India's Flipkart Readies for Battle with $1.4 Billion Infusion - eMarketer

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India's Flipkart Readies for Battle with $1.4 Billion Infusion

Cash will help ecommerce platform take on Amazon and Alibaba

April 11, 2017

India-based ecommerce platform Flipkart is positioned to take on the threat posed by foreign firms Amazon and Alibaba, adding $1.4 billion to its coffers in a new round of funding that gives it a post-transaction valuation of $11.6 billion.

The funding was led by WeChat parent company Tencent, but it also included ecommerce auction platform eBay and Microsoft. (Flipkart acquired eBay’s India operations in exchange for an equity stake.)

Flipkart now has more resources to draw on in an expected battle with Amazon, which has pledged to invest $5 billion in its India operations, and Alibaba, which has entered the market via investments in homegrown digital payments platform and ecommerce service Paytm.

But the new funding was also a down round: Flipkart raised $700 million at a $15.2 billion valuation in 2015, signaling the challenges the company faces in an increasingly competitive ecommerce sector.

Flipkart’s funding round also seems aimed at leveraging the technological and business expertise of its new investors.

“We look forward to helping Flipkart deliver compelling experiences to users throughout India, and to contribute to the development of the internet ecosystem there,” said Tencent president Martin Lau in a statement. The evolution of Tencent property WeChat from a messaging app in China to a mobile platform offering a range of communication, ecommerce, advertising and financial technology services could serve as a useful road map for Flipkart.

Flipkart plans on taking advantage of eBay’s global presence, having signed a cross-border deal that gives Flipkart’s shoppers access to goods sold by vendors on eBay worldwide, while eBay’s shoppers will gain entry to Flipkart’s inventory in return.

Ecommerce Platforms from Which Digital Buyers in India Have Made a Purchase, April 2016 (% of respondents)

Even in the face of new challenges from foreign entities, Flipkart still holds a strong position in the market. An April 2016 poll of digital buyers in India conducted by Trinity McQueen on behalf of the Royal Mail Group found that 87% of respondents had made a purchase on Flipkart in the three months prior to the survey, more than any other ecommerce service. Amazon was not far behind at 79%, while 65% had used local platform Snapdeal.

Flipkart also has strong appeal among mobile shoppers. Cheetah Mobile found that Flipkart’s mobile app had the highest reach of any mcommerce app among Android smartphone users in India, at 16.3%. That was higher than Amazon India (13.1%) or Snapdeal (6.0%).

Top 10 Mcommerce Apps Among Android Users in India, Ranked by Reach, Sep 26-Oct 2, 2016 (% reach)

Flipkart’s strong position among this cohort is especially important in India, a mobile-first market where eMarketer estimates smartphone users will number 267.1 million this year.

News of the funding also comes amid ongoing and widely reported rumors that Flipkart is in talks to acquire rival Snapdeal, in a deal that gives the latter a valuation of about $950 million. According to a recent report in Bloomberg, SoftBank Group, which owns a 33% stake in Snapdeal, is pushing to have the company reduce its valuation to $1 billion, or about 85% of its value, to cement the deal.

India appears set for a wave of consolidation in 2017 as smaller but still viable ecommerce players either merge or fold operations in the face of strong competition from deep-pocketed players like Amazon.

So far, domestic players have used discounts and other promotions to attract buyers, but that’s created a climate where shoppers bargain hunt for the lowest price and show little loyalty to platforms.

But it remains to be seen if Amazon can conquer problems arising from India’s spotty infrastructure to master logistics in the country the way it has in the US. In addition, Amazon faces government regulations in India that require it to operate as a marketplace, eliminating some benefits it might accrue by using an inventory model to put its warehousing and shipping experience to good use.

At stake is a substantial brass ring.

eMarketer estimates retail ecommerce sales in India will see double-digit growth annually over the next four years, increasing from $23.4 billion this year to $47.5 billion in 2020.

However, it should be noted that new estimates for the country’s ecommerce retail sector were sharply curtailed as a result of India’s surprise move to stop recognizing two high-value denomination cash notes as a way to crack down on tax evasion and corruption.

Rahul Chadha

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Shifts in how retailers and consumer packaged goods (CPG) brands think about ecommerce, combined with an accelerating acceptance among consumers for buying food digitally, have boosted online sales of groceries. Retailers and brands are taking note of these changing consumer behaviors and offering more digital options for grocery shopping and delivery, which will continue to drive the trend upward in 2017 and beyond. Preview Report

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