Zomato chief rubbishes HSBC report

Priyanka Pani Mumbai | Updated on January 20, 2018 Published on May 09, 2016
Deepinder Goyal, Zomato founder


Analyst report has marked down company's valuations by half

Deepinder Goyal, founder of online food discovery and ordering portal Zomato, has slammed an analyst report that has marked down the company's valuations by half to $500 million.

Goyal in a blog titled "Unicorn or not ?" rubbished an HSBC analyst report with some valid counter arguments. He also wrote a mail to his 2,100 employees assuring them that business is as usual at Zomato and that there is nothing to worry.

"No pressure. There’s that much more to live up to, and win. There’s something that we say often – we are only 1% done. We are truly 1% done, and if we continue to focus on execution, the noise will die down very soon. Let’s get back to work," Goyal added.

HSBC devaluation different

To start with his arguments, Goyal said that this markdown was very different from other markdowns so far where investors have marked down their own investments. Recently global investors in ecommerce firm Flipkart such as Morgan Stanley, Fidelity and T Rowe Price among others, had slashed the ecommerce major's valuations by more than 37 per cent.

However, Goyal said that HSBC's devaluation of Zomato was different as it is not an investor in the company. Backed by InfoEdge in early stage, the company has investors like Sequoia Capital, Temasek Holdings and Vy Capital and has raised over $223 million in about 8 rounds so far.

Low market share

Goyal said the HSBC report has clearly mentioned that their report was different from the consensus, which according to Goyal means that there are enough analysts, VCs, and founders who feel Zomato is “the only defensible Indian unicorn” .

Secondly, he rubbished the claims made by the report on Zomato's low market share adding that the company's internal data shows that it drove a large percentage (>50%) of business to some of the biggest restaurant names in the country.

"Our traffic in India, our home market, also grew 8% in April 2016 over March 2016. We have over 8.5 million monthly uniques in India alone – very few Indian companies can claim that much traffic share in a single category. Also, we are currently present in 23 countries, and we are the market leaders in 18 of them."

Order business

HSBC in its report has mentioned that Zomato needs to heavily invest in building last mile logistics on our own, to win in the order business to defend our advertising business. To this Goyal said that delivery is a small part of Zomato's advertising business and that most of the its ad revenue comes from the dining out and nightlife categories.

Rubbishing HSBC's claim that Zomato needs to invest in its own last mile logistics to hit profitability in online food ordering, Goyal said that there aren't any food delivery companies in the world which owns its last mile logistics fleet, operates at scale, and is profitable.

"These assumptions and statements in the HSBC report make it look like they’re coming from someone who doesn’t – and hasn’t bothered to – understand the space well," Goyal mentioned.

"We already know that the unit economics of owning a food delivery fleet can never work out.To give you a little perspective on where we are at, we hit 33,000 online orders yesterday – at our average order values, it makes us the largest player (and only profitable players on a unit economics level) by GMV (there’s a blog post coming soon about our food ordering economics). We already are profitable in the order business at a unit economics level, and the overall online ordering business will hit profitability when we get to an average of 40,000 orders a day. We should get there in the next 3-6 months."

Valuations justified

On overall valuations, Goyal added that , "Nobody who knows our business has marked down our valuations. In fact, our existing investors are bullish about us, and are willing to back us further, if needed. And they have categorically said that our valuations are justified. Especially because we are more than doubling year on year, and the next year looks even more exciting for us. But external perceptions of valuations are determined by the state of the market, and the availability of facts to the person who is analysing these numbers."

Having said that, we have a lot of work to do to justify the faith (not the valuation) our investors have put in us. We need to continue producing high quality work, innovate on our product, build and scale our new businesses to a point where they become meaningfully large and highly profitable contributors our overall business.

Read the full blog here

Published on May 09, 2016
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