How Flipkart's devaluation can be worrisome for the eCommerce industry

These downgrades will happen in industry till there is proper business model.
Flipkart Devaluation

Is a just a fluke or a sanity of future for the eCommerce horizon in the country? After a superlative booming decade, now it seems like the online industry is going through a bit of atrocity from the past one year. 2015 was not considered to be a good year for the digital retailers as the industry saw many hiccups in terms of sales and revenue. Shunning discount, fight back from brick-and-mortar retailers, increasing competition within, investor’s pressure and many other factors curtailed the expansion spree of the industry. Many poster boys of eRetail such as Snapdeal, Amazon India, Flipkart, Myntra etc. saw a splurge in sales, but somehow couldn’t manage to restrain their losses.

Recently the American multinational finance services corporation Morgan Stanley, has marked down the investment value of one of the leading eCommerce players Flipkart by over 25 percent.  Morgan Stanley is also a minor but an important investor in Flipkart. The eCommerce giant was valued at $58.9 million in December, down 27 per cent since June 2015. This is part of the $3.15 billion the Indian e-commerce giant has raised so far. Plans to raise another $1 billion, could be a down round as investors could benchmark Flipkart at $11 billion, the valuation the US mutual fund has set.

This market down can be lethal for Flipkart as its immediate competitor Amazon India has infused heavy investment and has sharp plans to triumph over the online market in India. Even the Chinese eCommerce giant Alibaba is in talk with companies like Paytm and Snapdeal to strengthen its foothold in the country.

"Till the time valuation will be calculated on market assumptions, & inflated GMV, this is bound to happen! It was not a big shocker but will surely impact other players as well," said Rahul Sethi, Marketing Head of Royzez.com.

Morgan Stanley has dipped Flipkart’s stake to $103.97 per share. This is 27 per cent below the price of its last fundraising round. Last year, Morgan Stanley had valued Flipkart’s per share little over $142 per share. This devaluation comes just a week after Flipkart’s claimed that it’s valued $15.2 billion. The fall in share reduces Flipkart’s valuation to $11 billion.

This downfall in Flipkart’s valuation was not shocking news for many as the market has been expecting a correct valuation of these eCommerce firms. Darshan Patodi, Co-founder, Yellowfashion.in told Retailer Media, “I am not too surprised with southward valuation of Flipkart. Apart from current intense competition which they are facing, I believe this sudden correction or rationalisation on Flipkart's Valuation is more due to current Global pressures on the Investment community.”

Certainly, the eCommerce industry is at an unprecedented stage with a lot of new happenings taking place across various verticals. Flipkart’s domestic rival Snapdeal has recently witnessed a 30 percent splurge in its valuation after raising $200 million. The Gurgaon-based eRetail giant is currently valued at around $7 billion.

“I strongly believe businesses like Flipkart are more long term and sustainable. These corrections will only help them become healthier with time. I don't think we should get too shaken by slight movements of valuation northward or southwards as this will again come back to happier levels as the Investment turmoil settles,” said Patodi.

Looking at the move, it won’t be wrong to say that now these eCommerce players need to build a livable business model to secure high valuations. “These are signs of correction. We are a long way from maturing as a startup ecosystem and should be viewed as putting a break on the mindless valuation game. Hopefully, now the investors will be looking beyond the scale of business as one of the parameters while writing the cheque,” said Vishakha Singh, Founder and CEO, Red Polka (an online fashion discovery portal).

“However, does not mean any slowdown in startup valuations and are just speed breakers while we are on the startup highway, which was much needed. Now an entrepreneur with a sound business model also stands a chance of attracting funding,” she added. 

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