Behind the much-hyped recent acquisition of global e-commerce major eBay’s Indian unit by Flipkart, and its subsequent $1.4 billion of funding (largest ever in its domain) lies a not-so-rosy picture.
Contradictory to some perceptions that this move will help the leading Indian online retailer close in on its international rival Amazon, experts feel there is no immediate reason to believe so.
Moreover, the founders of Flipkart, Sachin and Binny Bansal (not related to one another), have now lost their billionaire status.
According to Mint, the Bansals are currently worth $650-750 million each, following the recent reduced valuation of Flipkart, at $11.6 billion.
Here are the four other important developments you should know about:
1) Experts believe that in order to compete with Amazon, the company has to pip Amazon in user experience and service, rather than inch past its rival in funding.
“My view is that it is no longer possible to out-fund Amazon because it is profitable in other parts of the world. So putting another $5 billion in India is not an issue. So if you can't out-fund, you have to out-compete with Amazon to beat it in the e-commerce game," K Vaitheeswaran, an expert in the field, told DNA.
"One should never bring a knife to a gunfight because you will never win the war and that's exactly what is happening in this case. Under the circumstances, I am not getting the confidence, based on current evidence, that the money being raised will be deployed to out-compete Amazon. Flipkart will continue to raise more until somebody in the company realises that they are on the wrong track," another expert told the newspaper.
2) Flipkart has made more losses than Amazon in the last financial year, and has become the company making the highest losses in the sector. While Flipkart lost Rs 5,223 crore in financial year 2016, Amazon’s losses tally was at Rs 3,571 crore, making it the second on the loss-making list in the e-commerce space.
3) Before this round of investment of $1.4 billion from Tencent, eBay and Microsoft, Flipkart was snubbed by at least 15 of its potential investors, which included the likes of Alibaba Group, Foxconn, Ontario Teachers’ Pension Plan and Canada Pension Plan Investment Board.
The struggle to find investors was simultaneous with a series of markdowns faced by the company from some of its own investors (as many as five) and also other rating agencies including Morgan Stanley.
4) While Flipkart and its rival Amazon fight it out to be the most-valued and most loss-making companies in the Indian e-commerce space, it is smaller rivals like Shopclues and Snapdeal which are much closer to profitability.