Beijing-based IT products B2C e-commerce platform 360Buy CEO Liu Qiangdong predicted yesterday that capital funding would cease flowing to the e-commerce sector in Q4 of this year, owing to increased investor wariness in the face of overvaluations and excessive risk. Liu predicted that global capital markets would cool down starting in Q4, leading some domestic e-commerce companies to shut down.
"30% of online advertising revenues come from e-commerce companies," Liu said. "There are a lot of e-commerce companies that spend 90% of their money on ads with Baidu (Nasdaq: BIDU) and other companies." Citing an example, Liu said that 360Buy had recently been preparing to purchase a company whose financial reports indicated that it had done RMB 10 mln of sales in a year - which, upon inspection, belied losses of RMB 70 mln, with RMB 20 mln of expenditure on servers and staffing, and RMB 50 mln in ad buys through Baidu's platform.
360Buy's bottom line, Liu said, is that every RMB 1 in ad spend should result in RMB 25 of revenue - unlike some companies whose spend-to-revenue ratio can be 20:1. "A lot of e-commerce companies are burning through a lot of money on ad spends," Liu said, "and some of them have burned through all of their funding. Starting with the general cooling of the market in Q4, VCs are going to be unwilling to invest."