The proxy war between Alibaba and Amazon, the largest e-commerce companies in the world, is going to turn into a direct battle for the market in India. Given the sheer size of the Indian e-commerce market, it also makes a lot of sense. Why should Alibaba leave it to proxies the Chinese giant invests in to battle it out, while Amazon is directly investing a lot of money to build up an Indian business?
Recent rumors are, that Alibaba is in talks to acquire Snapdeal, the No. 3 in India, as reported by Factor Daily. With, in total, having raised $1.76 billion and at only a rumored valuation around $2 billion, Snapdeal would even with a hefty premium not be even close to being too expensive for Alibaba (especially considering Alibaba’s war cash):
Three sources aware of the plans confirmed to FactorDaily that a deal between Alibaba and Snapdeal is likely if the two sides can agree on valuation.
A top executive familiar with Alibaba’s India strategy said: “The talks are sensitive. But the valuation doing the rounds is too high.” Rumour mills are abuzz with talks of a likely deal of this sort. The dominant narrative is that Snapdeal will be valued at over $2 billion. […]
With a valuation at just a little above $2 billion while investors having invested $1.76 billion, everyone seems to agree that Snapdeal has no chance of winning alone.
Having a stake in the Indian Alibaba business may be very attractive to SoftBank, the Japanese conglomerate that made headlines this year buying mobile chip designer ARM for $32 billion:
Snapdeal’s biggest investor SoftBank is run by Japanese billionaire Masayoshi Son, who is slated to be in India this week. Son and Alibaba’s founder Jack Ma are close associates and friends. Son was among the first investors in Alibaba and the duo have backed companies together.
If the deal goes through, Alibaba which already owns over 40% in Indian payments company Paytm, will get a marketplace company to consolidate its position in India’s e-commerce business. It is also scouting for a logistics play, to fit into its iron triangle strategy in India’s $600 billion retail market.
Forbes provides some context for the scope of this already ongoing battle for India:
Rather, it’s the Cold War between Alibaba and Amazon. It’s a battle that will likely span decades, and in the next few years, be most pronounced in Southeast Asia. […]
Flipkart and Snapdeal are faced with the rich American competitor, which is set to pump $3 billion into the country. In Indonesia, rumor is that Amazon will likewise pump $600 million into the country. In a sandwich motion, Amazon is attempting to conquer India in the west and Indonesia in the East. And with a potential new center point in Singapore, Amazon is picking its battles in the region carefully. […]
Alibaba has wasted no time, shelling out $1 billion to acquire the heavy spending e-commerce player, Rocket Internet’s Lazada.
Here’s the main point concerning Snapdeals and Flipkarts prospects:
Certainly, smaller e-commerce sites are unprepared for an Amazon or Alibaba onslaught. We can see this in India with Flipkart marking down its valuation. There is little evidence that Southeast Asian e-commerce sites are more prepared.
With their home markets, China and the US, fairly safe, both companies look increasingly abroad.
It makes a lot of sense then that Morgan Stanley cuts Flipkart valuation to $5.54 billion:
Flipkart, India’s poster child for all things startups and ecommerce, is now worth just US$6 billion, a huge fall from its once-vaulted status of being a US$15 billion company.
A mutual fund managed by Morgan Stanley slashed value of its Flipkart shares by 38.2 percent. The fund currently holds 1,969 shares in Flipkart that are collectively valued at $102,644. (H/t to The Economic Times for spotting this first.)
The latest cut in valuation is on top of the 27 percent cut in February.
As with Snapdeal, the most pressing question for Flipkart is how, if at all, the Indian company may survive a spending spree in India between Alibaba and Amazon. It is possible to survive this as a third party, money alone can’t buy you success -just ask Amazon China-, but the outlook must be daunting to everyone involved.
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