
Flipkart’s valuation markdown - Jerry2
http://economictimes.indiatimes.com/industry/services/retail/flipkarts-valuation-markdown-billions-gone-in-a-flash/articleshow/51182907.cms
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geodel
Flipkart losses are growing fast
[http://www.livemint.com/Companies/UQAIOMlml7iM6oVufedjOJ/Fli...](http://www.livemint.com/Companies/UQAIOMlml7iM6oVufedjOJ/Flipkart-
reports-a-loss-of-Rs2000-crore-in-FY15.html) I do not think their business
model is unique. They are taking investor's money and giving as discount to
customers. Important thing to note here is unlike Amazon in US which was
genuine innovation for local customers as delivery to home for millions of
product who would hate to go out and shop. In India home delivery by local
businesses for as little as 2 dollar worth of goods is common for decades
before E-commerce boom. Even banks send in some one for paperwork, opening
account or just deliver cash at home. So once delivery part is out of equation
and heavy discounts are forced out by investors, I am not sure what will be
their value proposition.

~~~
achow
> I am not sure what will be their (Flipkart’s) value proposition.

You are missing out on the whole forest. If you think Amazon was an
innovation, solving for ‘hate to go out for shopping’ scenario, then ecommerce
in India is 100X of that innovation.

It for simple reason that for vast majority of Indians (non-urban, big and
small towns, villages etc.) there is simply no alternative if they want to buy
a mobile or a SD card for mobile, or a particular book, or that latest Levis,
sneakers, and so on… Heck even in big cities it is a struggle to find things.

The local business that you are mentioning who do home delivery is for day to
day things, doesn’t extend beyond ordinary grocery items.

Now why Flipkart still has an advantage? It is simply because it had first
mover's advantage. Its brand is well settled in the mind of people,
particularly if you consider non urban towns and villages. Those people have
simple mind, once a brand settles in their life it is very difficult for
another one to replace it. Amazon et al will need to work 10X hard to replace
Flipkart from their habits.

Another angle is - mobile.

At the afore mentioned places, the primary device for online shopping is
mobile. Now if an app has entered into their device and they have gotten used
to it (mind you these folks are not as tech savvy, smart yes but not tech
savvy as they never owned a PC before), it becomes very difficult for another
online retailer’s app to replace the app that they are used to.

Flipkart still has lot of advantage over Amazon, Snapdeal due to its brand
recall (still today if you walk out of city area, online shopping means
Flipkart to majority of Indians - almost same as what Xerox is to Photocopy).

That is their value proposition (to investors).

~~~
geodel
> Those people have simple mind, once a brand settles in their life it is very
> difficult for another one to replace it.

This sounds offensive and it is obviously not true in my first hand
experience. The main issue is cost effectiveness once merchandise is not
heavily discounted. One good example is telecom. There is no brand loyalty
even in remote areas as people keep changing already cheap prepaid plans for
something cheaper. See this:
[http://www.gartner.com/newsroom/id/1963915](http://www.gartner.com/newsroom/id/1963915)

> At US$40, the ARPU in India is among the lowest in the world and about one-
> third of that of China

Much less talked advantage in India is extremely cheap labor who deliver
merchandise to homes, and that is available to any new competitor.
Flipkart/Snapdeal etc are not much different from Indian IT industry which
talked a lot about innovation. However it was(is?) mainly about 1/3rd or less
cost comparable to west. But for E-comm it is going to be worse as all/most of
their customers are in India.

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ignoramous
Flipkart is still a market leader by a considerable margin. Its main stay has
been electronics and fashion retailing. It is excelling at both, and shows no
signs of slowing down. It has managed to attract top-tier engineering talent
in the Country (India), by offering generous wages and generally because it
has some very tough problems to solve.

Amazon has been making in-roads, capturing a size-able market share, but dare
I say they're imitating Flipkart to an extent, and that's a testament to
innovativeness with which Flipkart has worked all along.

Despite the picture the article is trying to portray, Flipkart is well and
truly an established business at this point. Sure they're making losses, but
retailing is a tough-nut. In order to capture a rapidly growing internet-base,
Flipkart and others need to take those hits-- they need to trade growth with
profit, unless their end-game is to get acquired.

It is pretty natural trajectory an e-commerce company to take, IMO. These
firms doing a re-valuation of their investments does look scary, and probably
they did so having looked at the financials and the potential-- but the
correction in the valuation is just a blip. Retailing is hard-- customers want
discounts, VCs want growth, Markets want profit... you have to choose two and
ignore the rest, I guess.

~~~
sidko
Can you elaborate on your comment that Amazon is imitating Flipkart to an
extent? Are there specific examples where Amazon is doing this? Is it possible
to learn from the Indian market and bring those ideas to a more global
audience?

