HSBC Slashes Zomato’s Valuation By 50%; Deepinder Goyal Disagrees & Justifies Their Unicorn Status


Deepinder Goyal Zomato

After Flipkart, its the turn of Zomato to feel the pressure of being a Unicorn and justifying it. HSBC Securities and Capital Markets (India) Pvt. Ltd has slashed the valuation of Zomato by massive 50%, that is from $1 billion to $500 million in one single go.

This new valuation of Zomato by HSBC was revealed in an April report, wherein they had evaluated all investments made by Info Edge. As HSBC Analyst Rajiv Sharma, who created this report, except, every startup where Info Edge has invested is in loss.

In Zomato, Info Edge is their largest shareholder with 47% share. Since 2008, Zomato has raised $225 million till date. Last year in September, they raised $60 million from Singapore’s Temasek Holdings Pte and existing investor Vy Capital at a valuation of apprx. $1 billion.

The HSBC note says, “We do a DCF (discounted cash flow) and value the (Zomato) business at about 50%”

The report also refutes Zomato’s claims that they are growing positively in foreign markets. The report further said, “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.”

In February this year, Morgan Stanley had devalued Flipkart by $4 billion, but still, their Unicorn status wasn’t disturbed. Although this down valuation forced Industry analysts to question and ask claims made by some of the largest ecommerce players.

Deepinder Goyal Says All Is Well; Info Edge Disagrees With HSBC

Meanwhile, both Info Edge and Deepinder Goyal, Founder of Zomato has diagreed with the claims of HSBC.

Sanjeev Bikhchandani, founder and executive vice-chairman of Info Edge said, “ We respectfully disagree with several of the points raised by the HSBC report,”, adding, “We value our investments at cost and Info Edge has not marked down Zomato at all,”

Founder Deepinder Goyal had to write a blog post and an email to all their 2000 odd employees explaining that everything is ok and fine with them.

In that email, he says, “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.”

He presented several facts, which actually supports his arguments that Zomato is on the right track:

  • Their revenues in Philippines is 1.5 times their total cost of operations
  • Overall revenue of Zomato has doubled in last 9 months, burn rate is down by 70% from the peak
  • 50% of traffic from mobile is still un-monetized
  • HSBC’s claim on UrbanSpoon’s dismal performance in US is wrong, as Zomato has only acquired them for Australia and Canada market
  • Melbourne and Sydney are already within Zomato’s top 5 revenue generating cities
  • Yesterday, Zomato got 33,000 online orders, which makes them the largest and the only profitable player on unit economics level in this niche
  • Once Zomato gets 40,000 average orders (online) per day, then they would be profitable; and this would happen in the next 3-6 months
  • With 8.5 million monthly users in India, Zomato grew 8% in April 2016, compared to 2015
  • Zomato’s spokesperson added later: “Our ad business in various countries has up to 93% gross margin… We are profitable in eight countries as of today,”

If being a Unicorn is an unprecedented success story which inspires one and all; then the heat generated after it’s de-valuation is equally phenomenal. How will this devaluation from HSBC will impact Zomato’s future funding plans would be really interesting to watch.

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