India’s largest e-commerce player Flipkart is taking over eBay India through a major $1.4 billion investment deal with eBay, China’s Tencent and Microsoft, and is poised to snap up struggling number three Snapdeal in rapid consolidation moves which could also impact B2C logistics and delivery in the country.
The deals could create an ‘Indian e-commerce national champion’ to fight off fast-growing number two Amazon, which is investing heavily in the country, and possibly also China’s Alibaba which is reportedly also looking at entering the Indian market. All three market leaders are making heavy losses as market growth slows.
The deals could also lead to a shake-up in the Indian B2C logistics sector as both Flipkart and Snapdeal have their own delivery operations, Ekart and Vulcan Express, that could be merged into a larger business to compete with established players such as DHL’s Blue Dart, DPD partner DTDC, Gati and diverse start-ups.
Following weeks of speculation, Flipkart announced today that it has secured a massive $1.4 billion investment from Chinese e-commerce group Tencent, eBay and Microsoft in a funding round valuing the Indian e-commerce leader at $11.6 billion. The individual stakes in Flipkart gained by the three investors were not disclosed.
As part of the complex agreement, the relatively small eBay India business will become part of the Flipkart Group, although it will remain separate and trade under its well-known name.
“We are delighted that Tencent, eBay and Microsoft — all innovation powerhouses — have chosen to partner with us on their India journey. We have chosen these partners based on their long histories of pioneering industries, and the unique expertise and insights each of them bring to Flipkart. This deal reaffirms our resolve to hasten the transformation of commerce in India through technology,” said Sachin Bansal and Binny Bansal, the two founders of Flipkart.
The investment by eBay is accompanied by a strategic commercial agreement with Flipkart. In exchange for an equity stake in Flipkart, eBay is making a $500 million cash investment and selling its eBay.in business to Flipkart. However, eBay.in will continue to operate as an independent entity as a part of Flipkart.
Flipkart and eBay have also signed an exclusive cross-border trade agreement, as a result of which customers of Flipkart will gain access to the wide array of global inventory on eBay, while eBay’s customers will have access to unique Indian inventory provided by Flipkart sellers. Thus, sellers on Flipkart will now have an opportunity to expand their sales globally.
“The combination of eBay’s position as a leading global e-commerce company and Flipkart’s market stature will allow us to accelerate and maximize the opportunity for both companies in India,” said Devin Wenig, President and CEO of eBay Inc. “Our exclusive global trade partnership will allow eBay and Flipkart to reach even more consumers around the world."
Tencent, a leading provider of internet value-added services in China, joins as a strategic investor, bringing experience in linking social networking and e-commerce. Tencent will lend significant expertise to Flipkart as it furthers its leadership position across the e-commerce market in India.
“This strategic partnership enables Tencent to participate in the exciting opportunities in e-commerce and payments in India. We look forward to helping Flipkart to deliver compelling experiences to users throughout India, and to contribute to the development of the internet ecosystem there,” said Martin Lau, Tencent President.
The Flipkart founders added that the latest investment was a “landmark deal for Flipkart and for India” and hailed it as an endorsement of the Indian startup’s tech prowess, innovative mindset and its potential to disrupt traditional markets. Since launching 10 years ago, Flipkart has grown rapidly into the country’s leading e-commerce marketplace through organic sales and several acquisitions, including fashion websites Myntra and Jabong, and payments app PhonePe.
Flipkart increased revenues by 150% to Rs 19,520 million in the year ending March 2016 but its losses doubled to Rs 23,060 million as spending on sales discounts, marketing and logistics also increased heavily, according to Indian media reports.
Meanwhile, speculation is rife that Flipkart is poised to take over struggling rival Snapdeal, which operates a similar marketplace, in a much bigger deal that would represent the biggest consolidation of the Indian e-commerce market for many years.
According to numerous media reports in recent days, Snapdeal’s largest investor, Japan’s Softbank, which has a 33% stake, wants to buy out minority shareholders and then sell the firm to Flipkart for about $1 billion. This would ensure that it covers its total investment of about $900 million in the firm to date.
Snapdeal, which was overtaken by Amazon as India’s number two last year, has seen its sales, and valuation, plunge in recent weeks amid widespread uncertainty over its future. The company increased sales by over 50% to Rs 14,570 million in the year ending March 2016 but its losses soared to a staggering Rs 33,150 million, which were thus more than twice its revenues, Indian media have reported.
If Flipkart does acquire its smaller Indian rival, then it would gain customers, additional third-party sellers, a large number of employees and also Snapdeal’s logistics subsidiary Vulcan Express. Assuming that Snapdeal is consolidated into Flipkart, it would then be logical to merge Vulcan Express into Flipkart’s Ekart subsidiary as well.
Meanwhile, Amazon is in the midst of investing a massive $5 billion in its loss-making Indian operations to build up its business quickly. Amazon India’s revenues doubled to Rs 22,750 million in the year ending March 2016 but its loss also doubled to a massive Rs 35,720 million due to heavy spending on marketing, discounts and investments, Indian media reported.
The US e-commerce giant has just opened seven more Fulfilment Centres in India, giving it a network of 34 warehouses across the country, and also plans to open 33 local delivery stations to speed up deliveries.
