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Flipkart raises $1.4 bn at lower valuation; to acquire eBay India

10 April, 2017

E-commerce major Flipkart will acquire the Indian operations of eBay Inc. as part of a $1.4 billion (Rs 9,000 crore) fundraising round that will help it stave off intensifying competition from Amazon.com Inc.

Flipkart secured the money from Chinese Internet giant Tencent Holdings Ltd, US online retailer eBay and software giant Microsoft Corp, the Indian company said in a statement, ending weeks of speculation about the fundraising.

In a separate statement, eBay said it is investing $500 million and selling its India business in exchange for a stake in Flipkart. The portal eBay.in will continue to operate as an independent entity. Flipkart didn’t specify the amounts Tencent and Microsoft are investing.

This is the largest fundraising in the Indian Internet sector and values Flipkart at $11.6 billion, the company said in a statement. This is down about a fourth from the $15.2 billion peak valuation when it last raised funding in 2015.

On the positive side, this is a tad more than double the $5.6 billion valuation after US mutual funds managed by Fidelity and Morgan Stanley marked down their value of investments in the company.

Flipkart said the latest round takes the total it has raised so far to $5 billion, the maximum mobilised by any domestic online platform. “This is a landmark deal for Flipkart and for India as it endorses our tech prowess, our innovative mindset and the potential we have to disrupt traditional markets,” said Sachin Bansal and Binny Bansal, the company’s founders.

The announcement comes at a time when speculation is rife about a potential merger with Snapdeal, an e-tailer in which eBay has a stake and which is backed by Japanese Internet and telecom conglomerate SoftBank Group Corp.

Last week, VCCircle reported that Flipkart had raised capital from Tencent, Microsoft and eBay even as merger talks with Snapdeal were progressing. The report also said that Flipkart would raise a total of $2 billion, with $500 million coming from SoftBank as part of a merger deal with Snapdeal.

VCCircle had also reported that Flipkart was aiming to raise $1.5 billion, and looking to get a fourth investor other than Microsoft, eBay and Tencent to close the current round, which would see Tiger Global making a partial exit.

VCCircle was the first to report in August 2016 that Snapdeal was exploring merger talks with Flipkart. Now, the negotiations seem to be between SoftBank and Tiger Global, the major investors in Snapdeal and Flipkart, respectively.

Flipkart’s other major investors include Naspers Group, Accel Partners and DST Global.

Sandy Shen, research director at Gartner, said the funding will help Flipkart solidify its position as the market leader, at least in the short term, keeping Amazon and other rivals at bay. Amazon has previously committed to invest $5 billion in India.

Shen added that the investment from strategic investors will also bring technology and market expertise that Flipkart earnestly needs. “Flipkart has been and will continue to make acquisitions to increase scale, and the next challenge is to strategize the path to a sustainable business model within a set time frame,” she said.

Face-saving exit for eBay
The deal offers eBay India a face-saving exit from the Indian market. It had entered India’s e-commerce market much before Flipkart or Amazon with the acquisition of Bazee.com in 2004.

“The combination of eBay’s position as a leading global e-commerce company and Flipkart’s market stature will allow us to accelerate and maximise the opportunity for both companies in India,” said Devin Wenig, president and CEO of eBay Inc.

Though a small company by marketplace revenue, eBay was making a net profit, albeit tiny, till as late as 2009-10.

According to VCCEdge, the data research platform of News Corp VCCircle, it posted a net profit of Rs 2.24 crore and Rs 2.17 crore in 2009-10 and 2008-09, respectively. However, the arrival of Flipkart and Snapdeal, and the money they had raised to extend deep discounts to customers, completely disrupted eBay’s business model.

In 2015-16, eBay India reported a three-fold rise in revenue to Rs 392 crore from Rs 132 crore the year before, according to filings with the Registrar of Companies. Its net loss widened to Rs 262 crore from Rs 172 crore.

In 2014, eBay led a $134-million funding round in Snapdeal, acquiring a significant minority stake in the e-commerce firm. Subsequently, it pared its stake in a $500-million funding round that Snapdeal had raised from Foxconn and Alibaba, among others, in 2015. As of March 2016, it held a 6% stake in Snapdeal.

In November 2016, eBay had fired nearly 30% of its product and technology teams at the Bengaluru development centre. Latif Nathani, who was heading eBay’s India business until recently, had resigned from the company early this month. Last month, Ramkumar Narayanan, general manager and global head of monetisation products at eBay Marketplaces in India, had quit the company.

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Flipkart raises $1.4 bn at lower valuation; to acquire eBay India

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