Fidelity marks down Flipkart valuation by over a third

Latest markdown comes at a time when the e-commerce major witnessed a turnaround in its fortunes

US-based mutual fund Fidelity has marked down the value of e-commerce firm Flipkart to $5.58 billion in the quarter ended November, despite the company’s strong performance against rival Amazon in the recent festive season.

Fidelity’s markdown of 36 per cent follows the one by peer Morgan Stanley, which trimmed the value of its shares in Flipkart by 38 per cent. The consecutive quarter-on-quarter markdowns in Flipkart’s value come when it is looking to raise fresh funds.

In a filing with the US Securities and Exchange Commission, Fidelity valued its holding in Flipkart at $52.13 per share for the three months that ended in November, down from $81.55 per share in the previous quarter.

Flipkart had reached a peak valuation of $15.2 billion when it raised $700 million from a clutch of investors in July 2015.

Flipkart has been talking to investors to raise funds from investors that are looking to compete with Amazon globally. However, much of the talk has reached a sticking point over the valuation Flipkart is seeking. It is also preparing to list itself on Nasdaq in two years.

In the nine months to December, Flipkart Internet, the marketplace arm of the e-commerce firm, cut losses by more than half to Rs 1,296 crore in a year its largest investor, Tiger Global, took charge and focused on reducing expenditure at the company. The revenues for the nine-month period stood at Rs 1,476 crore. 

Amazon has put together a war chest of $5 billion for the Indian market. The company reported a loss of Rs 3,750 crore in 2015-16, the highest among the three large e-commerce companies in the country. It is expected that Amazon’s losses could soar close to Rs 6,500 crore (approximately $1 billion) in the current financial year.

The US company’s financials in India showed up for the first time on its global balance sheet when it reported a $550 million loss in its international business unit.

While Flipkart outperformed Amazon in festive sales last October, Amazon’s aggression continues to weigh down the Indian company’s valuation. 

It is to be seen if the company’s newly appointed chief executive officer, Kalyan Krishnamurthy, a former Tiger Global executive, can rally investors to back the company.

Home-grown rival Snapdeal, which was surpassed by Amazon last year in sales, is reportedly in talks with its largest investor, Softbank, to raise a round of funding at a valuation of $3-4 billion. 

Snapdeal had a peak valuation of $6.5 billion when it raised $200 million from the Ontario Teachers’ Pension Fund in February last year.

Flip side of valuation game:

* Fidelity’s markdown follows Morgan Stanley, which valued the company at $5.58 billion in the quarter that ended September

* The markdown comes at a time when the company is in talks to raise as much as $1 billion in fresh funding from new investors

* Flipkart’s value continued to slide despite a strong performance during the October festive sales where it beat arch-rival Amazon

* Amazon’s aggression to win India and the $5-billion war chest continue to give investors in Flipkart the jitters

* The value of India’s most successful start-up — Flipkart — has now reduced to a third, from $15.2 billion in mid-2015 to $5.5 billion today