At Cisneros Interactive we invest in start-ups so naturally we are confident of the overall growth in the market. However, there is an area that has baffled me, and it’s not an insignificant one, E-commerce. Latin America is one of the fastest growing regions of the world for e-commerce, and it makes sense to think that Latin American consumers will adopt e-commerce as readily as consumers in the developed markets.
Brazil and Mexico are huge markets where e-commerce should thrive; especially in Brazil large investments have been made by the likes of Rocket Internet, Tiger Global, and other funds.
However, even giant B2W, cannot generate profits (at a Net Income level, EBITDA is positive), and I believe almost all sizable e-commerce companies in Brazil are far from profitable. Of course, the rationale is that they are all investing in growth; we can point to Amazon (another giant with very low profits) and observe that even in a developed market such as the USA, Amazon’s growth continues at double digits. So, all e-commerce companies in Brazil seem to be investing in growth; this is the positive point of view. A negative perspective is that margins in e-commerce are extremely low and that high growth is fueled in part by very low, unsustainable prices. Even at a mature state, e-commerce companies could be limited to very low profit margins while being very capital-intensive. For funds who have to return capital to their investors in a 7-year timeframe, this timeframe may be too short for e-commerce companies to turn a profit and maximize their valuation.
I am sure more than one investor and ecommerce company in Mexico is apprehensive of Amazon’s full entry into that market. Moreover, it is entering without buying any local incumbents, and Amazon was one of the exit possibilities for local companies.
At Cisneros Interactive, we were lucky to have exited some ecommerce investments successfully and our overall balance is positive. Currently we are 100% focused on the Digital Advertising ecosystem. This field is far from easy, with competitors such as Google and Facebook, but it’s an industry we understand very well, we already have successful companies in this field, and we have more synergies with our traditional TV business.