SUMMARY
Earlier, SoftBank Made A Similar Move When It Reported $1.4 Bn Combined Losses In Snapdeal And Ola
US-headquartered multinational ecommerce corporation eBay has written off close to $61 Mn on its investment in beleaguered online marketplace Snapdeal. In addition to being one of Snapdeal’s early investors, eBay Inc currently holds a 5.44% stake in another Indian ecommerce startup, Flipkart.
The company said in its SEC filings for the fiscal year ending in December 2017, “In 2017, we recorded a $61 Mn impairment charge to write-down our cost method investment in Jasper Infotech Private Limited (parent entity of Snapdeal). The investment was measured at fair value due to events and circumstances that we identified as having significant impact on its fair value.”
“The fair value measurement of the impaired investment was measured using significant unobservable inputs. The impairment charge, representing the difference between the net book value and the fair value, was recorded to interest and other, net. In 2016, we sold a portion of our equity interest in Snapdeal. The resulting gain was recorded in interest and other, net on our consolidated statement of income,” eBay further stated.
To cut losses on its investment in Snapdeal, eBay jumped ship in April 2017 to participate in a $1.4 Bn funding round in Flipkart, along with Tencent and Microsoft.
As part of the deal, eBay also entered into a strategic commercial agreement with Flipkart, thereby selling its eBay.in business to the homegrown ecommerce unicorn.
In its annual report, eBay said, “In 2017, we made a cost method investment of $50 Mn. In addition, we received a 5.44% ownership interest in Flipkart in exchange for our eBay India business and a $500 Mn cash investment, resulting in a cost method investment of $725 Mn. The gain on disposal of our eBay India business of $167 Mn was recorded in interest and other, net on our consolidated statement of income.”
Along similar lines, Japanese investment giant SoftBank earlier reported a whopping $1.4 Bn loss on two of its major investments in India, Snapdeal and Ola.
As per the financial report ending March 2017, filed by the company, the “Financial Loss on financial instruments at FVTPL (Fair Value Through Profit or Loss) was $1.4 Bn (¥160,419 Mn) compared to a gain of about $1 Bn (¥114,377 Mn) in the previous fiscal year.”
The financial instruments at FVTPL included preferred shares of Jasper Infotech Pvt. Ltd, the parent company of Snapdeal, and ANI Technologies Pvt. Ltd which operates the taxi booking platform Ola.
Prior to that, SoftBank wrote off around $475 Mn in its combined shareholding value in Ola and Snapdeal, for the period ending December 31, 2016.
Similarly, for the period ending in September 2016, SoftBank had written off another $555 Mn in the same Indian investments, Ola and ecommerce platform Snapdeal. Like eBay, SoftBank also led a massive $2 Bn-$2.5 Bn investment in Flipkart, post the breakdown of the latter’s merger talks with Snapdeal.
Snapdeal: A Look At Its Troubled Past
From the fallout of merger talks with Flipkart after months of speculations to being abandoned by one of its biggest investors SoftBank, the once celebrated ecommerce startup Snapdeal has been grappling with losses, controversies, layoffs and setbacks in recent times.
Once valued at $6.5 Bn (in February 2016), the company has been struggling to remain afloat amidst increased competition from rivals Flipkart and Amazon. In April 2017, after its valuation fell to $1 Bn, Snapdeal’s biggest investor SoftBank proposed a merger with rival Flipkart.
In May, the two signed a non-binding Letter of Intent, following which negotiations began. For two months after that, Flipkart was conducting due diligence on Snapdeal, for evaluating its assets and liability profile.
Originally in June, Flipkart reportedly made a $300 Mn-$400 Mn acquisition offer, which the other party promptly rejected. During the first week of July, it was reported that Snapdeal once again rejected Flipkart’s $700 Mn – $800 Mn buyout offer, asking for a slightly higher $900 Mn instead.
A week later, Flipkart upped its acquisition offer to $850 Mn. At the time, Snapdeal reportedly approved the $900 Mn-$950 Mn merger offer and was awaiting shareholders’ approval.
Soon afterward, however, the merger talks between Flipkart and Snapdeal fell through after Snapdeal founders – Kunal Bahl and Rohit Bansal – as well as early-stage investor Nexus Venture Partner and minority shareholders like PremjiInvest expressed reservations against the proposed deal.
This was the one part of the entire story. While negotiating terms of the deal. Snapdeal repeatedly made headlines due to rumours about layoffs and downsizing. Between February-March 2017, as part of a cost-cutting exercise, Snapdeal reportedly laid off over 30% of its workforce or 1,000 people, with 600 being eliminated in February alone.
Post the breakdown of merger talks, on August 1, 2017, it was reported that the Kunal Bahl and Rohit Bansal-founded startup was gearing up to dismiss around 80% of its employees.
For Snapdeal, these are all ongoing battles. How the latest $61 Mn write-off by eBay will affect the already struggling ecommerce startup remains to be seen.
