• Skip to primary navigation
  • Skip to main content

The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

  • Home
  • Members
  • Log In
  • Show Search
Hide Search

Uncategorized

The Truth About Valuation

May 30, 2018

On May 9, 2018, American retail giant Walmart forked out US$ 16 billion to acquire 77 percent stake in Flipkart. That transaction pegged the value of Flipkart, an Indian online retail firm, at US$ 21 billion. Not bad for a company which began operations with an initial capital of less than Rs 5 lakh merely ten years ago.

Now, is Flipkart really worth that sum?

Before you think about how to answer that question, it’s important to see who is asking that question? In this case, it was Walmart, and clearly, the answer they arrived at was a resounding yes, i.e., they believe that Flipkart is worth US$ 21 billion.

Today, Flipkart’s annual revenue stands at US$ 3 billion. So, Walmart paid seven times the sales. Is that unreasonable? Maybe, maybe not. Consider this – to reach that US$ 3 billion, Flipkart has burnt US$ 7 billion of investors’ money that it has raised so far from venture capitalists. To add insult to the injury, Flipkart has never made a single paisa of profit till now.

So where does Walmart see the value worth US$ 21 billion?

<!–more–>

Want to Read More? This content is exclusive for members of Value Investing Almanack. Login to read if you are a member. Else, click here to subscribe.

Benefits to VIA Members
 
  • Spotlight: Big ideas from Value Investing and why applying them in your investment decision making will be a great deal
  • InvestorInsights: Interviews with experienced value investors, learners, and deep thinkers
  • StockTalk: Thorough analysis of business models of companies (without any recommendations)
  • Behaviouronomics: Deep analysis of human behaviour and how it impacts investment decision making
  • BookWorm: Reviews of the best books on Value Investing and related subjects
  • Free Course – Financial Statement Analysis for Smart People (otherwise priced at Rs 5,900)
  • Archives: Instant access to our huge archive from the past three years
Become a VIA Member. Click to Subscribe

Handcrafted with in India