Before you form an opinion about the possibility of this thought, take some time to read this post and then decide for yourself.
I do believe that it is only a matter of time before the title of this post becomes a reality. The title of this post sounds a little lot controversial. But that is the price one pays for looking into the crystal ball…
Like most of you, I use online websites to shop for many of my daily and monthly requirements. And till few months back, almost 95% of my online shopping was done through Flipkart.
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| Before Amazon’s Arrival |
But things have changed now. As of today, I am not just buying stuff from Flipkart. I am buying from Amazon too. And that too more frequently!!
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| After Amazon’s Entry |
And this is not true just for me. It is happening with almost everyone I know. Amazon’s Indian website is eating away Flipkart’s Wallet Share slowly and gradually. And it was this personal change in buying pattern, that (in a way) forced me to think about a possible* Amazon-Flipkart deal.
* The possibility may not be very high. But it is not as low as you might think.
Why This Is Possible?
Almost a month back, a leading newspaper reported that Flipkart had initiated talks with Myntra to merge with itself. And as per reports, this move by Flipkart had blessings and approvals of both companies’ common investors. There is still no final announcement whether the deal is on or not. But in this wave of excitement, people have forgotten about the big daddy of online retail, which is slowly aggressively trying to gain a foothold in the Indian E-commerce space. And I am talking about Amazon.
And a company having deep pockets like Amazon, it is quite possible that it is evaluating Flipkart as a potential takeover target. Amazon is clearly sensing that Flipkart with its intention to merge with Myntra, is on a back foot. Flipkart wants to grow fast. And main reason behind it is Amazon and its aggressive strategies. As of today, Amazon is still not allowed to offer its own retail services because of Indian government’s regulations. But it is still going strong with the third-party marketplace that is being used by thousand of retailers to sell their products. Just give a thought about what would happen when Amazon is finally allowed to offer its retail services And this is what Flipkart is afraid off.
These days, whenever the topic of Amazon is discussed with Flipkart founders, they are quick to dismiss any takeover/merger related questions. And its fair enough on their part to be afraid of this giant, which as of now is chained because of government regulations. But I am pretty sure that some years back, this might have been like a dream come true for Flipkart’s founders. And if grapevine is to be believed, it is rumored that a few years ago, Flipkart had approached Amazon with an offer to sell. But the latter refused because of its lack of enthusiasm for Indian e-commerce space.
But since we are speculating, for a moment lets assume that Flipkart is able to maintain a growth rate higher than that of Amazon’s. What would happen then? That would be a worst case scenario for Amazon. And with deep pockets, it can actually go ahead and make an offer to Flipkart which the founders and PE investors might not be able to refuse. 🙂
And who knows, many PE players invested in Flipkart might be praying for such a scenario to pan out. 😉
Only time will tell what happens…
What do you think? Will Amazon buy India’s home-grown e-tailer Flipkart?
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I do not agree – amazon itself is hardly generating FCF and raised $ 3 Bn of debt. I doubt if they have the cash to do an acquisition unless it is a merger. And, Amazon's culture is not as spendthrift as flipkart's is – look at flipkart's bottomline, their EBITDA is – 25 % and it will dilute amazon's already thin margins. If they had wanted to buy flipkart, the time was 2-3 years back – now its too big, too difficult to manage.
Fair enough.
But sometimes, the best way to stop a competitor from expanding is to buy it out. Of course, it would have been cheaper for Amazon to buy it 2-3 years back. But, things have changed now and Amazon considers India one of its prime markets. So, it might be ready to shell out a little more than necessary for Flipkart. Lets see…
I myself shop a lot on flipkart and frankly prefer the flipkart experience to Amazon. Flipkarts keyword search is also better. However lately items which I could purchase before, suddenly they say they cannot ship to my pincode. Then I have no option but to go and purchase the same from Amazon India. Ironically for some dealers who flipkart says they cannot ship for, the same dealer (from their name) ships me the same item on Amazon. Flipkart will loose market share if this continues.
Now that is interesting…
And if this is indeed true for a very high number of cases, then Flipkart may be heading for some troubled times.
Update – Flipkart hit $1 Billion in sales today.
I actually heard a completely opposite rumor – that Amazon offered Flipkart a billion dollars the Flipkart refused to sell.
Its possible, but not sure of either rumors. Its just that this rumor of Flipkart approaching Amazon has gained more prominence.
The PAT is very low but it's cash flow from operations is 20 times its PAT due to large account payables and accrued expenses due to its bargaining power with the suppliers. Its capital employed (non cash CA + FA -CL) is negligible.
Here in US, amazon has given hard time to other retailers. I have not seen Amazon buying other e eCommerce business. But they have a ability to put them out of business. Amazon is household name in US. Radio Shack (electronics store) and Best Buy both have hard time to survive against amazon.
In recent Q they said
“Sales from North America grew 26% to $11.86 billion. International sales grew 18% to $7.88 billion.
Media
revenue grew 8% to $5.47 billion. EGM revenue increased 27% to $13.02
billion. Globally EGM revenue makes up 66% to total revenue. Worldwide
unit growth was up 23%. They have over 244 million active customer
accounts. There were more than 2 million seller accounts and they sold
40% of all units sold by the Company.”
If we see they are growing healthy out side US too.
I hold this co stock, knowing amazon I feel they will concentrate more on capturing Indian mkt, rather than growth by acquisition model.