Flipkart Increases Positive Margin Contribution V/S PhonePe Hive Off Flipkart

Walmart International, which includes PhonePe and Flipkart, registered net sales of 27.6 billion dollars for the quarter of FY22 under review, recording a growth of a little over 2 per cent on a year-on-year basis. The CFO of Walmart International, John David Rainey, claimed that the global retail giant is particularly happy about Flipkart’s positive contribution margin expansion during Walmart’s Q4 earnings call. The income of Walmart International plummeted 65.3 per cent year-on-year in quarterly FY22, primarily on account of the separation of Flipkart and PhonePe. 

Walmart International, the parent company of Flipkart, is expanding on its positive contribution margin. It has played a vital role in the overall gross sales and revenue growth of the US firm. A positive contribution margin basically means the products can make a contribution or profit after the deduction of fixed costs at the firm.

Walmart CFO Pleased With Flipkart’s Contribution Margin

Walmart International, headquartered in Bentonville, Arkansas, is an American multinational retail corporation operating a chain of hypermarkets (also called supercentres), grocery stores, and discount department stores. The company was founded by brothers Sam and James “Bud” Walton in 1962 and had over 10 thousand stores and clubs in 24 countries, running under different names. The company operates in the United States under the name Walmart and Flipkart Wholesale in India. The company is the largest private employer in the world, with 2.2 million employees according to the Fortune Global 500; with about  570 billion dollars in annual revenue, Walmart International wasthe world’s largest company by revenue in October 2022.  

This US-based company holds the majority of stakes in the Indian e-commerce major Flipkart and fintech platform PhonePe. In the post-earnings call on Tuesday, John David, CFO of Walmart, stated, “A lot of our Gross Merchandise Value (GMV) and Revenue Growth come from Flipkart. We see progress there, and they continue to be a strong player in the market there. Flipkart has invested in infrastructure in the last three years, and now we are able to see the contribution profit, and we are excited to see that.” 

John further added, “To me, this separation is very analogous to Ebay and PayPal. Each of them can operate independently and pursue their own initiatives. They do not necessarily need to be tied together. This is an opportunity to unlock and realise more value independently,” Walmart International, which includes Flipkart, reported net sales of 27.6 million dollars for the quarter; thus, growth of a little over 2 per cent is reported on a year-on-year basis.

“PhonePe’s highlight is their TPV reached $950 billion at the end of last year– that was their run rate last year. And now they are doing four billion transactions a month. That separation allowed us to put them on the path of (being) the very businesses they can be in the long term. Fundamentals for India remain strong, and in fact, it’s strengthening,” said,McKenna the president and CEO of Walmart International echoed notions of John David. The separation of PhonePe from the Flipkart group was among the highlighted sections for Walmart International, contributing to an operating cost increase of 262 basis points. Additionally, the gross profit rate of Walmart International also showed a rise of 52 basis points for sale events, which includes Flipkart’s flagship Diwali sale of BigBillion Days. 

Peeking Into Flipkart

Flipkart Private Limited, headquartered in Bengaluru, is an Indian e-commerce company. Founded in October 2007, the company resulted from the efforts of former Amazon employees Sachin Bansal and Binny Bansal. Its 77 per cent stakes are controlled by American retail chain Walmart International, and the e-commerce is valued at 37.6 billion dollars as of 2022. In the previous year, the company had plans to go public through a listing in the United States of America in 2023. The e-commerce company recorded a total revenue of INR 43,357 crore in the fiscal year of 2020-21, which was 25 per cent more than the company’s total revenue in the fiscal year of 2020. In the past year, Flipkart’s losses were recorded to have reduced to INR 2,445 crore, which is 23 per cent, with total expenses of INR 45,801. 

The e-commerce company has also entered the hotel industry for the Indian and global markets recently. The e-commerce company needed investment in infrastructure, and as per John David, the company is able to see the contribution of the profit after investing in its infrastructure in the last three years. 

Overall, globally Walmart International recorded a total revenue of 164 billion dollars during the quarter under review, which marks an incline of over 7 per cent. The group, a publicly traded family-owned business controlled by the Walmart family income plunged year on year quarterly by 65.3 per cent, primarily on account of the separation of Flipkart and PhonePe. The Walmart CFO, John David, commented about the separation of Flipkart and PhonePe , analogous to PayPal and eBay, stating that each of them can operate and pursue their own initiatives independently. Flipkart India is taking several measures in recent years, and though its net loss widened, the e-commerce e-business reported revenue growth of about 30 per cent in the financial year 2021-22. Its 77 per cent stakes are held by Walmart International, but its recent changes in the strategy have made investors buy its unlisted shares. Flipkart’s unlisted shares price currently is Rs 10 per equity share. It can be easily traded on India’s number one trading platform, Stockify, where you get support throughout the buying and selling process to make the best trading decisions. 

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Infrastructure investments made over the past three years are paying off, and Walmart’s CFO is pleased to see Flipkart’s positive contribution margin expanding.

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