No, the bubble hasn’t burst yet; but yes, the bubble is being scaled down so that it survives.
Morgan Stanley, the big American financial services firm has ruthlessly trimmed down Flipkart’s valuation by $4 billion in their recent valuation report. After Morgan’s new assessment of their investments in Indian eCommerce portals, Flipkart is now valued at $11 billion, down from $15 billion which was the valuation last June, when it received $700 million from Tiger Global Management, Qatar Investment Authority and other investors.
Morgan Stanley Institutional Fund Trust has a tiny but very important stake in Flipkart. They invested during Flipkart’s series D round of funding in 2013, when they had raised $250 million. Morgan Stanley did a revaluation of their investment in Flipkart, and found that its now valued at $58.9 million, down from $80.6 million in June, 2015.
This straight reduction of 27% in value of Morgan Stanley’s share has directly trimmed down Flipkart’s overall valuation to $11 billion. This news was announced by them during regulatory filing with SEC in US; wherein it was also revealed that per share value of Flipkart has come down to $103.97 as of December 2015, down from $142.24/share as of June 2015 & $117.96/share as of December 2014.
Even after this devaluation by Morgan Stanley, Flipkart is still India’s #1 startup, as their closest Indian rival, Snapdeal is valued at $6.5-7 billion as per recent valuations. Flipkart has refused to comment on this development. Overall, Flipkart has received $3.4 billion in VC funds till now.
Morgan has also severally devalued other startups such as Dropbox and data analytics company Palantir Technologies in their recent valuation report.
2 Reasons Which Justify This Move
As per analysis and observation by various experts, it seems that there are two main reasons which led Morgan Stanley to devalue their investment in Flipkart:
Alibaba Investment in Flipkart
As per unconfirmed reports, Alibaba is attempting to grab a share in Flipkart by investing in them very soon. High level talks are on between Flipkart’s existing investors, and Alibaba regarding a possible infusion of fresh funds, which is desperately being sought now.
Reports indicate that Tiger Global is running short of cash as of now, and they want a big investor to take some big bets on Flipkart; and they have approached Alibaba for the same.
Raising funds at a valuation of $15 billion may be too much for Alibaba, and this recent devaluation can be an indirect way to encourage Alibaba and other investors to bring in their dollars. Asper WSG, Alibaba is in talks with 89 separate banks to raise $4 billion for the same purpose.
Flipkart’s Missed Targets
Last year, Flipkart had announced that they are aiming for Gross Merchandise Value (GMV) of $8 billion by December end, which has been clearly missed. As per Mint, the current GMV stands at $5 billion, and this has worried their current investors.
The top level reshuffle at Flipkart (Binny Bansal replacing Sachin Bansal) may also add to the anxiety of Flipkart’s investors; and the reduced valuation can be a cumulative effect.
Interestingly, Bill Gates has recently said that ‘over-enthusiasm’ of some investors have led to creation of ‘over-valued’ unicorns (companies which are valued more than $1 billion), and this will lead to some sort of ‘sorting’ very soon.
As per Bill, several of these tech unicorns are going to get bust in the next 2 years.
Has the process already started? We will keep you updated as more details emerge."Flipkart’s Valuation Trimmed Down By Morgan Stanley To $11 Billion; 2 Possible Reasons Which Justify This Move",