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Flipkart buys Jabong, and everything is cool

jabong-cmn

Presidents go to war and companies buy others when the news cycle turns against them.

In the case of Flipkart and Jabong, though, it’s an aggregation of bad news that should perhaps change for a while, as the world celebrates Indian ecommerce’s most fashionable marriage: via its own fashion business Myntra, Flipkart has acquired fashion commerce company Jabong for as little as $70 million in cash. Rocket Internet has sold Jabong via its fashion commerce conglomerate Global Fashion Group (GFG), and the low valuation hints at a desperation to wash its hands off the entire business.

This ends months of speculation about the two companies, but apart from the fact that the deal that has taken place, there is little else that they have added: will they retain their separate identities, as Jabong and Myntra? How much was Jabong bought for? Only some data points have been shared: that the two have a combined monthly active user base of  15 million; Jabong has 1500 brands, and over a thousand sellers.

Earlier the Economic Times had reported that Jabong’s asking price was between $250-300 million, and the company had been in talks with Snapdeal, Aditya Birla Group-backed abof.com (what a terrible name), and even Amazon.

But is everything cool?

1. Valuations: Flipkart’s bad news, is frankly, irrelevant and far too many pageviews have been generated for it: Its valuation has been marked down, down, down this past year, but the true valuation will only be determined by the next buyer. Valuation lies in the eyes of the buyer. Rocket Internet itself marked Jabong parent GFG down by 68% when it put in €300 million it put in April.

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2. Corporate governance issues wiped clean with the sale: does the sale of Jabong address the allegations of corporate governance issues that have been raised in the recent past? Earlier this month, The Ken pointed towards allegations in a leaked report, which pointed of conflict of interest in how a company incubated within Jabong, called GoJavas, was sold eventually to Snapdeal. The same report (of which MediaNama has a copy), also alleges issues related to conflict of interest in technology deals, unusually low pricing rebates in disposal of goods returned by buyers (or believed to be returned by buyers). None of it is proven, of course, but the thing is: it probably never will be. GFG probably won’t want to have anything to do with the company, now that it has been sold. Flipkart won’t want to raise an issue in a company that has just been bought. Not their problem. If there was an issue, then someone just got away. Life goes on.Another question to be asked: is Rocket Internet going to exit India?

Jabong Financials (end of March 2016, i.e. Q1 2016)

jabong-financials-q1-2016

– Revenues: Rs 243.78 crore in Q1, up 14% year-on-year (YoY) from Rs 213.87 crore Q1 2015, and 11.55% quarter-on-quarter (QoQ) from Rs 218.53 crore in Q4 2015.
– Gross profit for Q1 2016): Rs 1.49 crore, up from a loss of Rs 11.21 crore in Q1 2015)
– Gross Merchandise Value (GMV) of Rs 410.54 crore for Q1 2016, up 8.4% from Rs 378.38 crore in Q1 2015, up 8.7% from Rs 377.73 crore in the previous sequential quarter.

(Updates: fixed formatting and deleted an irrelevant sentence. Added Jabong valuation)

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