The bigger question is, what made Walmart bet so high for a loss making company that just reported a consolidated loss of over Rs 8,770 crore during the financial year ending March 2017
US-based retail giant Walmart on Wednesday announced the acquisition of 77 percent stake in domestic e-commerce firm Flipkart in a bid to give a tight competition to rival Amazon in the India market.
However, the bigger question is, what made Walmart bet so high for a loss-making company that just reported a consolidated loss of over Rs 8,770 crore during the financial year ending March 2017.
The loss mentioned is the consolidated loss of the Flipkart Group which also has Myntra and Jabong under its umbrella.
So to begin with, Flipkart is not just any other loss-making company, but the leader in India's about USD 27 billion e-commerce space. This is the space which is expected to grow multi-fold in the next few years.
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A report by financial services firm Morgan Stanley has said that the online retail market in India is expected to grow to become USD 200 billion market by 2026.
The e-commerce sector in India has witnessed investments from global venture capital and pension funds who believe in the growth before profitability model.
Even as the losses at Flipkart have only grown in the last few years, the company has managed to raise multiple rounds of fundings from investors across the world including marquee names such as Softbank and Tencent.
Flipkart last raised USD 2-2.5 billion in a round which saw the entry of Japan's Softbank into the company in August 2017. Softbank invested in the company via its USD 100 billion Vision Fund. The investment was a mix of primary and secondary round.
With that round, Softbank became the largest shareholder in Flipkart with a little over 20 percent stake in the firm.
According to data from Statista, Flipkart acquired 58 percent share in terms of gross merchandise value (GMV) of the e-tailing market in the festive season sale days across India in 2017. Amazon had about 26 percent stake while the rest 16 percent went to other companies.
The e-commerce share of the total retail sales in India is also witnessing a rocket growth, as per data from Statista.
In 2014, while online retail contributed to less than 1 percent of the overall retail sales in India, it grew to over 2.5 percent in 2016, 3.5 percent in 2017 and is expected to cross 4.5 percent by 2019, the data says.
The industry growth is also going to be triggered by a rapid increase in the internet and smartphone user base in the country. The internet user base is expected to increase to 829 million by 2021 from over 373 million in 2016.