An update on Internet and E-commerce trends in India, six months following our original Deep Dive on the country. Amazon, Facebook and Google remain early global winners, while Flipkart, inMobi, Zomato, Snapdeal, Ola and PayTM are also emerging as world-class enterprises.

1. Internet India showing no signs of slowdown. With the continued explosion of investment
in India (2015 venture funding already exceeds full-year 2014), we are revisiting our
"Internet India" report with recent developments in e-commerce, online media and the
evolving competitive landscape. We continue to view India as a key intermediate-term
growth market for every global Internet player, with Amazon, Google and Facebook already
taking pole positions. Please also see our industry primer: "Rise of the Tiger".
s Our bullish India online retail forecast may be conservative. We estimate that online
sales in India will increase from $8B in 2015 to $40B by 2020 (50%+ CAGR). Google
recently forecasted online sales during the autumn festival and holiday season will
increase 150-200% year-over-year, which suggests our near-term forecast may prove
conservative.
s Amazon leads the billion-dollar e-commerce arms race. We continue to believe that
Amazon is the second-largest online marketplace in India, with ongoing investments
adding pressure to home-grown and money-losing competitors. Amazon is "doubling
down" on India investments, with a war chest that exceeds the funding raised by Flipkart
and Snapdeal combined. We note that India has the potential to become Amazon's
second-largest market within 10 years.
s On the cusp of No.2 Internet user base. India continues to add online users at a rapid
clip, driven largely by Android device penetration and increasing access to both narrow
and broadband connections. We continue to forecast that the number of Internet users in
India could reach 500M by 2018, while becoming the second-largest Internet market in
the world within months.
s China struggles may be India gains. While recent global market volatility could raise
some questions around valuations, fundamentals remain healthy, and we remain
decidedly positive on India's Internet sector as a whole. Importantly, a comparatively
robust growth outlook could drive more investors to focus on India. As of now, India's
economy is expected to grow faster than China with the potential to develop a larger
consumer class than China within 5-10 years.
s Key local enterprises gaining scale. In our view, Flipkart, InMobi, Zomato, Ola,
Snapdeal, PayTM (among others) are already developing into world-class enterprises,
with Online Media/Advertising, Shipping/Delivery, Local Commerce, and Mobile Games
also poised for massive funding and growth. Among global enterprises, Google (Search)
and Facebook (Whatsapp/Messenger) continue to dominate web usage outside of
e-commerce.
s Notable fundraising rounds Flipkart ($700M), Snapdeal ($500M, Alibaba-led), Ola
($400M), Ecom Express ($133M), Saavn ($100M), Delhivery ($85M), Bank Bazaar
($60M, AMZN-led).
INDUSTRY UPDATE
Prices as of 09/23/2015
Ticker Price
Mkt Cap
(mil)
Rating Risk
AAPL $114.32 $677,236 O H
AMZN $536.07 $256,278 O A
EBAY $25.59 $31,372 O A
FB $93.97 $264,936 O A
GOOG $622.36 $430,279 O A
GOOGL $653.29 $447,769 O A
TWTR $26.79 $17,592 N H
Baird covered companies
September 24, 2015 Baird Equity Research
Technology & Services
Internet
"Internet India": Tiger Beginning to Roar
Colin Sebastian
csebastian@rwbaird.com
415.364.3350
Benjamin C. Gaither, CFA
bgaither@rwbaird.com
415.364.3318
Andrew Lee
awlee@rwbaird.com
415.364.3344
[Please refer to Appendix
- Important Disclosures
and Analyst Certification]
Intended for csebastian@rwbaird.com only. Property of Baird. Contact Baird for permission to share.

2. Details
In the five months since we published our deep dive primer on “Internet India”, the market for emerging
online businesses in the region continues to be red-hot. In fact, the number of investments above $50
million in India increased from only two in 2013 and 12 in 2014 to 25 for the year-to-date 2015 through
July. Moreover, total funding for venture-backed technology companies in India increased to $5.4 billion
year-to-date, already surpassing the $4.7 billion raised in all of 2014. Meanwhile, consumer end-markets
continue to grow rapidly for online services, with e-commerce continuing to lead the charge. We
estimate that online retail sales in India will increase from $8 billion in 2015 to $40 billion by 2020 -
representing a 51% CAGR (see Figure 1). We note that Google recently forecasted online sales during
the Diwali festival season could increase 150-200% year-over-year, which suggests that our near-term
forecast may prove conservative.
Figure 1: Online retail growth to be driven by Tier II and Tier III cities
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
2015E 2020E
Billions
51% CAGR
Source: R.W. Baird estimates
Impact of recent market volatility. We note that recent global market volatility could raise some
questions around valuations, potentially leading to slower deal flow, and/or driving some consolidation;
however, long-term fundamentals remain healthy in India, and we remain decidedly positive on India's
Internet sector opportunities. From this perspective, the justification for premium valuations seems clear
- India has many of the right ingredients to emerge as an Internet powerhouse: the world's second
largest population, a growing middle class, rapid adoption of connected-devices with increasing access
to higher speed (3G/4G) connections, and plenty of entrepreneurship. Whether government policy and
infrastructure investments keep up is a risk factor. In this brief follow-up to our last report, we highlight
some newsworthy updates from "Internet India", including notable funding rounds, as well as review the
role and impact that foreign companies such as Amazon, Facebook and Google are playing in the
market.
China struggles may shift investor focus to India. While India is clearly not immune to global issues,
we note that a relatively more robust growth outlook in India could drive more investors to focus on the
country. As of now, India's economy is expected to grow faster than China this year, the country is now
a net-importer of commodities and raw materials, is a stable democracy, and the country could develop
a larger middle class than exists in China within the next 5-10 years.
September 24, 2015 | Internet
2Robert W. Baird & Co.

