Selling local unit to Flipkart, eBay bullish on India

Company expects deal to close in second half of 2017

The e-commerce company eBay is planning to close the sale of its India unit to Flipkart, a deal which saw the US e-commerce giant investing $500 million for a minority stake in the Indian company, in the third quarter of 2017.

The company says it remains bullish about winning the market through its partnership with India's largest e-commerce player Flipkart. The deal will provide buyers on its platform access to Indian inventory and global sellers access to the growing base of buyers in India that shop online.

“We believe our $500 million investment along with the contribution of our eBay India business, significantly improves our competitive position in a strategically important market,” Scott Schenkel, CFO at eBay, told analysts in a call. “Upon deal close, we will no longer report active buyer GMV and related financials for eBay India,” he added.

While eBay does not expect the sale of its India unit to have GMV or financial impact on its 2017 earnings, the company said it would lose around four million active buyers. This also reveals eBay’s marginal play in India, which boasts of approximately 40 million active online buyers.

eBay was among the first entrants into India’s e-commerce market in 2004 through the purchase of Bazee.com but it failed to keep up with rivals such as Flipkart, Amazon, Myntra and Snapdeal. Moreover, the company under the leadership of CEO Devin Wenig is executing a global rejig with a plan to win back share in markets where it used to have a strong foothold.

India, though among the fastest growing e-commerce markets in the world, did not figure in that list.

“The team at Flipkart are strong executors, with deep knowledge of the local market. And we're committed to winning in India through this partnership,” said Wenig in a call with analysts over the company's first-quarter earnings.

eBay’s sale of its India unit to Flipkart was part of a $1.4 billion investment round in the Indian company by Tencent, Microsoft and eBay ($500 million). While eBay will retain a stake in the Indian market via its holding in Flipkart, the local company will get a foothold in the customer-to-customer online retail market where Amazon is vying for leadership through Junglee.

Analysts have pointed out that managing eBay’s India business could add pressure on Flipkart, which is battling Amazon and gearing up to take on China’s Alibaba. Further, with investors engaged in talks to sell smaller rival Snapdeal to Flipkart, there is a fear that the Indian e-commerce leader’s newfound momentum could be hindered by managing not one but two underperforming assets.