Flipkart Acquires eBay India, Raises $1.4 Billion; How Could This Impact Amazon?

The super competitive e-commerce market in India just got more exciting, and it’s not particularly good news for Amazon (NASDAQ:AMZN). Flipkart, India’s largest e-commerce player, has raised $1.4 billion in its latest funding round and acquired eBay India’s operations for $200 million worth of stock to counter the rising Amazon tide.

Flipkart had been struggling with management exits and valuation markdowns in the last year and a half, which was likely impacting its brand value and ability to raise fresh funds. However, the latest funding round – and the profile of the investors – signal a collective effort to fight against behemoth Amazon. Flipkart’s investors in its latest round- China’s Tencent ($700 million), eBay ($500 million) and Microsoft ($200 million) – are all Amazon and Alibaba’s global competitors. Alibaba also has a presence in the Indian e-commerce space through its investments in Paytm and Snapdeal. Snapdeal’s biggest investor, Softbank, has a considerable share in Alibaba as well.

More Consolidation Likely

The top three e-commerce companies currently in India– Amazon, Flipkart and Snapdeal – command a nearly 75% share in the market, leaving little room for smaller competitors. After Flipkart’s acquisition of eBay India, it is likely to become a three-way fight between Flipkart, Amazon and Paytm, considering the current third-largest player Snapdeal is itself rumored to be looking for a buyer. Flipkart, with its consortium of investors, could be a candidate to buy Snapdeal, considering they would have significant synergies and they are both struggling to individually compete effectively against Amazon. Also, eBay now has an equity stake in both Flipkart and Snapdeal, so a merger would likely be in the investor’s interest. If the top e-commerce players combine, it could cause a longer battle for supremacy in the Indian e-commerce market than earlier anticipated, leading to a longer break-even timeline for Amazon’s e-commerce business in India, as well as international markets in general.

Impact On Amazon

In 2016, Amazon’s International segment reported an 86% year-over-year increase in revenues and an 84% rise in operational losses. The division’s contribution to Amazon’s overall top line was 32% compared to its [-31%] contribution to operating profits. The consolidation among other e-commerce players in India could lead to this trend continuing over the next 2-3 years.

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