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From E-Commerce to Web 3.0: Flipkart Sees Valuations Rise, Profitability Still a Challenge

Posted on Tuesday, Jun 30th 2015

Last year, Chinese e-tail giant Alibaba went public on the New York Stock exchange. Alibaba has been the role model of several e-commerce companies. One of their avid followers, India-based Flipkart, is now eyeing an IPO in the US markets as well. The company is already seeing strong growth in its valuation driven by the growing e-commerce market in India. Gartner expects the Indian e-commerce market to grow 70% this year and Morgan Stanley estimates the Indian market to grow to $137 billion by the year 2020.

Flipkart’s Financials

Founded in 2007 by Amazon’s alumni Binny Bansal and Sachin Bansal, Flipkart is the biggest online marketplace in India. With 45 million registered users, the site ships over 8 million packages per month. Flipkart originally began by selling books on their site, but driven by market need, it soon expanded to other categories. Today they list over 30 million products and deliver to more than 1,000 cities in the country. They are targeting to grow the gross merchandise value of goods shipped from their site to nearly $10 billion-$12 billion by March 2016. Analysts estimate that Flipkart commands nearly 45% of the Indian e-tail market and is a formidable rival for Amazon, who is also strengthening their presence in the country.

Flipkart does not report their financials. In an earlier press report, analysts estimated their fiscal 2013 revenues at INR 1,180 crores (~$185.5 million) with losses of INR 281.7 crores (~$44.3 million).

But their losses haven’t swayed the investors away. They have 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 this year 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.

Market rumors suggest that now Flipkart is eyeing a Wall Street IPO by next year. They are expected to raise $5 billion through the round, making them India’s biggest IPO. Flipkart has not commented on these reports.

Flipkart’s valuation seeems rather unreasonable given their current financials. The market appears to be valuing the e-commerce players based on the market opportunity. While it is understandable that the e-commerce market offers high growth potential, the valuations should still be looked at in comparison with total retail sales. Even by the year 2025, e-commerce in India is estimated to account for a mere 10% of total retail sales. Additionally, Flipkart, like its competitors, is busy attracting buyers and sellers by offering heavy discounts, thus keeping profitability a distant dream. Several analysts believe that these valuations represent a bubble ready to burst, and I agree with them.

Flipkart’s Innovations

Meanwhile, Flipkart continues to grow with several innovative investments. Earlier this quarter, they strengthened their supply chain expertise by tying up with the famous Dabbawalas of Mumbai. The Dabbawalas are known for their six sigma delivery model where the 5000 carriers of lunch boxes in Mumbai deliver error-free, 200,000 freshly made lunch boxes to people’s offices. Flipkart will leverage the logistical expertise of the Dabbawalas for the last mile delivery of their shipments. They are currently targeting the service for prepaid orders and will expand it to Cash On Delivery shipments.

In March this year, they acquired mobile ad network AdIQuity for an undisclosed amount. AdIQuity’s mobile platform provides advertisers with solutions for mobile, interactive, and video ads that target the consumer based on their location. They claim to have over 25 billion ad impressions per month across 200 countries. The acquisition is expected to be part of Flipkart’s strategy to diversify into more profitable ventures.

You can learn about the journeys of many other successful e-commerce entrepreneurs in my book From E-Commerce To Web 3.0 and here on my blog.

This segment is a part in the series : From E-Commerce to Web 3.0

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