Exclusive: eBay may top up ailing Paytm Mall with upto $200 Mn, but with massive haircut in valuation

Paytm Mall has turned into a classic example of how things can quickly turn south in business if fundamentals are ignored. Just three quarters ago, it was the third largest Indian e-commerce company splurging SoftBank and Alibaba capital on cashbacks and freebies.

Fast forward in October-November 2018, Paytm Mall realised that it can’t sustain the cashback driven play and resorted on downscaling consumer-facing business (company's loss in FY 2017-18 was ~$250mn). As a fallout of downscaling, it went through massive leadership and middle management attrition while facing the seller’s flak for unsold inventories.

Also, there have been questions raised around royalty payments/customer access fees to the tune of $100mn from Paytm Mall to Paytm's payments business.

Two months ago, Entrackr had exclusively reported that Paytm Mall opted to downscale its B2C vertical, which has since then been widely reported on.

Nevertheless, Vijay Shekhar Sharma, founder of Paytm Mall has been denying the existence of any problems ever since our report in January this year. Enough said and done, what’s new in the cashback house?

Paytm Mall has been engaged in talks with eBay for potential funding up to $200 million, according to three reliable sources.

“While the conversation has been happening for some time, it is unclear at this point if the deal may fructify,” added two of the aforementioned sources on condition of anonymity. In case the deal materialises Paytm Mall will have to bear a massive haircut in valuation.

“Paytm Mall could be valued as less as $600 to $800 million,” said sources. The e-commerce marketplace was valued about $2 billion when it raised $445 million from SoftBank and Alibaba in April last year.

Importantly, the talks of eBay investment in the firm surfaced when eBay relaunched its business in India after breaking up with Flipkart. For context, eBay had acquired 5.4 per cent stake in Flipkart for $514 million cash and surrendering local operations (eBay.in).

“This is likely a bottom fishing exercise by eBay where it may get to invest at a valuation potentially lower than total capital raised by Paytm mall. Even at that valuation, it is unclear if it is a prudent investment to make,” outlined one of the three sources.

Spanning across two rounds, Paytm Mall had closed about $645 million in total funding. At present, Alibaba’s Singapore entity owns 30.15 per cent stake in the firm while SoftBank holds a little over 21 per cent.

Responding to Entrackr queries, Vijay Shekhar Sharma said that pricing is off by 5X. Probably, he meant to say that the valuation of the firm is in tune of $3 billion.

Meanwhile, eBay’s global spokesperson replied, “We don’t comment on rumors or speculation.”

Hived off from the parent entity – One97 Communication in late 2016, Paytm Mall took one of the shortest durations to become a Unicorn. This was achieved on the back of the tried and tested cashback model of Paytm itself, a model that sadly failed to work for Paytm mall.

Since eBay had resumed its operations in the country just 7 weeks ago, it’s quite puzzling why it would make a minority investment in Paytm Mall, around which there is a general consensus that the business lacks any coherent strategy.

There is speculation that the investment may be to get a local partner for cross border e-commerce, however, it is uncertain why eBay would make an investment for that. They could partner with all marketplaces in India and maximize demand without putting all their eggs in one basket. Marketplaces rarely say no to more selection.

Even with a $ 200 million investment (though, it’s likely far from being final), it’s unsure how Paytm Mall will compete against well capitalised Amazon and Flipkart, as well as a resurgent Snapdeal. While on one hand eBay currently lacks any material capabilities in the Indian e-commerce market, on the other hand, Paytm Mall lacks strong organic consumer demand in the country.

Given that eBay is known to pursue conversations for months and then lose interest (there was even speculation that they would buy ShopClues at a throwaway price last year), chances are that this engagement meets a similar fate. We will update the story as and when we get more information on this front.