On Friday evening, founders of Snapdeal and Flipkart, India’s top most e-commerce firms intensified their rivalry on social media over the entry of Chinese e-commerce giant Alibaba Group Holding Ltd. (NYSE:BABA) in India.
Sachin Bansal, Exec Chairman, Flipkart tweeted: “Alibaba deciding to start operations directly shows how badly their Indian investments have done so far.” China’s biggest online retailer, who is also the favorite candidate to surpass Wal-Mart, as the world’s biggest retail network announced last week, that it will soon enter the Indian retail market. Sources indicate that it will likely to enter the Indian retail market this year.
The company already holds indirect presence in the Indian e-commerce market, through an investment in a leading online payment app Paytm. Alibaba invested more than 500 million to buy a 40% stake in One97 Communications, the parent company of Paytm. Recently, Paytm also hired Alibaba’s executive as its president as the online wallet seeks overseas expansion.
Likewise, Alibaba also invested in Snapdeal, when it generated around 500 million from different investors during the fundraising held last year. In February 2016, reports also highlighted that Snapdeal approached Alibaba Group to buy a major stake in it; however, Jack Ma, was not ready to buy a stake at $6.5 billion valuation. Snapdeal’s valuation rose more than six times, since May 2014.
Snapdeal founder Kunal Bahl responded to his rival’s statement by tweeting: “Didn't Morgan Stanley just flush five billion worth market cap in Flipkart down the toilet. Focus on your business, not commentary." However Mr. Bahl ended his tweet with a smiley to eliminate any kind of prickle.
Flipkart’s losses in 2015 were close to Rs. 2,000 crore, a 180% year-over-year (YoY) increase over the past one year. Also last month, Morgan Stanley’s managed mutual fund devalued Flipkart’s shares by 27%, indicating that it believe that the country’s biggest e-commerce firm is overvalued. In a press statement, Flipkart said, “it is valued at $15.2 billion then. A 27% fall in Flipkart's share price would imply Flipkart's valuation came down to $11 billion.”
Analysts highlights that at present valuation, not many investors are interested to buy a stake in India’s leading e-commerce firms. According to many, Internet companies in the country is overvalued. Both Snapdeal and Flipkart have sufficient amount of cash to finance their burn rates for nearly 12-15 months. However, for further development, it is essential that they bring in more cash, especially this year, with many overseas companies being bullish on India’s e-commerce growth. Xiaomi Technologies, China’s biggest smartphone maker in terms of market share has also betted on India’s e-commerce boom for growth, after reporting a dismal yearly performance previously. Xiaomi was unable to meet its annual smartphone shipment target by 10% after China’s smartphone growth dropped down significantly, in 2015. It is essential for the e-commerce companies in the country to refill their quick purging vaults.
In February, reports also came out that Alibaba aims to invest in the country’s chief e-commerce company Flipkart, and the companies have completed the first rounds of talks. However, the deal’s success was dependent on Flipkart’s willingness to offer a discount of its present valuation of $15 billion. Mr. Ma, Alibaba’s founder was reluctant to acquire a stake in the company at current valuation and has asked the company to offer a discount if it wants Alibaba to make investment. We believe the recent statement by Flipkart’s Chairman shows that it is unlikely the talks will further go on. Flipkart’s valuation has rose more than five times since May 2014.
Several brand strategy experts believe that this is an “attention grabbing techniques,” as both Snapdeal and Flipkart are two top most recognized brands in India and “Alibaba is a big party to talk about.” Harish Bijoor, a brand strategy specialist highlighted that this is not the first time both the companies took a pot shot on each other. They are doing this to grab a greater market share of the highly potential and untapped Indian e-commerce market.
Other major technology giants, including Tencent Holdings, Baidu Inc, and Apple Inc. (NASDAQ:AAPL) are all positive on Indian market. The market is fast growing, though smaller than the likes of China, and analysts believe that the Indian e-commerce market is likely to give tremendous growth opportunities for the leading technology companies.