Flipkart, hot off raising $1 Billion in its second funding round has gained the attention of retailing behemoth Amazon. Shortly after Flipkart’s achievement, Amazon announced it would invest $2 Billion to expand business in India, building five new warehouses. Jeff Bezos commented on the investment, saying Amazon sees “huge potential in the Indian economy and for the growth of eCommerce in India.”
The Indian eCommerce market is projected to reach $50 Billion by 2020, and both Flipkart and Amazon see themselves as being the major eCommerce provider. Flipkart is similar to Amazon and Alibaba, hosting a website with 3rd party sellers, merchandising everything from books to power drills. The platform is desirable to many sellers, as it provides an entry point to the Indian marketplace which has strict foreign direct investment rules.
Flipkart plans to use its new capital to hire 1,000 additional engineers and build out mobile capabilities. Currently, more than half of Flipkart’s sales come from mobile users. The company currently has 22 million users and hosts 3,000 merchants.
In March, Flipkart’s TTM Gross Merchandise Value (GMV) topped $1 Billion, making Flipkart India’s largest seller. The new funding round will help Flipkart head off Amazon and eBay backed rival, Snapdeal. Flipkart is current valued at about $5 Billion dollars.
India’s Flipkart Raises $1 Billion in Fresh Funding
E-Commerce Company Girds for Competition with Amazon, an eBay-Backed Rival
By DHANYA ANN THOPPIL
BANGALORE, India—India’s largest e-commerce company, Flipkart Internet Pvt., said on Tuesday that it has raised $1 billion in fresh funding as it girds for competition withAmazon.com and an eBay Inc. -backed rival for dominance in the world’s second-most-populous nation.
Flipkart, which was started by two former Amazon executives in 2007, said existing investors including Tiger Global Management had agreed to provide more funds in conjunction with new backers including Singapore sovereign-wealth fund GIC and Morgan Stanley Investment Management.
The new fundraising round values the unprofitable startup at about $7 billion, according to a person familiar with the matter.
Originally an online bookseller, Flipkart is now an online marketplace akin to that created by China’s Alibaba Group Holding Ltd. It says it has 22 million registered users and hosts 3,000 merchants selling millions of products, from electronics to clothes and sporting goods.
In March, Flipkart said goods worth more than $1 billion had been sold through its website in the previous 12 months and in terms of sales, it is India’s largest online marketplace. But global player Amazon is expanding its presence in India, and eBay-backed Snapdeal.com is catching up.
The funds raised by Flipkart—which says it isn’t currently profitable—will be used to hire engineers and expand mobile technologies, co-founder and Chief Executive Sachin Bansal said Tuesday. He said Flipkart plans to hire 1,000 engineers from premier technology institutes in India.
More than half of Flipkart’s online sales happen on mobile phones, he said.
“We believe that India can produce a $100 billion Internet company in the next five years and we want to be that company,” Mr. Bansal said, referring to the market capitalization he thinks Flipkart can reach. Mr. Bansal said the company would start focusing on profitability when it has 100 million users.
Mr. Bansal said an initial public offering and stock-market listing isn’t a priority for the company in the short term. The company will look at listing in five to 10 years, Mr. Bansal said.
Flipkart said participants in the most recent round of fundraising also included South African media company Naspers Ltd. , India’s Accel Partners, Russia’s DST Global, U.S. investment adviser Iconiq Capital and Belgium’s Sofina SA .
The latest round of fundraising is Flipkart’s second this year. In May, it raised about $210 million from a consortium led by DST Global, a firm owned by billionaire investor Yuri Milner who is known for investing in Facebook Inc. and Twitter Inc.
Ashish Jhalani, founder of eTailing India, a retail and e-commerce advisory and research firm, pegs Flipkart’s valuation at $5 billion after the latest round of fundraising. He said the size of the latest injection is a “sign that there is a large amount of international confidence in Indian e-commerce.”
Analysts expect e-commerce to take off in India as more Indians have disposable income and take to online shopping, snapping up phones, shoes, books and other products. Brokerage Nomura expects online retailing in India to grow 11-fold to $23 billion in the next four years.
Flipkart doesn’t sell products directly. Rather it works with other merchants to sell through its online platform. It earns a fee on products sold through its website.
Flipkart began life with a business model very similar to that of Amazon in the U.S., selling goods it stocked to consumers at prices lower than traditional brick-and-mortar stores.
But Indian government rules barring foreign direct investment in retail companies forced a shift. Now Flipkart follows a model like that of Alibaba, hosting third-party sellers.
Flipkart is being investigated by Indian authorities for alleged violation of foreign investment rules. The company has denied wrongdoing.
Amazon entered India in 2012 through its price-comparison website Junglee.com. It launched its Amazon India website in June to sell books, DVDs, electronic goods and fashion accessories.
The company has two warehouses in Mumbai and Bangalore. Monday Amazon said it is opening five more warehouses in Delhi, Chennai, Jaipur, Ahmedabad and Tauru in the outskirts of Gurgaon for additional storage capacity.
A spokeswoman for Flipkart declined to disclose the number of warehouses it has India. The company offers warehousing services to its sellers.