3. Core online growth drivers remain intact. India continues to add new online users at a rapid clip,
driven to a large extent by Android device penetration and increasing access to both narrow- and
broadband connections. We continue to forecast that the number of Internet users in India will surpass
400 million by 2018, and potentially reach 500 million, while already becoming the second-largest
Internet market in the world by next year. While there are no clear online "whales" in India, as there are
in China (Alibaba, Tencent, Baidu), there are a number of larger scale and increasingly formidable
players in market, for example FlipKart, InMobi, Zomato, and Ola.
Figure 2: Growing Base of Connected Consumers
0
100
200
300
400
2013 2014 2015E 2016E 2017E 2018E
Millions
Source: R.W. Baird estimates
E-commerce arms race continues. Since the start of 2015, Flipkart and Snapdeal have raised a total
of $1.2 billion from investors, while Amazon plans to "double down" on its investments in India,
according to CFO Brian Olsavsky. Moreover, India's Economic Times has reported that Amazon is
readying a $5 billion war chest, with the goal of growing India into its second largest market. In our
conversations with Amazon, it seems clear that the company does not intend to slip in the market as
occurred in China in recent years. Additionally, the company is expected to offer Prime and Instant
Video later this year. We estimate that Amazon already is the second largest online marketplace in the
country, and that ongoing investments in India will continue to pressure local e-commerce competitors,
which are already dealing with high cash burn rates.
s Amazon closing the e-commerce gap, still the No.2 player by our estimate. Recent data points
appear to indicate that the e-commerce battle in India may be tightening up among Flipkart, Amazon
and Snapdeal, the top three sites, respectively. According to data from Google, search queries for
Amazon are catching up to Flipkart (see Figure 3). According to comScore's May traffic data, Amazon
India's 23.6M unique visitors (+142% Y/Y) beat out Flipkart's (23.5M, +80%) and Snapdeal's (17.9M,
+90%). Amazon now has 20 fulfillment centers operational across 10 states in India with storage
capacity exceeding 4 million cubic feet. Additionally, Amazon and Snapdeal's investments in financial
services marketplaces (Bank Bazaar and RupeePower, respectively) appear to indicate a specific
focus on transforming their platforms into full-service offerings. More importantly, we would highlight
that India has the potential to become Amazon's second-largest market within 10 years.
September 24, 2015 | Internet
3Robert W. Baird & Co.

4. Figure 3: Flipkart the leader; but still a three-horse race
0
10
20
30
40
50
60
70
80
90
100
2012 2013 2014 2015
Amazon.com Flipkart Snapdeal
Source: Google India Trends
s Flipkart discloses robust user and growth metrics. Earlier this summer, Flipkart announced that
unit sales have increased 150% Y/Y for the year-to-date, driven by new category launches, improved
logistics, and 45 million active registered users. Flipkart has 30,000 sellers on its marketplaces with
plans to reach 100,000 sellers by the end of 2015. Although more than 75% of traffic to Flipkart
comes from mobile devices, the company recently delayed plans to shift to a mobile-only selling
strategy.
s Marketplace model dominates - thus, companies focus on helping 3P sellers. In the past
months, Amazon has announced a number of seller-focused initiatives in order to boost the
company's vendor base, including a SMB lending program and a global selling program to enable
Indian vendors to sell internationally. Flipkart, Snapdeal, and Alibaba have also announced similar
initiatives focused on recruiting sellers to their respective platforms.
s Alibaba represents another well-capitalized player with the potential to disrupt Internet India.
Alibaba recently participated in Snapdeal's $500M funding round. In essence, Alibaba's India strategy
appears to focus on creating an ecosystem that revolves around mobile (Micromax), cross-border
trade (Trade Facilitation Center), payments, and commerce (PayTM). In August, AliExpress (~1M
sellers and ~100M SKUs) will begin selling via PayTM. Additionally, according to Reuters, Alibaba is
in talks with PayTM to increase its stake in from 25% to 40%, and represents another well-capitalized
player with the potential to disrupt commerce and payments.
September 24, 2015 | Internet
4Robert W. Baird & Co.

