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Zomato's Deepinder Goyal refutes HSBC's valuation markdown; trends on Twitter

10-May-2016
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Zomato's Deepinder Goyal refutes HSBC's valuation markdown; trends on Twitter

In response to the HSBC report which states that Zomato’s valuation has been halved and stands at $500 million, CEO of the company, Deepinder Goyal wrote a detailed mail to all his employees on Tuesday to allay their concerns and answer their questions related to this. In a blog post on the company’s website, the mail has been shared with a title- Unicorn or Not? It created a lot of buzz on social media and all throughout the day, Zomato kept trending on Twitter.

According to the report, HSBC has concerns about Zomato's business model, competition, and the fact that international operations have lost money. Goyal states that the report is an outlier, distant from other analysts, VCs and founders’ opinion who have called Zomato- ‘the only defensible Indian unicorn’ (a term for companies with $1 billion valuation).

To the point where the report states that Zomato has a low market share, he said, “Our internal data shows that we drove a large percentage (>50%) of business to some of the biggest restaurant names in the country.Our traffic in India grew 8% in April 2016 vs 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.”

The company has recently hit the mark of 33,000 online orders at their average order values and will soon hit profitability when they reach an average of 40,000 orders a day, which according to Goyal will happen in the next 3-6 months. He even pointed that “looking at the assumptions and statements in the HSBC report, it looks like they’re coming from someone who doesn’t and hasn’t bothered to understand the space (food delivery space) well.”

Commenting about the report which also states that US is an overcrowded market and Zomato will not be able enter it, Goyal took dig at HSBC and said, “Since HSBC never spoke to us, it doesn’t know that Urbanspoon was not acquired for its US presence. But we acquired it for Australia and Canada and it is doing great there. We are monetising the traffic in Australia already, and Melbourne and Sydney are already in the top 5 revenue generating cities for us across the world.”

Brushing aside doubts, Goyal cites that revenue has doubled over the past 9 months and costs have been rationalised. “Burn is down 70% from the peak – it was high because we were experimenting with various business models and geographies, which we have cut down drastically – and we are now focused on the large opportunity in front of us in our core business and core markets.” The CEO further highlighted that there is no need to raise another round of funding to sustain the business or steer it to profitability.

As per the report, Zomato is unlikely to hit profitability in the near term, however Goyal adds, “We made an announcement when it happened. An example for you in real numbers – the Philippines. Our revenue in the Philippines is 1.5x of the total cost of the operation. When I say “total cost of operation”, I literally mean cash-flow. And our Philippines team is using its profits to charge its growth going forward. We are aiming to hit overall profitability (without compromising on growth) at an overall company level in the next 6-12 months – depending on how well we execute in the near future. And we will re-invest those profits in our business to grow further, and faster.”

In conclusion Goyal highlighted, “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.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.”

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