The well-known startups in India are suffering since their investors reduced their high values. How much will this affect the media and advertising industries?
Famous startups from India including Swiggy, Ola, Byju’s, and Oyo have been put on correction mode by their investors after getting criticism for a long time for having high valuations that were out of proportion to their sales.
According to Entracker, which reviewed Invesco’s US Securities and Exchange Commission (SEC) documents, Invesco’s valuation dropped by almost half to $5.5 billion in April 2023 from $10.7 billion when it led food aggregator Swiggy’s latest round of fundraising in January 2022. Byju’s, a key player in edtech, has also been the subject of scrutiny for a while now because of its high marketing costs despite increasing losses. BlackRock has reduced the company’s valuation from $22 billion to approximately $11.5 billion. Similar to this, US investor Janus Henderson reduces the estimated value of online pharmaceutical startup PharmEasy by 50% to $2.8 billion. Oyo Hotels’ value on the books of The SoftBank Group Corp. has been reduced by more than 20%, bringing it to about $6.5 billion. Vanguard has cut Ola’s valuation by 35%, from its peak of $7.4 billion to $4.8 billion.
The valuation disasters that have occurred over the past two months not only cast doubt on the valuation hype surrounding the tech startup sector, but they also raise red flags in the advertising and media sectors, which have been hoping for better times this fiscal year after dealing with challenging market conditions in FY 23. Leaders in the media and advertising sectors question if the high valuations of startups were sustainable and whether they can keep up the same momentum they did during the pandemic lockdown.
Byju’s choose not to respond. Till the time that these lines were being written, Swiggy, Pharmeasy, and Oyo’s comments were still pending.
Will the amount spent on advertising change?
Industry insiders predict that the startups’ advertising budgets will soon drop following the sharp depreciation.
It is interesting that these firms invested a significant amount of money in marketing up until last year, significantly increasing India’s advertising expenditures. Some of them had also sponsored the Indian Premier League.
For instance, PharmEasy increased its spending on advertising and marketing from Rs 134 crore in FY21 to Rs 494 crore in FY22, as reported in ROC filings. Bundle technology, Swiggy’s parent company, spent Rs 1,840 crore in FY22, nearly four times as much as it did in FY21.
The parent business of Oyo, Oravel Stays, saw a 19.3% YoY increase in marketing and promotion costs, from Rs 336 crore in H1FY22 to Rs 400 crore in H1FY23.
According to media strategists, these companies may be compelled to reduce their marketing expenditures as a result of investor pressure.
“In the recent years, we had a period of unreasonable enthusiasm. Real life is starting to set in now. Certainly, advertising expenditures will decline. According to Hareesh Tibrewala, joint CEO of Mirum India, “performance marketing will be more of the focus than brand marketing.”
From 2019 through 2022, Indian entrepreneurs collected an outstanding $59.3 billion in funding, with 2021 being a notable year with $35.2 billion and the launch of 34 unicorn startups, according to Anil Solanki, Senior Director – Media Lead at Dentsu X. However, a number of national and international issues have combined to reduce funding prospects, which has resulted in a lack of foreign investment in Indian enterprises.
“However, the Indian economy continues to be a bright spot among the upheaval in the global economy, drawing in both current and new investment. This setback can be viewed from the media and commercial standpoint as a brief impediment prior to a huge step forward,” Solanki continues.
According to Manas Lahiri, COO of Famous Innovations, the latest news about the devaluation of start-ups like Swiggy, Ola, Byju’s, and OYO is undoubtedly concerning for media and advertising.
According to Lahiri, “We frequently view these sectors as important growth partners for any agency revenue planning, and a devaluation is undoubtedly not a positive development from a spend standpoint. But I’d prefer to approach this from the standpoint of an opportunity. There will be significant realignment if and when cost rationalisation occurs in these areas, including how to manage creative agency models and doing away with developing and maintaining their own agency teams within these organisations (where we have already been losing a lot of talent).
These rationalisations will prompt a reconsideration of returning the communications duties to the agencies at the lowest possible cost and doing away with that fixed cost. And as a result, the revenue that agencies would have lost to client creative teams will be made up. The logistics might change, and new cost agreements might present a problem for the agency partners, but Lahiri pointed out that the biggest opportunity would be to make up for the lost revenue.
Business strategist and independent director Lloyd Mathias thinks that the changed valuations may have an adverse effect on marketing expenditures. People are obliged to look at all of their expenses once investors push you hard to get your business model right, and one of the major expenses is marketing. So, they will relook at that.”
Startups may also need to consider other costs, such as employee costs, new investments, acquisitions, and marketing, which will undoubtedly be the first item put up for auction and have a direct bearing on marketing, according to Mathias.
Rediffusion’s MD, Dr. Sandeep Goyal, offers an alternative viewpoint. He believes that “This is a cyclical industry. Investing in brand building and advertising obviously rises dramatically when valuations and funds are rising. However, because businesses require ongoing investment to remain in operation, a decrease in valuation cannot currently prevent these brands from advertising. Possibly there would be some cuts and pullbacks, but overall things would stay the same.
