Zomato’s High Financial Expectations

Zomato is a food search and delivery start up that was founded in 2008 by Deepinder Goyal and Pankaj Chaddah with operations in Delhi, Bangalore, Hyderabad and in foreign nations like Singapore, UAE etc. According to a report released by the HSBC in the beginning of March this year, Zomato has a projected valuation of $3.6 Billion. This is a massive jump as in 2018 Zomato was valued at only $2.5 billion and in 2016 it was valued at $500million. HSBC stated that the increase in valuation of Zomato was because of the expansion of its business model from just food delivery and restaurant finder to include event management.

Furthermore, HSBC also said that due to its large scale operations in multiple countries, Zomato can begin to enjoy economies of scale leading to lower employee and delivery costs per unit. Also, there is an expectation that Zomato would face an increase in the number of orders resulting in the increase in food delivery market share. The valuation of $3.6 billion is a positive improvement because Zomato is valued higher than that of its rival Swiggy in India. Swiggy was valued at $3.3 billion. However, Swiggy is in talks with Uber Eats in order to gain a 10% stake in the company and if this deal goes successful then Swiggy would be expanding its reach further than that of Zomato. Zomato’s high valuation would be tested when the company tries to raise fresh capital.

This can be quite difficult as the food ordering and delivery industry is becoming quite competitive as Zomato, Swiggy and Uber Eats are all collectively trying to attain the market share. The organizations are looking at a long term horizon where they are willing to make losses now to capture the market share and eventually become a market leader. That is the reason for the recent increase in food coupons and offers available in the apps. To continue its battle of attaining market share, Zomato must raise more capital by convincing the investors to invest in the business and will hopefully be able to raise capital near its valuation at 3.6 billion. To raise funds and become more appealing to the investors, Zomato has tried and implemented various measures over the year.

It has launched three editions of the Zomaland carnival in Pune, Delhi and Bangalore. The carnival featured multiple food stalls, music and theatre performances and a variety of carnival games. The intention of Zomaland was to bring forth an offline experience of food and restaurant choices. Instead of a family using the Zomato app and surfing through its various partner restaurants, the family could come to Zomaland and choose from a multiple of its food partner restaurants for its meal while at the same time enjoy a day out. Zomaland was quite a hit in all its three editions with high number of ticket sales before the event. Apart from that, Zomato also has a relatively loyal customer base because of its Zomato Gold service.

Zomato Gold is a paid subscription service offered in India that provides subscribers with either complimentary food or drinks when they dine in Zomato partner restaurants. This service has also increased the number of users on the app. Another service offered by Zomato is Zomato Collection which features trending restaurants and food that was recently ordered by its customers. A restaurant that is featured in Zomato collection usually sees a surge in food ordered from there or an increase in footfalls in the restaurant. Zomato consumers trust the app as the app has consistently delivered good food experience and so if a restaurant is Zomato recommended via the collections, people are more likely to visit that restaurant.

To increase capital and funds, Zomato has entered into an agreement to sell its UAE business to Delivery Hero through the subsidiary Talabat Middle East Internet Service Company for $172 million. Zomato and Berlin based Delivery Hero have also planned to enter into Services Agreements with Zomato continuing to run the UAE business. Zomato has also gained investments from Delivery Hero up to $50 million. It is estimated that the total amount of funding raised by Zomato till now is $315 million. This amount was perpetuated because of the stake of InfoEdge of about 26.38% in Zomato. As of now, Zomato is on the right track in raising capital. Its imaginative ideas like Zomaland, Zomato Gold, and Zomato Collections set Zomato apart from the other food delivery organizations. With its various projects Zomato should be able to meet the projected valuation provided by HSBC and continue to compete with its rivals.

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