INVESTMENT EXPLAINED: What you need to know about Gross Commodity Value, the total amount of products sold through a website over a period of time
In this series, we break the jargon and explain a popular investing term or topic. Here it is GMV.
What is this acronym?
GMV is an easy-to-calculate metric popular in the e-commerce industry. It represents the gross value of goods, i.e. the total amount of products sold through a website over a period of time, and it appears in the results of UK and global e-commerce companies such as Alibaba, Asos, Boohoo, Deliveroo and Mercado Libre. , the Latin American titan.
GMV is a measure of performance, but while it can show a company’s total revenue, it’s before deducting costs like advertising and discounts. Goods that have been returned may also be included.
How is it used?
Online retailers who want to know their performance compare GMV figures on a quarterly or annual basis, or on a single trading day in the case of a promotional event held each year, such as Black Friday. Companies also often outline their ambitions in terms of increasing GMV.
GMVs are closely watched by analysts, as they can sometimes reveal that a company, which appears to have another mission, is in fact a retailer. For example, although the Tik Tok app is full of videos of people dancing, it is the fourth largest e-commerce company in China, as measured by GMV.
Performance: Although it may show a company’s total revenue, it is before deducting costs such as advertising and discounts
Other examples?
Klarna may be a buy-now-pay-later lender, but it publishes a GMV – a figure that is the total sales made by retailers to customers who rely on Klarna credit. This month, boss Sebastian Siemiatkowski said a 22% jump in its GMV was proof the company’s new strategy was putting it on the path to profitability.
Why are we hearing about GMVs these days?
More attention is being paid to these numbers as the rivalry between e-commerce names intensifies amid the cost of living crisis. To everyone’s surprise, the fast fashion platform Temu, founded in September 2022, has just become the most downloaded application in the United States. The company has reportedly promised to report a single day of GMV surpassing that of its main rival Shein by September. Temu is owned by Chinese giant PDD Holdings, formerly Pinduoduo. Shein, which was founded by secret billionaire Xu Yangtian, is the world’s largest fashion retailer.
Should I buy stocks in companies whose GMVs are increasing rapidly?
Not so fast. The GMV is not a guide to whether a business is profitable because it excludes costs. Indeed, one critic has dubbed GMV the “most useless metric”, while others favor the “slippery” description or dismiss it as a “vanity metric”.
This is largely because there is no standard definition of how the metric should be calculated. E-commerce players measure their numbers in different ways.
The figure may include goods that have been returned, and possibly those that were never delivered.
Any other e-commerce acronyms I need to know?
AOV (average order value), Bopis (buy online, pick up in store), Boris (buy online and return in store), Serp (search engine results page) and VTP (visits for purchase), which indicates the number of visits made by a customer before making a purchase.
