Ever since this morning, the internet has been abuzz (and we have a part to play in that too) with Zomato’s valuation thrashing down to half, taking it out of the unicorns club — a club it was one of the first in India to enter. CEO and founder Deepinder Goyal however, has now sent an email to its over 2000 employee base, taking on the HSBC report and banking on the investor support the company has.
Goyal shared that email through a blog post in which he has scrutinized the HSBC report in detail, particularly the arguments surrounding its profitability, market share, and ad sales.
Contrary to the claims made by HSBC that Zomato was unprofitable in all 23 countries it was present, Goyal stood by company’s previous announcement made few months back that they were already profitable. He gave an example of Philipines where revenue was 1.5x of the total cost of the operation- meaning- cash flow.
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.
Goyal said that HSBC had admitted in its report, the fact that it was different from the consensus and consequently the report was an outlier. On market share, Goyal said that a large percentage (>50%) of business of some of the biggest restaurant names in the country came from Zomato.
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,
He further also claimed to be profitable in terms of the unit economics of online food orders and expected the overall online ordering business to hit profitability in next 3-6 months on reaching 40000 orders per day from an average of 33000 orders currently. when we get to an average of 40,000 orders a day.
Although Goyal agreed with the HSBC claim that Zomato’s ad sales weren’t able to scale and grow significantly in the US but he did mentioned the extremely positive signs of Zomato’s ad sales partner in the US, Yelp.
He went a step ahead and asserted that Zomato was not even planning to raise fresh funding to sustain the business, or steer it to profitability. Citing the fact that over 95% of its restaurants are yet to get monetised, Deepender said that their advertising model had huge headroom for growth.
Our revenue has doubled over the past 9 months. 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.
Commenting on the valuation numbers, Goyal also said that external perceptions of valuations were determined by the state of the market, and the availability of facts to the person who is analyzing these numbers. He wrote,
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.
Towards the end, urging the employees to get back to work (and not pay attention to such reports)Goyal wrote that the company had to do a lot of work “to justify the faith (not the valuation) our investors have put in us.”