Founded by two Indians, Deepinder Goyal and Pankaj Chaddah, Zomato is currently listed as one of the most influential companies in the world. The story behind Zomato’s establishment is simple yet genius. After noticing the struggle that consumers went through to collect paper menus from different restaurants to order food, they decided to build a platform that would prevent this problem from arising again. A mere notion transitioned into one of the greatest companies in the world. In India, in specific, many consumers depend on Zomato’s services to satisfy their hunger. According to media sources, Zomato is just a few days away from ‘going public’. Will this work out in their favour or not?
Brief Overlook on the Zomato IPO
In February 2021, Zomato raised around $250 million from investors—existing and new investors. The two main new investors, Dragoneer Investment Group and Bow Wave Capital, were very impressed with Zomato’s previous earnings and their loyal customer base. As a result of this, they invested $10 million and $20 million respectively in the corporation. Other than this, the stand out investments came from Korwa Management LP at $115 million, Fidelity Management and Research at $55 million and Tiger Global Management at $50 million. The pre-IPO fund raising process was completed as well with Zomato earning over $5.4 billion in total. This valuation amount was considered to be a huge milestone for Zomato as it was a significant increase from their $3.9 billion valuation in December 2020.
2020 marked the year of real struggle for the company as they were determined to raise their internal funds as much as possible. As their overall profit began to increase, so did their investors. According to certain reports, Zomato had also actively been trying to increase their cash reserves by researching into and investing in specific acquisitions. Their target acquisition was a company operating in the logistics field.
A Few Hurdles
No company operated without losses and this applied to Zomato as well. For this reason, investors are a little vary about the money they would raise during their IPO. The 2019 to 2020 financial year, in specific, was a hard period for the company as they encountered obstacles that were hard to overcome. This resulted in the company suffering from losses. In the past three financial years, Zomato reported negative operating cash flows.
Zomato, however, assures their investors that this is just another passing storm. They have huge plans for the upcoming few years especially when it comes to where they would invest the money they will raise from the IPO. In a statement, Zomato iterated to their investors that they prognosticate a rise in their profits over time. This rise in profit, however, will be accompanied by a period of sustained loss. This is because of Zomato’s plans to tap into new markets in India while also investing more in certain promotion and advertising plans. For this plan to work out successfully, however, their revenue needs to keep growing at a steady pace. India Infoline Finance Limited in India released a statement that declared a predicted 48% rise in net revenues for Zomato by the end of the next five years, showcasing a sense of trust in Zomato’s inner operations.
Zomato’s Greatest Strengths
With the vast number of delivery partners that Zomato holds, their distribution networks are large and caters to a larger consumer base. The company also combines the strengths of other companies to ensure their stability in the food delivery industry. DoorDash, Yelp and Open Table each have features that have been integrated in the establishment of Zomato’s platform. Zomato also went on to acquire NexTable which subsequently gave the company a greater competitive edge as compared to its rivals- Yelp and OpenTable. NexTable is a restaurant reservation and table management platform that is based in the USA. This acquisition has led to Zomato reaching the headlines of various newspapers and bringing most consumers to its unique platform.
Zomato’s Greatest Weaknesses
The net losses mentioned earlier in this article has led to many investors being sceptical of the long term successful standing of the firm. All eyes continue to watch every step that Zomato makes, leading to a ‘make it or break it’ situation. This IPO, in specific, has resulted in Zomato strategically planning each of its steps for the next few years. If a sufficient amount of revenue is not earned according to the laid out plan, it could prevent Zomato from getting back up in the future. Similar to most businesses that are constantly in the spotlight, any dire image painted of the company by a media outlet can hurt the company’s goodwill. Unfavourable publicity or security breach rumours could dent its loyal customer base. Security breaches, in specific, could negatively impact the business in a serious way.
Let’s Talk Numbers
Despite several reports and statistics pointing to Zomato’s past financial failure as a result of a few hurdles that came along the way, Zomato managed to bounce back in the face of adversity by raising a large amount of funds successfully. In the 2021 financial year, a fund raising spree set up by Zomato resulted in Rs. 4800 crores of equity capital being raised in the first nine months of the spree alone. This was followed up by another fund raising spree that resulted in the firm raising Rs. 1800 crores successfully by February. These numbers alone have left investors in awe of the potential and determination that Zomato holds to get the job done and surpass expectations at the end of each day. In a draft red herring prospectus (this refers to a prospectus filed by the Securities and Exchange Commission with details of the company’s operations without mentioning the number of shares to be issued), Zomato states that they expect to use up 75% of the valued Rs. 7,500 crore IPO to make use of organic and inorganic opportunities to grow their business.
The mixed- strengths and weaknesses- history of the firm has resulted in most investors debating on whether this company is a blue chip company investment or not. While investors continue to ponder over whether this is a worthwhile investment, Zomato strives to prove its long term worth.