INVESTING EXPLAINED: What you need to know about gross merchandise value, the total amount of products sold through a website over period of time
In this series, we bust the jargon and explain a popular investing term or theme. Here it’s GMV.
What is this acronym?
GMV is an easy-to-calculate metric popular in the e-commerce sector. It stands for gross merchandise value, that is, the total amount of products sold through a website over period of time, and it appears in the results of such UK and global e-commerce companies as Alibaba, Asos, Boohoo, Deliveroo and Mercado Libre, the Latin American titan.
The GMV is a measure of performance, but although it may show a company’s total revenues, this is before the deduction of costs such as advertising and discounts. Goods that have been returned may also be included.
How is it used?
Online retailers who want to know how they are performing compare GMV figures on a quarterly or annual basis, or on a single day’s trading in the case of a promotional event held every year, like Black Friday. Businesses also often outline their ambitions in terms of increases in GMV.
GMVs are closely monitored by analysts, because sometimes they can reveal that a business, which seems to have another mission, is actually a retailer. For example, although the Tik Tok app is full of videos of people dancing, it is China’s fourth largest e-commerce business, as measured by GMV.
Performance: Although it may show a company’s total revenues, this is before the deduction of costs such as advertising and discounts
Any other examples?
Klarna may be a buy-now-pay-later lender but it publishes a GMV – a figure that is the total of the sales made by retailers to customers relying on Klarna credit. This month, boss Sebastian Siemiatkowski said that a 22 per cent jump in its GMV was evidence that the company’s new strategy was putting it on the path to profitability.
Why are we hearing about GMVs just now?
More attention is being paid to these figures as rivalry between e-commerce names heats up against the background of the cost of living crisis.
To some surprise, the Temu fast fashion platform, founded in September 2022, has just become the most downloaded app in the US.
The business is said to have vowed to report a single day of GMV that tops that of its chief rival Shein between now and September. Temu is owned by the Chinese giant PDD Holdings, formerly Pinduoduo. Shein, which was founded by the secretive billionaire Xu Yangtian, is the world’s largest fashion retailer.
Should I be buying shares in companies with fast-rising GMVs?
Not so fast. The GMV is not a guide as to whether a business is profitable because it excludes costs. Indeed, one critic has dubbed the GMV the ‘most useless metric’, while others prefer the description ‘slippery’ 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 figures in different ways.
The figure can include goods that have been returned, and perhaps those that have never been delivered.
Any other e-commerce acronyms that 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 to purchase), which shows how many visits a customer makes before making a purchase.