Bengaluru: Global asset manager T. Rowe Price Group Inc. has reduced the value of its stake in Flipkart Ltd by a fifth, its second cut in four months, reflecting continued investor concerns over the valuations of technology start-ups.
The move came ahead of a statement by Flipkart on Friday that it was cutting 300 to 600 additional jobs, after already shrinking its workforce to 30,000 from 33,000 at the start of the year to reduce costs.
US-based T. Rowe Price lowered the value of its holding in Flipkart to $96.29 per share, a 20% erosion, according to a filing the investment manager made to the US Securities and Exchange Commission (SEC) for the quarter ended June.
That values Flipkart at $10.3 billion, according to T. Rowe Price. The firm had earlier cut the value of its stake in Flipkart by 15% in April.
Flipkart declined to comment.
Tiger Global Management-backed Flipkart was valued at $15 billion when it last raised funds in May 2015. At that time, it was a clear market leader in the Indian e-commerce segment, ahead of the India unit of Amazon.com Inc. and Snapdeal (Jasper Infotech Pvt. Ltd).
India’s e-commerce landscape has changed in the past year, with Amazon rapidly closing the gap with Flipkart and Snapdeal. Amazon has also topped up its India commitment by $3 billion—chief executive officer Jeff Bezos had pledged an investment of $2 billion for India in 2014—at a time when investors are tightening their purse strings amid concerns over the soaring valuations of tech firms.
Flipkart, India’s most valuable start-up, has held funding talks with more than 15 investors over the past six months, but all of them have refused to invest in the company at its preferred valuation of $15 billion.
Rival Snapdeal, India’s second-most valuable Internet company, has also held talks with several new investors who have declined to put in money at the firm’s asking price of $6.5 billion, Mint reported on 14 April.
Flipkart’s valuation has seen multiple markdowns in the past six months. This is a global trend in which valuations of leading start-ups such as Uber and Airbnb have also been marked down by investors.
Recently, US-based investment firm Vanguard Group marked down the value of its holding in Flipkart by 22%, from $136.87 a share as on 30 September 2015 to $106.65 as on 31 March 2016, according to regulatory filings with the SEC, lowering the online retailer’s valuation to $11 billion.
In May, Morgan Stanley Mutual Fund Trust, a mutual fund investor in Flipkart, lowered its estimate of the online retailer’s valuation by 15.5% for the second successive quarter in a row, implying that it valued the company at $9.39 billion.
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Also in May, two small mutual fund investors, Valic Co 1 and Fidelity Rutland Square Trust II, also marked down Flipkart’s value. Valic cut the value by 29.4% as of February 2016 from the previous August, according to SEC filings. It valued Flipkart’s Series D stock at $98 per share in February, down from $139 apiece in August.
Fidelity marked down Flipkart’s value by as much as 39.6% as of February compared with last August. It valued Flipkart’s Series D stock at $82 a share in February, down from $135.8 a share in August.
“Even the valuations of publicly traded companies see changes and corrections. It is the same with Flipkart. The current valuations have changed in the eyes of some investors, not all," said Harish H.V., partner at consultancy Grant Thornton.
“But there are chances these series of devaluations may impact their future fund raises. It is a private company and the valuations are often based on achievement of a certain target. Moreover, there are no clear valuation metrics," he added.
On Friday, a Flipkart spokeswoman said the company had cut 300 to 600 jobs.
“As a performance-oriented organization, we have a transparent evaluation process in place. The top performers are rewarded highly and promoted to the next growth level," the spokeswoman said in a statement.
“The solid performers are accordingly recognized and groomed for future roles through mentoring, coaching and on-the-job learning opportunities. At times, we have employees who do not meet the performance bar. In those situations we work closely with employees to enable them improve their performance. In due course, if these employees are unable to make the desired progress, they are encouraged to seek opportunities outside the company where their skills can be better utilized. This is a fairly common practice across various industries—especially in high performing Internet organizations," the spokesperson added.
The Economic Times reported on Friday that Flipkart was offering employees who had failed to meet expectations the choice to either resign or be sent off with severance pay, adding that the move was expected to impact 700-1,000 staff.