By Christopher Shim, Karthik Neelamegam (University of Cambridge), Samuli Karjalainen, Jonathan Fuchs, Chiara Fulvi (London School of Economics)
Overview of the deal
Target: Jio Platforms
Implied EV: $65.95B
Total Transaction Size: $5.7B
Announced Date: 22.04.2020
The social media and technology giant Facebook recently announced it would take a minority stake in India’s Reliance Jio Platforms, the country’s biggest telecom operator. Mark Zuckerberg’s Facebook will invest $5.7B for a 9.99% stake in Jio Platforms, which is the digital technology subsidiary of Indian billionaire Mukesh Ambani’s Reliance Industries. Prior to the deal the subsidiary was referred to as “Reliance Jio”, whereas now Reliance Industries refers to it as “Jio Platforms” in order to allude to the range of services offered by the subsidiary besides telecoms. Other services under the Jio-umbrella include JioVaan, a music streaming service, the on-demand TV service JioTV, payments service JioPay, and JioMart, an e-commerce business and joint venture between India’s largest retail chain Reliance Retail and Jio. Facebook aims to benefit from Jio Platform’s 388m users, especially through a tie-up of JioMart and Facebook’s WhatsApp messaging service, which counts India as its biggest market with more than 400m users.
“We can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience” - Ajit Mohan, VP and Managing Director of Facebook India
Company Details: Facebook, Inc.
Facebook, Inc. is a technology conglomerate that develops products that enable people to connect virtually. The company's products include Facebook, Instagram, Messenger, and WhatsApp. It also provides Oculus, a hardware, software, and developer ecosystem, which allows people to connect with each other through its Oculus virtual reality products.
Founded in: 2004
Headquartered in: Menlo Park, US
CEO: Mark Zuckerberg
Number of employees: 48,268
Market cap: $680.34 Billion
EV: $622.27 Billion
LTM Revenue: $73.36 Billion
LTM EBITDA: $33.38 Billion
LTM EV/Revenue: 8.48x
LTM EV/EBITDA: 18.64x
Company Details: Reliance Industries Ltd
Reliance Industries Limited is an Indian multinational conglomerate. It engages in petroleum refining and marketing, petrochemicals, energy retail, textile, and telecommunications businesses worldwide. Reliance is the largest publicly traded company in India and operates 10,415 retail stores. In the TMT industry, its activities include Jio 4G wireless broadband network services, various television channels, feature films, news and entertainment portals, finance portals, lifestyle portals, content syndication, and online ticket booking platforms.
Founded in: 1973
Headquartered in: Mumbai, India
CEO: Mukesh Dhirubhai Ambani
Number of employees: 194,056
Market cap: INR 11.9 Trillion
EV: INR 12.15 Trillion
LTM Revenue: INR 5.9 Trillion
LTM EBITDA: INR 869.14 Billion
LTM EV/Revenue: 2.04
LTM EV/EBITDA: 13.98
Reliance Jio has often been described as India’s Amazon, Exxon, and AT&T combined into one company. While Jio has achieved its aims of becoming not only the biggest telecommunications player in India and an energy behemoth in its own right, it still faces strong challenges from Amazon as a platform for e-commerce. This is where the Facebook partnership strongly benefits Reliance Jio, which would allow the Indian firm to gain access and connection to millions of small-business owners with a huge base of potential customers. This would allow Jio to monetize subsidiary business, and could essentially upend the entire e-commerce market in India.
There are numerous beneficial short-term impacts of Facebook’s investment in Reliance Jio Platforms. First is that collaboration between Whatsapp (owned by Facebook) and Jiomart (a subsidiary of Reliance Jio Platforms) will allow 20 million kirana (neighborhood stores) to transact digitally very soon. This is the culmination of more than two years of collaboration between the Indian government and Whatsapp to expand its payment services in the Indian consumer market, which has until quite recently faced numerous regulatory hurdles. Second is that the Jio-Facebook deal could lead to the formation of one of the largest digital services firms in the world. This is particularly the case given how Jio Platforms has racked up 388 million users on its Reliance Jio mobile network, and have expanded services to other areas such as online shopping, news, and movie streaming. Third is that this action is perhaps the largest investment for a minority stake by a technology firm globally and is undoubtedly the largest foreign direct investment in the Indian technology space.
India, with its 1.3 billion population, is one of the world’s fastest growing online arenas, where Facebook has been competing with other major companies such as Google and Amazon for dominance. This investment will allow Facebook to gain an advantage over key competitors in the Indian consumer market, and could in the long term cement and strengthen its foothold in India. Furthermore, the partnership between Facebook and Reliance Jio comes at a critical moment for the technology sector in India. On one hand, India is the world’s second-largest smartphone market and has a consumer market consisting of hundreds of millions of users keen on buying goods online. More significantly, there are around 600 million consumers in India who are yet to gain access to the internet and thus the technology sector in India has witnessed massive investments not just from Facebook but other companies such as Alibaba, Tencent, Softbank and many other technology giants. On the other hand, it has become increasingly difficult for international companies to gain profits within India from this situation due to shifting regulations. Thus, Facebook by forging a key alliance with Reliance Jio has given it the ability to essentially “cash into” the situation during the context of uncertain global economic conditions that have arisen from the Covid-19 Pandemic.
Furthermore, the Facebook-Reliance Jio partnership presents not only economic benefits but also more significantly poses a fundamental issue of what type of internet India seeks to develop in the future. In other words, India is at a crossroads in deciding whether or not it will choose to embrace an internet that is controlled and gated (as seen in the People’s Republic of China) or largely unencumbered and free (as seen in the European Union). The approval of the Facebook-Jio deal by regulars would suggest that India’s plans for data localisation may not be fully decided, and also significantly indicates that Western technology giants will continue to have a key stake in the future of India. Furthermore, the coronavirus pandemic has pressured international companies to seek more secure, local supply chains. When it comes to Facebook, it is clear that partnering with a key Indian partner could help it gain more local influence in the Indian consumer market. This is a reflection of Facebook’s remark that its investment in Reliance Jio marks its “commitment to India”, which essentially will formulate “new ways for people and businesses to operate more effectively in the growing digital economy.”
Risks & Uncertainties
Facebook’s $5.7 billion investment in Reliance Jio Platforms is the largest FDI in the technology sector in India and largest investment by a technology company for a minority stake anywhere in the world. The deal naturally attracted antitrust and regulatory attention, and is currently under review by the local antitrust watchdog, the Competition Commission of India. The Commission has declared it is assessing the deal in order to address data and privacy concerns. This comes at a time in which regulators in India are becoming more wary of cyber risks, and are trying to exercise greater control on the ways the data generated by Indian users is utilised and monetised. Thus, the partnership warrants great caution regarding how user data is processed and transferred between entities.
After its deal with Saudi Aramco fell through due to collapsing oil prices, Reliance Industries has been under greater scrutiny regarding the amount of debt on its balance sheet. The conglomerate had already pledged to reduce debt at the company level, after concerns over its high debt levels had caused its stock price to lose value. The success of Facebook’s investment will thus be partly tied to its ability to monetise Jio Platforms’ assets and reduce its debt.