All buzz about zomato valuation!!

2015 was truly a year of learning for Zomato.  Zomato.com an Indian restaurant search and food delivery service provider was founded by Mr. Deepinder Goyal and Mr. Pankaj Chaddah in 2005 and was initially called Foodiebay.com. Since inception Zomato has raised $225 million across multiple rounds, from investors including Temasek, Sequoia and Info Edge.

Though early 2015 was a ‘gold rush’ for Indian startups. Many of them lost their way, we are now witnessing many market corrections happening about the company valuations in 2016.

Zomato has its operations in 24 countries including India, United states, Australia, Britain. It has entered into USA market early 2015, acquired UrbanSpoon in all cash deal and bagged NexTable in April 2015 to capture the table booking market share.

While 2015 was a good year, with all international expansions and having raised $60 million funding from Temasek and Vy Capital, introducing a whitelabel platform, and also investing in food delivery startups Grab and Pickingo, it had to face bit trouble.
After approximately 300 employees layoff due to low sales, the company had to shut down its cashless business in international markets and changed their revenue strategy. Zomato backed Pickingo, had to face problems and  halted its hyper-local delivery services. In early 2016, Zomato shut down its food ordering service in few tier 2 cities- Lucknow, Kochi, Indore, and Coimbatore, as the markets were not scalable. Mr. Deepinder Goyal CEO ofzomato.com, shared a blog post “What 2015 taught us at Zomato” at yourstory.

Recently there is a lot of buzz around about the valuation by HSBC Securities and Capital Markets (India) Pvt. Ltd, as per the report (Which is not public) Zomato Media Pvt. Ltd has been valued at about $500 million which is 50% lower to their claimed $1 billion valuation on the basis of Discounted cash flow (DCF) analysis.

HSBC Securities and Capital Markets (India) raises concerns over the restaurant listing portal’s last-mile delivery model and member of “Unicorn Club”.

HSBC’s estimate that Zomato is significantly overvalued comes amid increased scrutiny by investors of so-called unicorns, or private companies that are valued more than $1 billion. It also comes days after investors in Flipkart Ltd, India’s most valuable start-up, marked down the company’s valuation by 30-40%.

To be sure, putting a value on these companies is neither simple nor absolute.

HSBC, in it’s 19 April report, initiating coverage of Info Edge (India), said that except for its job website Naukri.com, other businesses in the portfolio do not look promising.

“We do a DCF (discounted cash flow) and value the (Zomato) business at about 50% lower to the $1 billion valuation,” HSBC analyst Rajiv Sharma said in the note to clients. “Zomato is present in 23 markets so early on and none is profitable, implies that to address both the investments in last mile delivery and losses in international operations fund raising will be a continuous phenomenon, suggesting current valuations don’t make much sense.”

A spokesperson for Zomato said HSBC has not contacted the company for its views and “doesn’t obviously understand” the business well.

This report has been denied by Zomato’s largest shareholder Info Edge, saying zomato will become profitable “very soon”.
In their words, “We respectfully disagree with several of the points raised by the HSBC report,” Sanjeev Bikhchandani, founder and executive vice-chairman of Info Edge said in a telephone interview to a news website.

Mr. Deepinder Goyal, CEO of Zomato sent an open email to all the 2100 employees across the world to allay their concerns and answer their questions about what’s going on.

Read more to know whether Zomato – “Unicorn or not?”