I find Flipkart's valuation very puzzling clearly the investors have seen what I haven't. Flipkart's revenue is extremely less for a population of the size of India. They makes ~$200M in revenues per year with an operational loss which I am told is significant.
Flipkart has managed to scale its revenue but without making a profit. Even this would have appeared as a good opportunity if Flipkart was kind of de-facto e-commerce business in India. Turns out that it is not. Snapdeal, Junglee (Amazon India) are pretty close. Myntra was the leader in apparel and fashion products sale online which was then acquired by Flipkart. (Myntra was not profitable either).
I find it hard to understand why anyone believes that Flipkart would ever make profit in next 5 years or so. I find it hard to believe.
Unlike USA, India has not yet figured out how to build proper usable roads, the cities are not planned and India does not have a proper addressing system. Government regulations have further made life difficult for courier companies. All this has resulted into cities and towns where traveling over few kms is very expensive and time consuming as a result small shops catering to need of local communities have sprung up like mushrooms. Current India is probably resembles more to the A&P days of USA.
My assertion is validated by the fact that Travel Booking and Movie ticket booking websites in India are growing fast and also very profitable.
Interesting to see how Flipkart and Amazon go about overcoming these challenges. One example, from story posted by skbohra123 :
"Logistics: On the logistics side, Amazon India had launched a pilot program to test in-store pick-up service in Delhi and Mumbai in association with BPCL’s In & Out stores. Shoppers were provided the option to select In & Out as the pick-up of point of their Amazon purchases during the checkout process.
This pilot was later extended to Bangalore in the following month, wherein it allowed customers to pick-up their Amazon purchases from local kirana shops."
I find people's (especially Indian's) puzzled reaction to news about flipkart's funding puzzling. Flipkart has altered the online buying habits of urban Indians significantly. I would be surprised to meet an urban Indian today who has not heard about flipkart. By urban I mean the tier 2-3 cities as well. So is it just the fact that the current revenue numbers do not add up that makes it puzzling to some (most??) ? If I was an investor, I'd bet on flipkart, solely based on watching the change in spending habits of the urban Indians over the last 5 years. Instead on narrowly focusing on the online business if you take a broad look at the way things are changing the tier 2/3 cities in India you'll understand the investor optimism. You mentioned:
> Unlike USA, India has not yet figured out how to build proper usable roads,
> the cities are not planned and India does not have a proper addressing
> system. Government regulations have further made life difficult for courier
> companies. All this has resulted into cities and towns where traveling over
> few kms is very expensive and time consuming as a result small shops
> catering to need of local communities have sprung up like mushrooms.
...but like almost any other success story in India, flipkart has become a recognizable brand despite this !! ...isn't that reason enough to undestand why the investors feel like this is going to be worth it ?
-- "If I was an investor, I'd bet on flipkart, solely based on watching the change in spending habits of the urban Indians over the last 5 years. Instead on narrowly focusing on the online business if you take a broad look at the way things are changing the tier 2/3 cities in India you'll understand the investor optimism" --
The U Michigan management academic, C. K. Prahalad (with an Indian science administrator, Mashelkar) had written an article about innovating for the Indian economy in the Harvard Business Review. The summary of their article is that Indian companies tend to figure out a way of innovating around these constraints [1]. They present a few case studies, notably in the mobile telephony and pharma sectors. The companies face pretty much the same problems that you talk about: poor infrastructure, etc. Certainly these can be insurmountable challenges. However, if the market exists, there is incentive to figuring out ways around this. The paper is worth reading to understand how Indian companies innovate.
Regarding non-standard addressing systems, etc. Anecdote: in my experience, courier systems are a little different in India than it is in the US. As I remember from my time there (lived there till 2007), the courier system is de-centralized. Local companies with a reasonably good knowledge of the neighborhood, etc. do the 'last-mile' delivery. The rest is usually managed by nationwide companies, including DHL, etc.
