E-commerce giant Flipkart, which has been caught in a downward spiral of valuation markdowns in recent months, may run low on cash in a year, given its current burn rate, according to sources familiar with the company’s financials.
Sources in Flipkart told BusinessLine that the company, which has raised $3.15 billion so far, today has at best a little over $1 billion in cash. Given that its cash burn rate is estimated to be in excess of $80 million a month, that gives the company only a year to go before it needs another round of funding.
A top executive at Flipkart, however, contests these estimations, and claims that most of the $3.15 billion it raised is “lying in the banks.” That seems a bit of a stretch considering that in recent times, Flipkart has acquired, among others, Myntra and Jabong.
Flipkart has not disclosed the cost of its acquisitions, but a source in an analytics firm who is familiar with the financials says that net of these acquisitions and the discounting, the company has only a little over $1 billion in cash.
A Flipkart spokesperson told BusinessLine: “The funds that we have raised till now are sufficient to fuel our business for a few years. We are not in the process of actively raising money. At Flipkart, we believe in raising funds when they are available and not on a need basis as this gives us the freedom to plan long-term.”
Flipkart’s investors have in recent months made it clear to the management that there are several issues that need to be fixed.
For starters, the GMV (gross merchandise value) at the current level is said to be around $3 billion, against the initial target for the year: $8 billion.
Although insiders claim the company is valued internally at about $12 billion, the recent markdowns put the actual valuations at less than $10 billion. Investors want that to be $13-15 billion, and want the company be cash-positive.
To meet all those expectations, Flipkart will have to do a fine balancing act.
A top executive said on condition of anonymity that if the company keeps improving its efficiencies at all levels, it may not need cash infusion for three years. He pointed out that revenues from advertising had gone up considerably, and there are newer revenues streams bringing in cash.
The company has stopped disclosing GMV numbers as it considers them “misleading”. Illustratively, he pointed out that some e-commerce companies measure the GMV based on the MRP of products rather than on the discounted price. “The correct measure is net sales: everything depends on how fast you are growing the market,” he said.