplle, accounting for 29% of annual expenditure. These costs grew by 54% to Rs 56.31 crore in FY21 from Rs 36.51 crore in the previous fiscal year FY20.

Logistics and packaging are the second largest expense for Manish Taneja-led firm, constituting 27% of its annual costs. These costs grew in line with the order volume amounting to Rs 52.4 crore in FY21, 68% up from Rs 31.2 crore spent during FY20.

The company steered away from the inventory model during the previous fiscal which is evident from the 42% drop in purchases which amounted to only Rs 4.46 crore in FY21.

Purplle has increased its team sizes across verticals and as a result employee benefit payments surged by 94% to around Rs 37 crore during FY21 from Rs 19 crore in FY20. Legal and professional fees payments also grew by 29 % YoY to Rs 13.40 crore in FY21.

Further, rent and utility payments of Rs 3.42 crore pushed annual expenditure to Rs 191.1 crore during FY21, up 55.3% from Rs 123.1 crore spent in total in FY20. Purplle has spent Rs 1.49 to earn a single unit of operating revenue.

The Sequoia-backed company burnt through cash to acquire scale at an accelerated rate and as a result, its EBITDA margins worsened from – 19.8% in FY20 to -31.37% in FY21. Due to increased cashburn, Purplle’s annual losses grew by 114% to Rs 52.2 crore in FY21 from Rs 24.4 crore lost in FY20.

Purplle’s biggest revenue segment, advertising and visibility services, probably hides its biggest challenge too. To keep growing, the platform will have to continuously invest in its own growth too, to justify the investments from all the brands paying it for the visibility. The arbitrage between what it earns, and what it spends on its own promotion is a simple enough game, with the ever-present risk that a competitor will do it more efficiently. For now, at Rs 76 crore of earnings versus Rs 56 crore of promotion spends, it is favourable enough, but not enough to offset other costs.

Of course, it also ends up more as an ad sales driven firm than a fees driven firm. The former being a much more volatile and intensely competitive segment than the latter. Thus, Purplle would seem to be fighting on some very competitive, multiple fronts, even as much bigger competitors like Nykaa and more broad-based ecommerce platforms also continue to invest in the same business segment.