This is unquestionably true. Indians succeed by innovating around an oppressive and obscenely slow and dysfunctional government.
However the question I raised was whether Flipkart has come up with a financially profitable and scalable innovation. They might have; because clearly I do not have access to the kind of information that the investors must have had but looking at the public domain it appears that flipkart does not have that innovation. Their CEO is also admitting it in public:
"We have 22 million registered users, and almost similar number of customers. The way we look at it, when this figure reaches 100 million, we'll be in a position to think of profitability. When we have delivered products to one in three homes in India, we'll get to that point." - S Bansal
India follows the "Sheep Herd" mentality.
The whole country's economy is based on people getting into "Profitable" domains mostly following the success of a pioneer in the field.
The most recent example of this ideology is the "Business Process Outsourcing" industry.
New BPO units are propping up here and there at a dime a dozen leading to a quality deterioration in the final deliverable.
This process will continue till a saturation level is reached and then they will wait till another "Killer" domain picks up momentum.
Till then India will be in a so called "Calm Period" where nothing great and major takes place.
I think the valuation would be justified if they can leverage their IP and platform and are able to scale globally. Maybe the investors have seen how good and scalable their internal operations are.
You are right, India is a small market right now, but if they can build a low-cost model armed with a global supply chain, they can compete with Amazon in other markets too.
There is nothing unique about Flipkart's IP or business model that it will beat well established players worldwide. Is there any example of any Indian or other third world company expanding into US e-commerce or tech sector ?
Zoho is a great example i can think of an Indian startup (they were founded in India and primarily work out of Chennai even though they are headquartered in the US) which is making inroads into the CRM market worldwide; which is especially impressive considering that they are 100% bootstrapped and have rebuffed multiple attempts at acquistion including from Salesforce.com. They are also unconventional in that they don't look at degrees and even hire kids straight from high school. This despite the fact that the founder and CEO did his grad in IIT and got his PhD. from Princeton.
Mind giving us proof that Flipkart makes losses every year. I just find it too hard to believe considering the fact that prices on flipkart are most times higher than any other online retail chain.
For the uninitiated: Flipkart is AMZN of India. They are doing tonnes of sales here. FK is getting so much valuation as India does not have a big enough organised retail (roughly 5%). This means there is a generation which would move on from unorganized retail to online. And hence the astronomical valuations. FK also has some unique ideas. For instance, they launched Moto e, g and x in India as exclusive sellers. They managed to sell 1 million of those phones in last 6 months. This alone would have easily resulted in a $20-25 million rev.
Revenue normally refers to top-line or gross income. This is why I clarified with the 'net-' addition, it's probably what led to the confusion in the first place.
Flipkart nowadays anyway operates on a 'store' model for the most part so sales margin for this discussion could actually be meaningless anyway. But since they were doing an exclusive, perhaps they were directly selling, in which case it would be pertinent to the discussion.
3. I could buy books at 20%-50% discount and foreign edition textbooks easily. This is something we couldnt even dream about, in some parts of India
4. I could easily get products from lee, nike, puma,... at discounted price too. If you are not in a big city, then its difficult to get branded products and if you get then you need to worry about whether they are original or not
I bought close to 150 books from Flipkart, which would cost some 70$ more if I buy from local sellers.
I have my Toshiba Laptop, Moto G phone, Lee Shirt, Sennheiser Headphone, Reebok shoe all bought from online sellers :)
5) They implemented cash on delivery. A very brave and novel approach. This basically instilled confidence in the indian online buyer
6) Fast delivery. I will go ahead and say probably as good as Amazon or even better in big cities. They built warehouses in the big cities and stocked fast moving items in a lot of places
7) almost guaranteed savings on all things. I have rarely seen anything that is more expensive on FP compared to a store.
8) Good online experience. Little things like checking delivery using your pincode. Responsive site. Product suggestions.
