Will Alibaba Come to Rescue the Devalued Flipkart?

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. Flipkart has been known as one of few e-commerce start-ups, with valuations exceeding $1 billion. For the first time in its history, the company’s valuation has suffered a massive cut.

Morgan Stanley, the big American financial services firm which invested during Flipkart’s series D round of funding in 2013, when they had raised $250 million, has cut down Flipkart’s valuation by a full $4 billion, nearly 27 percent down in their recent valuation report.

The not so good news came during their regulatory filing with SEC in the 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 per share as of June 2015. Morgan Stanley Institutional Fund Trust also cut the value of its stake in other high-flying startups including file storage company Dropbox Inc. and data analytics company Palantir Technologies Inc. As for Flipkart, Morgan Stanley has been one of its important investors.

After 8-year discounting spree @Flipkart itself discounted by Rs27,000 crores: Morgan Stanley cuts valuation $15bn -> $11bn

— Mahesh Murthy (@maheshmurthy) February 27, 2016

Skeptics who had maintained since beginning that it is venture capital exuberance which is overheating the Indian startup market seem to have proved true. Critics also warned of a possible domino effect for other unicorn ventures. Flipkart had recently shut down its grocery app, Nearby, citing low demand from consumers. The company is also undergoing a management revamp with new CEO BinnyBansal.

Though it is yet to be confirmed officially, the reason for this cut-off is being blamed on 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 had been clearly missed. As per Mint, the current GMV stands at $5 billion, and this has worried their current investors.

According to the some sources, Alibaba is also venturing to seize a piece in Flipkart by investing in it soon, which can be another reason for the Flipkart's devaluation. Between, Flipkart’s existing investors, and Alibaba, the discussions are going on regarding a possible infusion of fresh funds. It is also being indicated that the recent devaluation can be an obscure way to boost Alibaba and other investors to invest in Flipkart. Another investor in Flipkart, Tiger Global is falling short of funds and they want a big investor to make some significant moves with Flipkart, and Alibaba has been approached. Alibaba is trying to raise $4 billion with 89 different banks for the same goal.