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Equity Stakes

Now Amazon Takes The Hit; Why Tiger Global Preferred Flipkart Over Global eCommerce Giant

Now Amazon Takes The Hit; Why Tiger Global Preferred Flipkart Over Global eCommerce Giant
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The rough patch of eCommerce firms seems to be never ending as more and more eCommerce firms facing mark downs and lower valuations. Last time it was the big players of Indian eCommerce game, Flipkart and Snapdeal, and this time, it’s Amazon.

According to the filings, the US Securities and Exchange Commission, Chase Coleman’s Tiger Global Management has cut a major portion of its holding in Amazon. Reducing its stake by nearly 67 per cent, Tiger Global held shares of 3.19 million at the end of December 2015 which have been reduced to 1.04 million shares at the end of March this year.

The news comes as a shock as it was only last year that Hedge Fund Tiger Global had more than tripled its stake in Amazon and in the short period it has dropped its stake from $619 million from $2.16 billion.

Another fact that catches the eye is that Tiger Global is one of the first and largest investor in Flipkart. Although Amazon stands at the top among e-tailers of the world, in India it faces stiff competition from Flipkart, which remains the largest eCommerce firm in India.

Why give up stakes?

The question remains unanswered by Tiger Global which had the second-largest public holding in Amazon. The way we see it, though it could be a major reason, it has more to do than just loss in hedge funds. In September last year, Tiger global had picked up 2.44 million shares for about $1 billion in Amazon. In the first three months of this year, it faced a loss of 22 per cent as Amazon shares dipped by 12 per cent during the period.

However, this period ended fast for Amazon who revived with a significant increase in shares with the help of strong financial results and record profit in March the ended quarter, resulting in the stock touching an all-time high price of $720.6 on May 12.

The eCmmerce companies are fighting it out to emerge as the winner and to make this happen they are heavily investing in expanding their sales/volumes and are also working on their marketing. Now this doesn’t mean they are getting similar profits and when firms do not get profits, why would investors stick around. It is the same reason that over the past few months, Flipkart has also faced a series of markdowns from its mutual fund investors from like Fidelity and Valic marking down the value of their holdings in the company by nearly 20 per cent.

Besides this, a T Rowe Price-managed mutual fund had also marked it down by 15 per cent in April and a Morgan Stanley-backed mutual fund had marked it down by 27 per cent in February.

Finding something new?

But when Flipkart and Amazon both are facing a market down, why cut stakes in just Amazon? Well, only Chase Coleman could answer that but we have a theory here. Tiger Global, which manages $20 billion in assets, deploys capital through two businesses - private equity and public equity funds.

Amazon's investment was through the latter fund while the Flipkart investment was through the former. Now Amazon is more than just an online retailer. From cloud computing to selling their own products like kindle, Amazon is into then things whereas Flipkart is, yet, just an online retailer.

So, if Tiger Global even decides to cut even two-thirds of its stakes, it will definitely impact Amazon, but being a listed company, investments in Amazon can be conveniently ramped up or down easily without taking a major hit on prices.

Another thing to consider here is that without reaching extreme conclusions about the strategies behind this move, this could be just t could have been because of short-term considerations as well because it was a hedge fund. Because it was a private equity, and we are only guessing, if Tiger Capital believes that there isn't anything else that Amazon has to offer in the short term and they would rather exit the stock (they made the excellent return on their capital) and invest it in some other upcoming company.

This they continue to do with their investments with Flipkart. A new firm when compared to Amazon, Flipkart has a long way to go and after facing four major market downs, Flipkart would be deeply affected if they lose another, let alone their largest investor.

Edition: October 2016

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