How is cash on delivery novel? Where credit cards are not ubiquitous this is the only way to sell stuff online. Pretty much every single online store in my country did this for years.
Flipkart recently moved away from the Amazon warehousing model to an online marketplace model and I've heard nothing but complaints from customers regarding the switch. Even their own presence in the marketplace is unable to keep up the quality of service as it scales, and all kinds of scammy retailers have set up shop now which has made it relatively more dangerous to purchase on their service now.
I agree , from my personal experience, quality of their service has gone down since they moved to an online marketplace model. But from what I have heard on grapevine this was also a clever ploy to work around Indian law restrictions on FDI.
This answer on quoara details it all. Please, take it with grain of salt.
http://www.quora.com/Flipkart/What-could-be-the-reasons-behi...
So in other words, they tried to follow Amazon's "affiliates" business model but embraced it too hard because they didn't realize that everybody hates the affiliates and only ever buy from them on Amazon because of desperation or accident.
> Flipkart recently moved away from the Amazon warehousing model to an online marketplace model and I've heard nothing but complaints...
Could be worth noting Taobao here. Starting as C2C (unlike Amazon / a warehousing approach) it has largely moved to a store-based approach (B2C).
Given that Flipkart are moving towards B2C (via stores) it would be interesting to compare and contrast complements and conflicts the couple have in their respective markets.
I.
Flipkart is losing money definitely. But so is Amazon which has not reported a profit before last year. However Flipkart's losses are not for the same reasons as Amazon but it should not be forgotten that FK is never afraid to try out models and kill them if they fail. FK is following a lot of Amazon's footsteps but it is coming into its own quite a bit and given FK does not have to do the same mistakes that Amazon had to do for more than a decade, FK has a good second mover advantage.
II.
Flipkart has been a trailblazer in the Indian e-commerce space by forcing the users to internalize new habits. Getting them to trust the online e-commerce stores with their money and buying products online without a rethink, Cash on delivery and now 'online only sales'.
Amazon.in is also being forced to innovate at its own pace in India changing its last mile delivery models (IBP stores).
So right now this is anyone's game.
III.
Flipkart is simply bulking up its warchest on the impending war with Amazon. Neither of them are going to let go of the massive opportunity that they do not have any more in China. If Alibaba could do a single day $5.7 Bn sales on Nov 11, there is no reason to think why we might not be looking at a similar opportunity just as big in India where the human consumption potential is just as big!
However, the more it looks like India will not be a winner takes all market. Amazon, Snapdeal and Flipkart will have to contend with being 3 players in a huge ecommerce market in India unlike China or US... the rules are just hatke in India :) Of course there are still the pristine south east Asian markets for everybody's taking!
Wow. Is this real? Does anyone know anything about this company? Wikipedia has the company's revenue at 200m USD as of January, making an operational loss. They don't sell internationally.
Is there some important part to this story that we're missing? Seems like there must be something worth knowing about here.
On a slightly unrelated note, it's amazing that billions can be raised pre-IPO these days. It almost buries IPOs as a fund raising methods.I realize exit/liquidity was/is the bigger reason for tech IPOs already, but it seems somehow unnatural to completely abandon the role of financing. Not sure where I'm going with this.
> I realize exit/liquidity was/is the bigger reason for tech IPOs already, but it seems somehow unnatural to completely abandon the role of financing. Not sure where I'm going with this.
This is a big deal. It used to be that small but growing companies would IPO and we could all invest in it and reap the benefits of our infused capital if the company succeeds. The risk was high but so was the reward for regular folks. Think of everyone who invested in Apple, Microsoft, and Google. But over the last decade, large investors realized that instead of letting the whole market absorb the benefit, they could just cherry pick the most promising companies and invest in them, and reap the real benefits when the company IPOs at a much higher valuation.
This is what happened with Facebook. A $100B IPO does not mean Facebook is the most valuable company to IPO. It means the largest potential of growth that could be exploited, had already been exploited. Other than FB employees and pre-IPO investors, nobody got rich off FB. Similarly, nobody is going to get rich off Flipkart.
