INVESTING EXPLAINED: What you need to know about GMV

INVESTING EXPLAINED: What you need to know about GMV

In this series, we bust the jargon and explain a popular investing term or theme. Here it’s GMV. 

What’s this?

The world of tech loves an acronym – and GMV is one of the online shopping sector’s favourite terms.

The letters stand for gross merchandise value or gross merchandise volume which is the total value of purchases made through an e-commerce site over a given period – either a month or a quarter. The figure provides a snapshot of the health of the business, and also gives an indication of its growth since the previous period.

How is it calculated?

It is calculated either by multiplying the number of transactions by the sales price of the goods, or by the average order value – or AOV. As we said, tech loves an acronym.

Isn’t GMV just revenues?

No. GMV is the values of the sales made using the site’s services. The site’s revenues come from the merchant fees that it charges to retailers.

Finger on the pulse: Gross merchandise value or gross merchandise volume is the total value of purchases made through an e-commerce site over a given period

Which companies’ GMV data makes the news?

People who follow the fortunes of such C2C (consumer-to-consumer) sites such as Ebay and Etsy pay particular attention to the GMV numbers. Ebay’s GMW for the second quarter of this year was £14.67billion. Etsy’s GMV for 2022 was £9.51billion. Also much talked-about is Shein, the Chinese fast fashion retailer which ships its clothing worldwide. Its GMV reached £24.17billion in 2022 but it forecasts that it will deliver £64.46billion in 2025.

Any others?

In this spotlight just now are the figures from Klarna, the Swedish payments group that’s best known for BNPL (buy now pay later) division which allows shoppers to spread the cost of purchases.

Klarna’s GMV rose by 14 per cent to £17.18billion in the second quarter of this year. This means that the 150m customers worldwide who use its credit are spending about £193m a day. About 18m of these customers are in the UK.

What does this mean for Klarna?

The group – which has 500,000 merchants worldwide and hopes soon to be returning to profit – may now be closer to a stock market flotation, having apparently resolved some of last year’s problems.

In 2021, the business was considered to be worth as much as £37.06billion.

But investors’ enthusiasm swiftly cooled, with the result that when Klarna sought funding in 2022 its valuation had dropped to £5.4billion.

But Klarna’s GMV rise will also raise the controversy around Government plans to regulate BNPL – which were another factor behind the slump in the group’s valuation.

Recently, rumours have emerged that this regulation could be shelved, based on the argument that this is a cheap form of credit at a time of high interest rates.

What could further raise the GMV of e-commerce platforms?

The advances in generative AI (artificial intelligence) should boost transactions and so the GMVs of these businesses. Klarna’s app promises to offer ‘a new AI-powered personalised shopping feed’.

Businesses that sell through Tik Tok, the video app owned by Chinese group Byte-Dance, are offered GMV ‘optimisation’ that aims to boost their Roas (return on ad spend). You cannot escape those acronyms.