When a Morgan Stanley fund writes down the value of e-commerce giant Flipkart to a third of what it was in mid-2015, it is a clear signal. Flipkart is ripe for a takeover.

In a recent SEC filing on 28 November, Morgan Stanley valued its holdings in Flipkart at $52.13 a share, a sharp 38 per cent fall from $84.29 in an earlier quarter. This values the company at around $5.54 billion, a huge 63 per cent crash from the $15 billion plus valuation at the time the company last raised capital from investors in July 2015.

The value-drop may, however, make it more attractive to investors; it means that Flipkart’s more realistic valuations may entice someone to buy it out.

Two months ago, brick-and-mortar retail giant Wal-Mart was in talks to invest $1 billion in Flipkart, but the talks fell through over issues of valuation and some doubts about the e-commerce company’s accounting.

But a $5.54 billion valuation makes it possible for Flipkart to be sold to someone with deep pockets, and not just a venture investor. It is not inconceivable that a Wal-Mart or another big retailer could pick up the whole of Flipkart for a price in the region of $6-7 billion, or a majority stake at half that sum. The other existing investors may be happy to unload in favour of a deep-pocketed giant.

As we had noted some months ago, the cash-guzzling online retailing space is more suitable for those with the internal cash generation to run them rather than entrepreneurs with dash but very little personal cash.

At that time, Swarajya had also noted that it was “unlikely that any Indian-owned group will survive as a standalone business. Sooner than later, it is the Amazons and Alibabas that will hold sway, as only they can keep investing billions of dollars year after year to build scale, reach and margins. One cannot expect a Flipkart or a Snapdeal to survive as independent entities too far into the future. They could become takeover candidates when the regulations allow for foreign acquisitions. The value they build in the next few years will help their investors exit with a small profit. In short, their game is likely to be about sell-out valuations.

“Second, the online business is more likely to succeed when it becomes a subset of big platform businesses. Google, Apple, Facebook, Twitter, Amazon, etc are platforms that sell both physical and digital products, and provide an environment around which other businesses can be built. This will be obvious from the sheer number of vendors and developers who build products around these platforms. Standalone e-commerce platforms in one country are tough to sustain, as gestation periods for breakeven get longer and longer.

“The new digital business model is about first building a huge and sticky customer base practically for free, and then trying to sell them something to profit from by using the database for customer insights. Google gave away its search and mail products free for years before it could build a huge customer base whom advertisers could target. In contrast, it is difficult to see what’s sticky about a Flipkart platform, when people are coming to it largely for the discounts offered. Online marketplaces will take a very long time to build the kind of stickiness of platforms like Facebook.”

The latest valuation writedown makes it clear that Flipkart’s days as an independent e-tailer are numbered. It is up for grabs.