Flipkart and Snapdeal are two retail websites that have shown an impressive business performance in the past few years. India, when it was new to the domain of online retail therapy, both Flipkart and Snapdeal provided a source of online shopping to the citizens.
As of the year 2017, there has been the news of a buyout. Snapdeal has agreed to Flipkart’s revised takeover offer of up to $950 million, therefore making available heft to its larger adversary in a high-stakes clash with Amazon.com.
The board of Jasper Infotech, which runs Snapdeal, agreed Flipkart’s bid of $900 million-$950 million and a contract is now awaiting the sanction of Snapdeal shareholders.
Brutal war for domination
India’s fledgling e-commerce sector is in the center of a brutal war for domination between Amazon and Flipkart at a time where more and more Indians shop on the web, aided by a burst in the availability of low-priced phones and data plans.
Japan’s solar-to-tech multinational corporation SoftBank, Snapdeal’s largest shareholder, is enthusiastic to carry out the deal and take an equity stake in Flipkart to yield from India’s thriving online retail market.
Before time investors Kalaari Capital and Nexus Venture Partners, holding 8 percent and 10 percent of equity, in that order, are on the board, as are the originators Kunal Bahl and Rohit Bansal, who hold about 6.5 percent. SoftBank has two seats on the board.
Growth rate of over 50 percent
A statistic has reported that e-commerce has augmented at a compound annual growth rate of over 50 percent in the past five years in India and the rate of growth is expected to carry on, with e-commerce sales topping $35 billion by 2020.
Independently, Indian private-sector lender Axis Bank is the likely victor to get hold of Snapdeal’s digital payments unit FreeCharge for $60 million.
In this merger, Snapdeal shareholders will not be given money but get Flipkart shares in exchange for selling their Snapdeal stake.
Snapdeal’s total estimation was over US$6 billion at its highest point early last year when it raised US$200 million from a Canadian pension support. Investors and analysts have devalued it since then as its position in the market destabilized. It shut down quite a few areas of business and laid off hundreds of employees to curtail the cash burn as it fought back to raise funds over the last year.
Kunal and Rohit, the creators and founders, also articulated about “rearranging the corporation into a lean, focused, and entrepreneurial one” in the letter to the employees.
Conduit to productivity and profitability
Another more up to date letter spoke about a conduit to productivity and profitability as well as an IPO (Initial Public Offering) in the year 2019. There appears slight likelihood of this vision coming true, due to the cash burn in the company and the lack of ability to raise funds. SoftBank is interested in a sale and not funding Snapdeal on hopes of profitability and an IPO. No other investor is in sight.
Amazon’s assurance of US$5 billion to the comparatively open Indian market, after finding the going tough in China, altered the market dynamics. Flipkart and Snapdeal, which were in a competition to grasp market share with reductions and price cuts, unexpectedly had the rug pulled from under their feet.
Amazon could propose superior charges as well as selection and back it up with world-class services like Amazon Prime Video.
The principal loser was Snapdeal, which saw its market share drop off. On the other hand, Flipkart managed to stay the course and inspired satisfactory self-assurance for Tencent, eBay, and Microsoft to introduce it with fresh funds.
