Softbank Group’s $1 billion write-off on valuation of its stake in Snapdeal shows the reason why it is desperate to exit the investment and switch its holding in the struggling Indian e-commerce major with that in other robust firms such as Flipkart and Paytm. Softbank’s write-off on Snapdeal this week is bigger than its original cumulative investments worth $900 million so far in just over two-and-a-half years.
The rapid decline in Snapdeal’s valuation, with no recovery in sight, seems to have prompted Softbank to cut its losses and exit the investment while there is still time, in favour of buying into a larger player in the industry with a stronger foothold, and perhaps, better growth prospects in an increasingly competitive market.
Snapdeal value tumbles
Snapdeal, in which Japan’s Softbank is the single largest investor, has seen its valuation plummet from the peak of $6.5 billion as recently as one year ago in February 2016. Softbank is reportedly seeking a valuation of just $1 billion for selling Snapdeal now. This leaves Softbank with just about $333 million on its one-third equity stake held in Snapdeal.
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Softbank’s investment value in Snapdeal has steadily fallen over the last one year, after it invested $627 million in the Indian firm at a value of $1.8 billion in October 2014. Earlier too, the Japanese conglomerate recorded losses on its investments in Snapdeal in February this year and in November last year.
Snapdeal, which once was the second-largest player in the Indian e-commerce space just behind Flipkart, failed to control costs while pursuing aggressive growth. Later, in an effort to control the spiralling costs, it slowed down on customer acquisition. On the other hand, Flipkart and Amazon India continued to pump in money to garner more and more market share.
Flipkart, Paytm boost confidence
In April, Flipkart pulled a coup by buying Indian business of the EBay Inc, as part of an exercise to raise $1.4 billion — its single-largest to date — from a consortium of Tencent, Microsoft and EBay (read full story). The deal valued Flipkart at a whopping $11.6 billion. Further, acquisition of EBay is expected to bolster Flipkart’s strength not only in the home market, but also give it a toehold in overseas markets with access to a global inventory.
Flipkart seemed to be building a warchest compete better with the fast growing rivals, specially the global giant Amazon, which is fast catching up to beat it in its home market. Amazon, on its part, has committed $5 billion investment into India, indicating its bullishness on the market.
In yet another recent development, Softbank was reported to be interested in one more technology company — India’s leading mobile wallet and payments company Paytm — with a proposed investment of $1 billion (read full story). The deal, if successful, would raise Paytm’s valuation at over $7 billion from $5 billion last year. Notably, Chinese e-commerce giant Alibaba, in which Softbank is an investor, also recently picked up a significant equity stake in the newly-formed marketplace business of Paytm (read full story).
With Flipkart and Paytm gaining momentum, and Snapdeal struggling all the way, it’s no surprise that Softbank wants to jump ship.