No deal with Snapdeal could be blessing in disguise for Flipkart
Online marketplace Flipkart Ltd may benefit from the decision by smaller rival Snapdeal to cancel its proposed sale, saving itself the distraction of owning a complicated asset that would have added little to its business at a time when the company is already straining to hold off arch-rival Amazon India.
On Monday, Snapdeal (Jasper Infotech Pvt Ltd) walked away from a potential sale to Flipkart, which had offered to buy the online marketplace for $850 million in stock. Snapdeal’s largest investor SoftBank Group, however, is continuing talks to buy shares worth $1.5 billion in Flipkart, Mint reported on Monday.
The price that Flipkart had offered for Snapdeal was considered too high by investors and analysts given that Snapdeal’s monthly gross sales have dropped to less than ₹350 crore— lower than that of Flipkart’s fashion unit Myntra.
Additionally, India’s e-commerce market has cooled significantly since the start of 2016, indicating that there’s hardly any room for more than two so-called horizontal retailers. Flipkart, which is already trying to absorb eBay India’s business after agreeing to buy it in April, would have struggled to find use for yet another horizontal marketplace in its fight against Amazon India (Amazon Seller Services Pvt Ltd).
“Flipkart has definitely dodged a bullet with this deal not going through. The Snapdeal integration would’ve been an unnecessary headache. The only reason why they agreed to buy Snapdeal in the first place was because of the SoftBank investment. And those investment discussions are happening anyway. So, if you can get the milk without buying the cow, why would you need to buy the cow at all,” said a partner at a venture capital firm on condition of anonymity.
From an operational perspective, the Snapdeal buyout made little sense for Flipkart. Snapdeal’s market share has slumped over the past year, and particularly since the start of 2017 when it was forced to cut hundreds of jobs and slash spending.
Just 11.7% of Indian smartphone users had Snapdeal’s app installed at the end of June, against 29.8% for Flipkart and 39.6% for Amazon, according to estimates by research firm KalaGato Pte Ltd.
“The market-share gains Flipkart would have made have reduced for every month that the deal has been in negotiation,” said Aman Kumar, chief business officer at KalaGato.
With Snapdeal out of the picture, Flipkart is free to focus on its primary challenge of keeping Amazon India at bay.