The effect this has on the long-term economy will be huge. Large investors will continue to gain the most from burgeoning companies while common folks will continue to see moderate 5% gains in their 401k and investment portfolios. The days of savvy investor are over.
Indian here. Will give you an idea of whats happening here in India. This online sellers got an impact only 2-3 years back. Now its like local government are formulating rules to curb online sales. This is in part fueled by the influence of local sellers.
Now people have moved to online stores for buying things, with local sellers feeling the heat.
First it was thought that Amazon entry to India will bury Flipkart. Not it seems Amazon is in trouble. Things looks like going in the same way as of China.
Flipkart started by IIT'ans the brightest minds of India. They recruit from top tech schools of India with hefty packages. They have a nice site and customer care. They also bought rival in Apparels, Myntra
There is no reason one shouldn't buy from Flipkart.
> Now people have moved to online stores for buying things,
> with local sellers feeling the heat.
Totally agree. Our shopping habits have changed drastically over the last year. Trips to the local stores have gone down from twice a week, to once on alternate weekends for specific items. We use a combination of online retailers, and were very happy to see Flipkart buy Myntra. Wondering if they would also like to gobble up more with the additional funding they get.
Stretching the online story further, I always wondered if it makes sense for Flipkart to take over an online book library, like JustBooks. They could ship every book with a note saying "If you liked reading this book, here's how to buy a copy from us". Flipkart does have much better quality of service than JustBooks!
I'm not sure if they can compete with Amazon. They're losing money and competing with Amazon which has deeper pockets.
Right now, their prices are higher and I can find (and have found) better deals on either Amazon or Snapdeal. Amazon has always delivered faster and the sellers are all the same on these sites now.
Not it seems Amazon is in trouble.
I think Flipkart is in real trouble here. Amazon can discount for long and eat losses (that's what they have always done) and though Flipkart has good ideas, they have made really strange moves (making a Tablet? Infibeam tried that back in 2011. Didn't work.)
> Right now, their prices are higher and I can find
> (and have found) better deals on either Amazon or Snapdeal
I have the opposite experience. I check prices over a few days before buying, and Flipkart always comes ahead. Permanently gave up on Snapdeal after returning a pair of shoes (only one shoe in the box!), then its replacement (wrong size), and then again its replacement (wrong model).
Agree. Now a days I read the reviews on Flipkart and buy the product in Amazon.in. The price difference is significant and most of the time Amazon.in has free delivery while I have to pay extra in Flipkart.
That gives them 1/5 of India's entire ecommerce business (if the figures in the article about percentage of retail are accurate) which is not inconsiderable.
On the other hand, since the gross margins on those sales won't be large, it also suggests that the volume of ecommerce carried out in India will have to grow by an order of magnitude (even if Flipkart can grow that large market share) if Flipkart is to earn a return on that huge investment. Bearing in mind the Indian middle class has been internet savvy for a while that's asking for a lot unless the investors are very patient.
Investors can afford to be "patient" because they don't have to wait for that money to come back as profit. They make money if they sell FK for more than the price they paid. This is not always a good thing, but it does allow investors to take into account long term value when investing.
Sure, but there are not many people or investment funds willing to buyout $1 billion worth of equity in an Indian company, particularly not a pre-profit one whose assets are largely digital. Silicon Valley accounting doesn't apply, and a lot of restrictions on foreign investors do.
If your fund needs to achieve the largest IPO in a country's history to achieve an acceptable ROI, your limited partners had better be patient, or your growth trajectory spectacular.
In this case, since they apparently already own a huge percentage of the market, its a spectacular growth trajectory that involves getting Indians to buy a lot more online... which given that Indians with disposal income have had internet access for a while now might not be straightforward.
India is a rapid growth market. Amazon is worth $150 billion If FK can win that market in India and potentially expand to China as disposable income in the area grows, then these investors will see a large return.
