Is Flipkart worth $5 billion?

Nivedita Mookerji argues that there's a case for it

The valuation of an Indian company has perhaps never escalated this fast. The seven-year-old Flipkart, which began in 2007 as an online book store and shot to fame soon after for its inventory and deep discounts, is being valued at $5 billion, based on a big round of funding some time soon, according to a report published in The Economic Times on July 15. While there’s no official word on whether such a rise in valuation in such a short time is possible or not, here’s how closely-held Flipkart has been sized up over the last few years by the market, whenever it went for a new round of funding--it has raised $750 million so far.   

Just three years ago, in July 2011, when there was no Amazon to compete with in India, Flipkart was valued at $1 billion, at that point a magical figure for an internet start-up. The e-commerce market size was pegged at around $1.5 billion then, excluding the online travel sector. Flipkart’s run rate, a term to roughly describe the annualized gross merchandise value of sale on the site, was estimated at $70 million.

Two years later, in November 2013, South African internet major Naspers referred to Flipkart’s valuation in its financial results. Naspers disclosed that the company acquired an additional 8.6 per cent in Flipkart in July 2013 by investing over $135 million. It held a total of 16.7 per cent in Flipkart at that point. Back of the envelope calculation put Flipkart’s value at around $1.6 billion in July 2013.

Again in May 2014, just two months ago, when Flipkart raised $210 million from a consortium of investors led by DST Global, an internet-focused investment group founded by Russian billionaire Yuri Milner, against an undisclosed amount of stake, the Bangalore-based firm was valued at around $2 billion. Flipkart, which had just acquired Myntra, a rival ecommerce company, was on a high, and some estimates pegged the value of the merged entity at $2.6 billion. By this time, the company’s run rate has crossed the $1 billion mark, and the e-commerce market has grown to $3 billion (excluding travel).

So, when there’s talk of valuation of Flipkart shooting up to a likely $5 billion, from $1 billion three years ago, the comparable e-commerce market has increased to $3 billion from $1.5 billion in the same period. While Flipkart’s valuation has risen 400 per cent in three years, the e-commerce market in the country has expanded at a conservative 100 per cent (or doubled) in the coinciding duration.

However, in terms of the company’s run rate or sales, it’s grown from an annualized $70 million in 2011 to $1 billion in 2014, an increase of a stunning 1300 per cent. If that is a yardstick to arrive at a company’s  valuation, Flipkart could well be valued at $5 billion. After all, we are talking of a pureplay internet-based company in an age when the likes of Twitter, Facebook, Google, Alibaba and Whatsapp have stunned the world with their logic-defying valuation numbers over and over.