Billion-Dollar Unicorns: Flipkart's Valuation Bodes Unsteady Future

| About: Flipkart (FPKT)

Summary

Flipkart originally began by selling books on their site, but it has now evolved into a full-scale online retailer with over 40 million products across over 80 categories.

Today it has more than 75 million registered users, 85,000 sellers, 17 state-of-the-art warehouses, and the capability to ship over 8 million packages per month.

However, increasing competition from Amazon and its ballooning losses have affected its valuation.

The entry of Amazon (NASDAQ:AMZN) in the Indian e-commerce market has drastically changed the market landscape. Snapdeal's (Private:DEALS) market share has dropped to 14% from 19%, while Amazon's market share has increased to 24% from 14%. Flipkart's (Private:FPKT) market share has dropped from 43% to 37%, and while it still continues to lead the market, its valuation has taken a drastic beating.

Flipkart's Journey

Founded in 2007 by former Amazon employees Binny Bansal and Sachin Bansal, Flipkart originally began by selling books on their site, but it has now evolved into a full-scale online retailer with over 40 million products across over 80 categories. Today it has over 75 million registered users, 85,000 sellers, 17 state-of-the-art warehouses, and the capability to ship over 8 million packages per month.

In 2012, it expanded its portfolio to include a Lifestyle and Fashion portfolio and in 2014 it acquired fashion portal Myntra for an estimated $300 million. It has probably been one of Flipkart's best moves to fight Amazon. And it has backed it up with the acquisition of Jabong for $70 million in July this year. Flipkart now leads the online fashion market in India with 65% to 70% market share.

Flipkart Fashion claims to have 60,000 brands, 5 million styles, over 8 million listings, and over 100 million searches a month. The fashion vertical on Flipkart is estimated to have gross sales of INR 350-400 crore ($50 million to $60 million) a month, before returns, which accounts for 15%-20% of the total sales. The higher margins from its online fashion sales also act as a cushion against aggressive competition from Amazon.

During the recent festival season sale events, Flipkart is reported to have outsold Amazon India with unit sales of 15.5 million compared with 15 million units for Amazon.

Flipkart's Financials

Flipkart does not disclose details of its financials. Analysts estimate its 2015 losses to be INR 2,000 crore ($300 million) while Amazon India and Snapdeal reported losses of INR 1,723 crore ($258 million) and INR 1,328 crore ($200 million), respectively.

Flipkart has raised $3 billion in funding so far from investors including Tiger Global Management, DST Global, Qatar Investment Authority, T. Rowe Price, Steadview Capital, Greenoaks Capital Management, Baillie Gifford, Sofina, Singapore GIC, Morgan Stanley, Accel Partners, Naspers, Iconiq Capital, Dragoneer Investment Group and Vulcan Capital. Their last round of funding was held in May 2015 when they raised $550 million at a valuation of $15.5 billion, increasing significantly over the $1.6 billion that they were valued at back in 2013.

The increasing competition from Amazon and its ballooning losses have affected its valuation. Morgan Stanley values Flipkart at $9.39 billion while Valic, Fidelity, Vangaurd Group, and T. Rowe Price have also cut down Flipkart's valuation.

Wal-Mart (NYSE:WMT) is reportedly exploring an equity partnership with Flipkart, similar to its deal with JD.com (NASDAQ:JD) in China. Wal-Mart's Best Price wholesale stores are currently present in two-tier cities like Agra, Jammu, Guntur and Chandigarh. The deal is expected to allow Flipkart to leverage Wal-Mart's global supply chain and increase its efficiency in product assortment, procurement and improve its technology platform. Wal-Mart reported e-commerce sales of $14 billion and total revenue of $482 billion in 2015. If Wal-Mart enters the Indian e-commerce through Flipkart, it will be interesting to watch what unfolds. If they buy Flipkart at a reasonable valuation, the Indian e-commerce market will breath a sigh of relief. If not, the unease will continue for a while.