5. s WhatsApp remains the top social media app. When visiting India, it becomes immediately
apparent that practically everyone with a smartphone uses Whatsapp. Search data suggests that the
messaging app continues to maintain a sizable lead over competitors (see Figure 4).
Figure 4: WhatsApp the clear messaging leader
0
10
20
30
40
50
60
70
80
90
100
2013 2014 2015
WhatsApp Twitter WeChat hike
Source: Google India Trends
Mobile, the unconquered frontier. With 314 million mobile Internet users expected by 2017, according
to the Internet and Mobile Association of India, mobile is already the most important medium for
e-commerce companies due to increasing availability of inexpensive smartphones and data plans to
users in rural areas. We note that Flipkart has stated that 75% of total traffic is coming from its mobile
app (vs. 6% in 2014), and SnapDeal last reported that 75% of the company's sales happen through a
mobile device.
eBay pares stake in Snapdeal; challenges abound. According to Livemint, eBay sold approximately a
third of its 9% stake in Snapdeal recently. We note that eBay had previously stated that the acquisition
of Snapdeal was not out of the question, however, following the aforementioned $500M funding round, it
appears eBay has realized an acquisition will likely be too expensive and the company plans to reinvest
a significant amount of the sale proceeds into eBay India, which continues to see challenges
establishing a foothold in the growing Indian e-commerce market. According to India's Office of
Registrar, eBay has invested over #4.3 billion ($64.5 million) in eBay India since March. We also note
eBay's recent push into the refurbished electronics market, an estimated $15 billion opportunity.
Currently, only 10% of eBay India's sales are refurbished or used, and the company believes that the
number could double to 20% by next year.
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5Robert W. Baird & Co.

6. Figure 5: Notable Funding Rounds of 2015
Sec to r Co m p an y D es c rip tio n A m o u n t R a ise d V alu a tio n K ey I n ve s to rs
Flipkart Online Marketplace $700M $15B Tiger, Steadview
Snapdeal.com Online Marketplace $500M $5B Alibaba, Softbank, Foxconn
Pepperfry Online Home Décor $100M N/A Goldman Sachs, Norwest
E-commerce Bank Bazaar Financial Services Marketplace $60M N/A Amazon, Fidelity
Urbanladder Online Home Décor $50M N/A Sequoia, Steadview
Zovi Local Deal Marketplace $50M N/A PayTM, Tiger
Naaptol E-commerce/Teleshop $21M N/A Mitsui
Quikr Online Classifieds $210M $900M Tiger, Kinnevik, Steadview
Zomato Local Reviews $50M >$1B Info Edge
Local Services Sulekha Online Classifieds $28M N/A GIC Ventures
Mswipe Mobile POS $25M N/A Matrix
Zopper Local Shopping $20M N/A Tiger, Steadview
Foodpanda Online Food Delivery $100M N/A Goldman, Rocket
BigBasket Online/Mobile Grocery $50M $1B Bessemer
Grofers Local Delivery $35M >$100M Tiger, Sequoia
Swiggy Online Food Ordering $16M N/A DST, Norwest, Accel
Ola Cabs Taxi-hailing App $400M $2.5B Tiger, DST, Steadview
Ecom Express E-commerce Logistics $133M N/A Warburg Pincus
Delhivery E-commerce Logistics $85M $350M-$400M Tiger, Steadview
Saavn Music Streaming App $100M $300M-$400M Tiger, Liberty
Practo Online Appointment App $90M $525M Google, Tencent, Sequioa
Homelane Interior Design $50M N/A Sequoia
PolicyBazaar Online Aggregator $40M $160M Tiger
Mobikwik Digital Wallet $25M N/A Cisco. Sequoia, AMEX
Online Grocery &
Food Delivery
Transportation &
Logistics
Payments &
Other
Source: Company reports
September 24, 2015 | Internet
6Robert W. Baird & Co.

7. Appendix - Important Disclosures and Analyst Certification
Covered Companies Mentioned
All stock prices below are the September 23, 2015 closing price.
Amazon.com (AMZN - $536.07 - Outperform)
Apple, Inc. (AAPL - $114.32 - Outperform)
eBay Inc. (EBAY - $25.59 - Outperform)
Facebook, Inc. (FB - $93.97 - Outperform)
Google, Inc. (A) (GOOGL - $653.29 - Outperform)
Google, Inc. (C) (GOOG - $622.36 - Outperform)
Twitter, Inc. (TWTR - $26.79 - Neutral)
(See recent research reports for more information)
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Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market
over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months.
Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12
months.
Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on
safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and
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8. cannot guarantee the accuracy.
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