There is a sense of newness at Zomato. The corporate entity has a new name, Eternal, and a new structure. In FY24, it turned profitable and, since than, has been able to sustain that. This helped the company—which leads in the food delivery and quick commerce segments-prove the strength of its business model and get more investor interest.
This is a sea change from the time it announced the acquisition of Blinkit, a quick commerce player, in June 2022 for $569 million (then Rs 4,447 crore). The stock market gave a thumbs down to the deal. The Zomato stock fell by a third from its listing price. Despite that, the management bet on the compelling growth opportunity and went ahead with the purchase. Today, Blinkit is generating massive excitement as Zomato re-writes the rulebook on making new-age companies profitable.
A rough ride
For Deepinder Goyal, the founder and CEO of Zomato, it has been a roller coaster ride ever since Zomato got listed in July 2021. From an offer price of Rs 76 per share, the stock, at one point, plummeted to Rs 47. It was trading around Rs 202 on March 12, leaving decent money on the table for investors. The peak was Rs 300-plus, towards the end of 2024. Reflecting on how much has changed over the last few years, Goyal says the listing has been a positive.
“As a privately held company, some investors want data daily or weekly and there is a lot of explaining that is done. With this quarter-to-quarter disclosure cycle, we can think long-term and take initiatives that will pan out much later,” he says. Each of the businesses is uniquely different with technology playing a critical function.
Take Blinkit, where the consumer base is steadily increasing, thanks to success in food delivery that gives Zomato a better understanding of consumer behaviour and sharpens the offering. “It’s a lot about how much demand there is for a particular item on an everyday basis. We have very small dark stores that cannot stock everything. They keep stuff that sells once or twice a day,” says Goyal before adding that it is a very “layered sort of business.” Estimates by research agencies suggest that it could be a $40 billion market in 2030 from $5-6 billion today.
According to Christy Joseph, equity research analyst at Geojit Financial Services, Zomato has done well to make the shift from a food delivery company to a set of well-diversified businesses. “Over the next two-three years, a major chunk of the revenue will come from quick commerce. Plus, they now have the entertainment ticketing business,” he says, emphasising that Hyperpure (a platform to assist restaurants in food and non-food purchases) contributes 25-28% to the total revenue. Each of the businesses must be in the black, he says.
That said, the new structure changes things. “Important divisions like Blinkit or Hyperpure are run by the original founders and professionals,” says Joseph. There is a view that the growth rate of food delivery may not get past 20%, so there should be a lot of thrust on quick commerce, he says. “On quick commerce, they recently said that they plan to add another 1,000 dark stores by the end of this year, making it clear that it will be the revenue growth driver. Rapid expansion requires capital and that may impact profitability in the near term,” says Joseph.
The B2C Game
Zomato has decided to go all out to get a healthy share of consumer spending. That is the driving force behind its large suite of offerings. This Calls for flawless execution and a lot of patience.
An instance is its foray into live entertainment, a segment that is still at a nascent stage in India. Last December, it launched District, an app to enhance the ‘going-out’ experience. It combines dining services with offerings like movies, sports events and live performances. With food delivery and quick commerce, this will get Zomato deeper into the consumer space. Importantly, it was announced a month after the Rs 2,048 crore purchase of Paytm’s entertainment and ticketing business. “Yes, live entertainment is not that big today and there are issues such as (serving) F&B in the stadium or internet speeds there or just having to deal with the traffic. It’s a multi-stakeholder game that can help this sector grow,” says Goyal. To him, it will be another three-five years before the segment reaches a critical point. “Let’s see whether we are able to get there but it is an important part of our business,” he adds.
That said, those tracking the sector are not taking their eyes off the quick commerce story. A report on Zomato by HDFC Securities in February says “the safest way to play this high-execution space is via the leader, Blinkit.” It goes on to outline the difficulty of making money in the low entry barrier business. The report points out Blinkit is the market leader with 302 stores averaging gross order value of 1.5 million or 5x that of DMart. A big cushion is the primary food delivery business that saw frenzied activity between FY15-18, followed by industry consolidation and investments of $7 billion, now in a duopoly situation—Zomato is the leader followed by Swiggy.
Throughout his years as an entrepreneur, Goyal has always had a liking for exciting ideas. Recently, he decided to invest $20 million in aviation start-up LAT Aerospace, run by Surobhi Das, Zomato’s former COO. Media reports say the company will work on low-cost short take-off and landing aircraft with up to 24 seats to improve regional air connectivity. “She came up with the idea five years ago. It’s fun, exciting and audacious. It’s very large and let’s see where it goes,” says Goyal.
In September 2023, Goyal’s book, Culture at Zomato: How to Rewire Your Brain for Greatness, was released. “We don’t appreciate politics, we don’t have hierarchy, we don’t have performance appraisals at regular cycles. For a large part of the organisation, we don’t use titles internally at all. So, we are very much about output and the quality of work and nothing else,” he says. Goyal has come back from a difficult situation and is hungry for more success. With a strong customer focus, it continues to look for interesting pockets of growth. Without a doubt, this is an action-packed phase for Zomato.
@krishnagopalan
