Is Zomato priced beyond perfection?

The food delivery major’s IPO is a final attempt to drum up cash in its elusive quest for profitability


Never before in investment history have investors been so excited about loss-making technology firms. The dot-com boom pales in front of this liquidity frenzy. During that madness, the Nasdaq topped out at 5,133 in March 2000 to bottom out at 1,109 in October 2002. It would take 15 years for it to regain that peak but since then, it hasn’t looked back. Then, the trillion-dollar denomination was reserved for the GDP of G-7 countries. Now, you have Apple, Amazon, Microsoft and Alphabet roaming the planet with a trillion-dollar valuation. 

Indian start-ups are having their own unicorn party of late. Many have crossed the billion-dollar valuation mark, but those zeroes are no good until they have been wire transferred. Food delivery major Zomato is in the process of doing just that having filed for an IPO to raise $1.1 billion. Its post-listing valuation might be well over $5.4 billion at which it raised its latest round of funding. As per Tracxn, arch-rival Swiggy’s last round valuation was $4.5 billion. Part of a duopoly, Zomato and Swiggy lord over the food delivery space in India having survived the earlier shakeout, courtesy deep venture funding. Over the years, Zomato and Swiggy have raised $2.15 billion and $2.42 billion, respectively. Those billions have been deployed to build a customer base through seamless technology and generous discounting. 

Venture investors are willing to shell out very high multiples for these businesses because they have huge operating leverage. As volume grows, margins grow exponentially as the fixed costs do not grow at the same pace as revenue. Profitability has been a distant dream but the promise of operational leverage kicking in keeps drawing in new investors. The multibillion-dollar question then: why hasn’t it kicked in yet?

Have cash, will burn

In its IPO prospectus, Zomato declared 9MFY21 revenue of  Rs 1


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