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India's New-Age Firms Using Amazon's Playbook For Upscaling Digital Ads: Bernstein

Zomato and Nykaa are promoting products via merchant ads to lower ad spend that Google and Facebook generally attract.

<div class="paragraphs"><p>The app of Indian food delivery company Zomato is seen on a mobile phone. (Photo: Florence Lo/Reuters)</p></div>
The app of Indian food delivery company Zomato is seen on a mobile phone. (Photo: Florence Lo/Reuters)

India's new-age companies, such as Flipkart India Pvt., Zomato Ltd. and FSN E-Commerce Ventures Ltd.—the owner of Nykaa, are scaling up digital advertising on their platforms using a similar playbook deployed by Amazon in the U.S., according to Bernstein Research.

Companies like Zomato and Nykaa are promoting products via merchant ads, aiming to chip away at the ad spend that Google and Meta's Facebook generally attract, the research firm said in a report.

This is similar to Amazon, which scaled up its advertising business in a market dominated by Alphabet's Google and Facebook with a 60–65% share in the U.S. This is a function of e-commerce platforms realising that product searches begin on their platform instead of the traditional Google search, Bernstein said.

"India's e-commerce and food tech platforms are expanding into digital advertising as they scale up into more profitable segments. Despite a smaller market opportunity–about $12 billion by 2025–digital advertising has strong engagement metrics. Digital ad share is 30% while time spent on digital platforms is 50%, driving ad dollars to digital," it said.

Zomato has monetised digital ads, via its 'Dine Out' segment, where restaurant partners pay the company for enhanced visibility on the platform.

This accounted for approximately 15–20% of its revenues prior to Covid. Zomato is also a shareholder in AdOnMo, which is an ad network that can serve targeted ads to a hyperlocal audience.

Zomato's quick commerce platform, Blinkit, has also become an ad hub, with over 500 paying brands.

"The quick delivery model makes Blinkit effective for creating interest around new product launches since consumers make purchases minutes before consumption. Blinkit Brand Central is a self-serve advertising platform that lets brands launch their own customised brand stores," Bernstein said.

In the case of Nykaa, income from displaying web and app-based banner ads and sales of online ads is margin-accretive for segments and improves gross margins. "While beauty and personal care product level gross margins are healthy, they are boosted by ad income," the research firm said.

Bernstein has an 'outperform' rating on Zomato with a target price of Rs 80, implying a 60% upside from current levels, while it has a 'market-perform' on Nykaa, with a target price of Rs 161 apiece and an upside potential of 20%.