At $1 billion this seems like a big gamble, but it does not seem like a naive or short sighted one.
Flipkart is popular among youngsters in India. I've bought books for my dad from the US and got it delivered to him in India. The best part is we don't have to make a payment during the order. They take cash on delivery.
I used to ask my Dad, why are real estate prices in India so high. You could buy a home in the bay area at the same price as it'd be in some neighborhoods in top metro cities. His answer was simple. There are a lot of people who can spend. India has a ton of youngsters and they'll increasingly spend money online.
I like that the Indian start up scene is getting serious now. Entrepreneurs are brave enough to compete with the big players unlike a few years ago when most start ups were basically simple web apps or a tech consultancy kind of thing. As an Indian this gives me hope that a soon the brain drain will stop and a lot of talented Indians abroad (with connections and some money to invest) will come back to India to either start up or work for one.
Best of luck to both founders, and this is great news for the Indian startup industry, but I am confused by this statement:
“We are not thinking about [an IPO]. We have not settled on a business model that we can take public,”
Shouldn't the business model be validated by your Series A or max B? Flipkart has taken multiple rounds in the past, and this one looks as large as a Series C.
Edit: Firms involved also sound like series C firms - Tiger Global, DST etc.
I think their base model is validated, it just may need more. According to the TC article [1], "In a statement, Flipkart said the 'funds will be used to make long-term strategic investments in India, especially in mobile technology.'" So they are predicting some of these acquisitions to help grow that model before going public.
After my family started buying dresses online (average $20 per item), I started paying more attention. Online shopping in India not only provides a vast range across vendors, it also saves the cost and hassle of travelling to a big store - especially for singleton purchases. When discerning dress buyers are happy to buy online that must signal some kind of shift.
Some computer parts like hardisk's are cheaper on flipkart than the purchase price of an authorized retailer.
So when a customer comes to a shop, the dealer says that stock will come in 2 days and he promptly places an order on flipkart.
Huh. Never heard of the company, but what surprised me is that the site is actually really fast and snappy, somehow, for me -- especially considering what I saw when I took a look at the source code.
As mentioned elsewhere in this thread, Flipkart is India-only as of now. They are India's Amazon :) I've been using Flipkart since its inception, never had any issues.
Yes, very high. Especially if the sales numbers thrown around in this thread are accurate (eg $500m to $1b in sales).
Retail companies historically get relatively low valuations (particularly compared to your typical tech company), in part because the margins tend to be very mediocre in retail.
A software company would typically have margins 5 to 10 times greater than most retail companies. Amazon has been an anomaly in this regard, while they have the terrible margins, they have been rewarded with a massive valuation.
I recognize India's potential, but my answer was about the near term indeed, a 5 to 10 year window. I personally wouldn't value a company further out than that.
this is big. Indian people believes Flipkart how Americans believe Amazon. Flipkart delivery products quickly with replacement guarantee. This is enough for them to raise the funds.
Flipkart has managed to scale its revenue but without making a profit. Even this would have appeared as a good opportunity if Flipkart was kind of de-facto e-commerce business in India. Turns out that it is not. Snapdeal, Junglee (Amazon India) are pretty close. Myntra was the leader in apparel and fashion products sale online which was then acquired by Flipkart. (Myntra was not profitable either).
I find it hard to understand why anyone believes that Flipkart would ever make profit in next 5 years or so. I find it hard to believe.
Unlike USA, India has not yet figured out how to build proper usable roads, the cities are not planned and India does not have a proper addressing system. Government regulations have further made life difficult for courier companies. All this has resulted into cities and towns where traveling over few kms is very expensive and time consuming as a result small shops catering to need of local communities have sprung up like mushrooms. Current India is probably resembles more to the A&P days of USA.
My assertion is validated by the fact that Travel Booking and Movie ticket booking websites in India are growing fast and also very profitable.