~~~
nischalsamji
Was Cash on Delivery introduced by Flipkart before Amazon in India? If so, I
think amazon is 'imitating' flipkart in this area. I see COD on UPS, Fedex in
USA but not as popular as COD in India.

~~~
supersan
eBay.in offered cash on delivery waaay before flipkart (as a matter of fact,
the original site Baazee.com which got merged into eBay did it very
successfully too)

~~~
sremani
There were some catalogs, which offered in the earlier days, I remember in 80s
and even earlier than that. Its been around long before Interwebs.

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puranjay
Anecdotal evidence: within my circle of friends, Flipkart use has dropped
considerably over the last couple of years. Personally, I haven't made a
single purchase off Flipkart in 3+ years. Their prices are now usually higher
than Amazon and they don't have the "long tail" of products I want.

Myntra, which Flipkart bought, is still my go-to source for buying clothes. It
helps that Myntra has really the best user experience of all the other apps.
Their delivery is incredibly fast too - I ordered a shirt last night and
received it today morning!

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adventured
For much of Amazon's history, it was lucky to get a 1 to 1 sales to valuation
ratio. Amazon's early participation in the dotcom bubble, the money they
raised then, funded its ability to survive the drought years afterward. Their
stock was net flat for nearly a decade. The market weakness in 2008 for
example, pushed their market value below where it was at times in 1998.
Between 1998 and 2008 their sales went from $20 million to $20 billion and
their valuation didn't change much.

What are Flipkart's sales today? You can expect it won't be worth dramatically
more than its recent peak, years from now - and that's the good outcome. It's
the routine outcome of extremely high valuations; to the extent they're too
high, is the extent to which they pull future returns forward.

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paulsutter
Flipkart's valuation increased more then 1000x, then went down 27%. There's
nothing catastrophic about that.

Are journalists really this myopic or just eager for clicks?

~~~
adventured
It's about expectation and projection. You say 27% today. Tomorrow it's going
to be 50%. The valuation adjustment problems in tech aren't over, they've only
just begun.

When the Shanghai Composite Index started falling over after China created a
market bubble there, people said: it's up 150% in under a year, and now it's
only down 20%, no need to worry. Well, now it's down 50% from that high -
below where it was five years ago - and those people are no longer talking
about it. It was never the initial drop that mattered, it was all about what
was coming next, not what happened the day before.

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camillomiller
I think these are extremely useful corrections. Investors are really worried
about an implosion and are basically scrambling to defuse the ticking bomb. If
they'll show enough maturity and they'll be willing to let greed subside for a
couple of years, maybe we'll end up having a better, more realistic, high-tech
scene pretty soon without any bubble having to burst.

Or it won't be enough and they're all screwed nonetheless. Who knows!

~~~
kchoudhu
If only there were a way to automatically mark down poorly performing
companies based on incoming market data on a daily, nay!, hourly basis...

~~~
camillomiller
I don't think it could work. Computers with specifically designed algorithms
and extremely fast connection could exploit such a real time market and
outperform human traders. Nobody in his right mind would let that happen!

~~~
kchoudhu
So true.

No, it's best to just stick to what we know.

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rdlecler1
A swath of private companies are getting huge public markdowns because they
took capital from investors who are subsidiaries of publicly traded company
companies. This is going to make is much more difficult for this class of
investor to access these markets in the future, or they're going to have to
pay a premium to do so.

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srisaila
Most Indians don't want credit cards because they don't want to fall prey to
them. Those who have them use them only when it's absolutely necessary. They
buy what they need and pay by cash. Credit cards are addictive.

~~~
wtmt
Credit cards are just one way to manage payments. Whether they're addictive or
not depends on the person. Some people even move money out of their savings
accounts into some other bank account in a deposit they cannot easily access
because having "cash at hand" is a problem for them. That doesn't make bank
accounts addictive or problematic overall.

More to your point, there are many in the cities who have credit cards and use
them often because they're convenient. Carrying cash or using debit cards when
more people are moving to credit cards is foolish and a way to subsidize the
people using credit cards.

I have credit cards that I use wisely. Always pay fully on time (no interest),
make the most of the credit period by timing purchases as much as possible,
etc. I don't have to worry about carrying lots of cash and getting change (or
worse, rounding things up while paying). Taking advantage of marketing related
discount offers from credit card providers is also another positive. Overall,
credit cards provide a lot of value for me, although the social benefit could
be argued one way or the other.

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WWKong
It appears that Flipkart did all the heavy lifting of preparing the market and
then Amazon showed up. This story might not have a happy ending for Flipkart.

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satyajeet23
Flipkart is copying Amazon in every single way it can, just like Samsung with
Apple.

