Zomato Has The Last Laugh After Uber Offloads 7.8 Per Cent Stake

Ride-hailing company Uber has offloaded its 7.8% investment in food delivery platform Zomato. The US-based company sold 61.22 crore shares in bulk to institutional investors, Fidelity and ICICI Prudential Life Insurance. Fidelity bought 5.44 crore shares at an average price of Rs 50.26, while ICICI Prudential bought 4.5 crore shares at Rs 50.25 per share.

Uber exited its stake in Zomato after the mandatory one-year lock-in for the latter's promoters, employees and other shareholders who bought the pre-IPO stock ended recently. In July this year, another pre-IPO investor, Moore Strategic Ventures, sold 4.25 crore Zomato shares at an average price of Rs 44.

Is the Tide Turning For Zomato?

Zomato's shares were in a free-fall over the past several weeks , losing more than 60 per cent of its value since its much-touted stock market debut in July 2021, which was over-subscribed by 35x. In November 2021, its share prices touched an all-time high of Rs 169.10. 

However, come 2022, the shares started sliding. Between 25 to 27 July this year, it plunged by 18 per cent, sparking memes on social media and eliciting sharp comments from market experts like Aswath Damodaran and entrepreneur Ashneer Grover.  

This drop in share price was primarily attributed to the end of the lock-in period of its pre-IPO shareholding, which resulted in almost 78 per cent stake or 613 crore shares becoming available on the stock exchanges. Moreover, Zomato's decision to acquire Blinkit (earlier called Grofers) spooked investors. 

However, the Deepinder Goyal-led food delivery unicorn seems to have the last laugh after releasing its April to June 2022 quarter results. Its consolidated net loss came down to Rs 186 crore for this quarter compared to Rs 359.70 crore in the previous one. 

At the same time, its consolidated revenue from operations rose 67.44 per cent year-to-year to Rs 1,413.90 crore in the quarter ended June 2022. It was a considerable spike from Rs 844.40 crore in the same quarter last year. The company also claimed that it had reduced its Ebitda loss to Rs 150 crore, down from Rs 220 crore in the January to March 2022 quarter, while its food delivery business grew 15 per cent sequentially. 

Changes Afoot

This improvement in Zomato's performance metrics has positively surprised many and came as a vindication to its CEO and MD, Goyal. In a letter to shareholders, he reaffirmed that the company is focused on profitability without compromising growth. "We are doing that by assessing everything with a critical lens and allocating resources by taking a long-term view to sustainable growth, as well as profit," he stated. 

Goyal also explained the rationale behind the Blinkit deal, which had received widespread criticism. While the quick commerce start-up is yet to post profits, Zomato expects it to break even by Q4 2022. The company has invested $150 million in this acquired business, but considering the challenges in the quick commerce sector, it has lowered its total investment guidance from $400 million to $320 million.

Dismissing naysayers, Goyal claimed the Blinkit deal was finalised after evaluating all the available acquisition opportunities in the quick commerce space. He stated, "If a deal is bad for other shareholders, it would be equally bad for me as a shareholder. My financial outcomes are 100% aligned to other shareholders."

A week after shareholders approved the Blinkit acquisition recently, Goyal posted a note on the company's internal communication platform. He told employees that the food delivery platform, which currently has four companies —Zomato, Blinkit, Hyperpure and Feeding India—will pivot to a multiple CEO structure. These businesses will also be housed under a larger organisation called Eternal.

"We are transitioning from a company where I was the CEO to a place where we will have multiple CEOs running each of our businesses, all acting as peers to each other, and working as a super team with each other towards building a single large and seamless organisation," Goyal wrote on the company's Slack channel.  

Eternal would house multiple companies , including the ones that Zomato might acquire in the future. In a company blog last November, Goyal revealed that the company was building a $1 billion war chest to invest in multiple start-ups till 2023. Last year, in addition to Blinkit, it invested in a B2B logistics technology start-up Shiprocket, a hyperlocal discovery platform Magicpin and fitness service provider Curefit.