The sharp mark-up by Vanguard fund may bring a much needed respite for the market-leader Flipkart, which has recently seen a series of markdowns, and whose attempts to acquire rival Snapdeal may have finally failed.
Flipkart today got a shot in the arm with a sharp turnaround in its fortunes even as news reports said that its rival Snapdeal has finally walked out of being possibly acquired by India’s leading e-commerce company. Asset management firm Vanguard reportedly marked up Flipkart’s valuation by a staggering 64%, after a series of valuation markdowns earlier.
Vanguard World Fund, which has equity shareholdings in several Indian firms such as HDFC Bank, Idea Cellular, Zee Entertainment, Ola Cabs (ANI Technologies), marked the value of its Series G shares in Flipkart at $107.78 as on May 31, which is up 57% from $68.73 per share at the end of the preceding quarter. Further, Vanguard marked the value of its Series H shares in the Indian e-commerce firm at $128.01 per share at the end of May, up 64% from $77.11 per share three months ago.
Earlier, Flipkart had continuously seen valuation markdowns by investors. Macquarie Group’s Optimum Fund in March valued the homegrown company at $10.4 billion, less than the $10.8 billion at the end of September. Flipkart has faced similar or steeper valuation markdowns by Morgan Stanley, which had valued the firm at a mere $5.3 billion in February this year, and Fidelity, which had pegged it at $5.56 billion in the same month.
Further, Vanguard’s latest mark-up of Flipkart reportedly values the firm at higher than the $11.6 billion, the valuation at which EBay, Microsoft and Tencent invested $1.4 billion in it in March this year. Flipkart’s existing investors include Tiger Global Management, Naspers Group, Accel Partners and DST Global. China-based Tencent owns social messaging app WeChat and has investments across various online companies like Practo, Ibibo etc. The sharp mark-up by Vanguard may bring a much needed respite for the market-leader Flipkart, which is operating in a hypercompetitive environment against fast growing rivals, specially the global giant Amazon, which is fast catching up to beat it in its home market.
Snapdeal fails to come through
Separately, Flipkart’s proposed acquisition of rival Snapdeal may have finally fallen through after several months negotiations and trying to work the deal out, as news reports said that Snapdeal has walked out of the talks due to disagreement over valuation. Flipkart had submitted a proposal to buy Snapdeal at less than $900 million, a far cry from the peak valuation of $6.5 billion seen as recently as one year ago in February 2016. As is widely known, Japanese investor Softbank, the single-largest stakeholder in Snapdeal, had pushed for its sale to Flipkart for $1 billion.
Softbank recently wrote off close to $1 billion on its equity stake in Snapdeal. 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 Flipkart — the larger player in the industry with a stronger foothold, and perhaps, better growth prospects in an increasingly competitive market.
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.