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?
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