Zomato CEO Deepinder Goyal Emails Employees After HSBC Valuation Cut

After reports that HSBC had slashed Zomato’s valuation by 50%, valuing it at just $500 million, Zomato CEO Deepinder Goyal wasted no time in clearing the air. In an email sent this morning to Zomato’s global employees, Goyal talks about Zomato’s numbers, points out how HSBC’s report might have overlooked certain aspects, and urges his team to “get back to work.”

Here’s the email.

Hello all,

You must have woken up today to Google Alerts with mentions of Zomato’s valuation being marked down by HSBC. As you already know, the media is all over it, and we are trending on Twitter.

Since the report isn’t public, and we all get troubled by where we are and where we are heading, here’s some context and detail around the HSBC report.


Overall statements in the report

  • In the report, it clearly says – “Why do we differ from consensus?”. That means that this report is an outlier, and there are enough analysts, VCs, and founders out there who have called us “the only defensible Indian unicorn”, and have said “there’s multiples more inherent value in Zomato” about us.
  • The report claims that we have low market share. Our internal data shows that we drove a large percentage (>50%) of business to some of the biggest restaurant names in the country. Our traffic in India, our home market, also grew 8% in April 2016 over March 2016. 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.

Our food ordering business

  • It claims that we need to heavily invest in building last mile logistics on our own, and win in the order business to defend our advertising business. Now, delivery is a small part of our advertising business. Most of our ad revenue comes from the dining out and nightlife categories. Our search and discovery business is a big funnel for our transaction businesses though. We are able to divert traffic to transactions businesses (ordering, and table reservations) without any additional customer acquisition cost – a unique advantage that cannot be contested.
  • It also claims that we will need to invest in our own last mile logistics to hit profitability in online food ordering. We already know that the unit economics of owning a food delivery fleet can never work out.
  • To give you a little perspective on where we are at, we hit 33,000 online orders yesterday – at our average order values, it makes us the largest player (and only profitable players on a unit economics level) by GMV (there’s a blog post coming soon about our food ordering economics). We already are profitable in the order business at a unit economics level, and the overall online ordering business will hit profitability when we get to an average of 40,000 orders a day. We should get there in the next 3-6 months. Also, there isn’t any food delivery company in the world which owns its last mile logistics fleet, operates at scale, and is profitable. These assumptions and statements in the HSBC report make it look like they’re coming from someone who doesn’t – and hasn’t bothered to – understand the space well.

US operations

  • It claims that the US is an overcrowded market, and we will not be able to make inroads into the US. HSBC, because it never spoke to us, doesn’t know that we didn’t acquire Urbanspoon for its US presence. We acquired it for Australia and Canada, and our traffic is kicking ass in these two markets. We are monetising the traffic in Australia already, and Melbourne and Sydney are already in the top 5 revenue generating cities for us across the world.

Ad sales profitability

  • It says that we will need to build sales teams in a lot of countries going forward, and it will increase costs. However, all our countries already have large sales teams, which don’t need to grow any time over the next 12-14 months.
  • It says that ad sales based models in the US haven’t been able to scale and grow significantly. True. But Yelp, our largest counterpart in the US, is showing extremely positive signs on great sales execution – the last quarter’s results have been great, and their stock is up ~75% over the past week. On that note, we have significantly healthier margins in our ad sales business than pretty much anyone most people know. Case in point, Japanese companies – Hotpepper, Tabelog, Gurunavi are very large businesses in our space operating solely in Japan, and churn out hyper profitability in just the ad sales business. Even The Economist called our business model one with “mouth watering margins” in an article about us last month.
  • I have more to add here. 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. We do not need to raise another round of funding to sustain the business, or steer it to profitability. The advertising model has huge headroom for growth. More than 95% of the restaurants in our core markets have yet to be monetised. Mobile, which is over 50% of our traffic, is yet to be monetised seriously – the new product which will be out before the end of the May will completely change the face of mobile app monetisation for us. Fifteen out of the eighteen countries where we are traffic leaders are yet to see serious monetisation efforts. Apart from this, there is humongous scope for growth through increase in revenue per client, and retention rates.

Overall profitability

  • The report then goes on to say that it is unlikely we will hit profitability in our markets in the near term. But we already have, and we made an announcement when it happened. An example for you in real numbers – the Philippines. Our revenue in the Philippines is 1.5x of the total cost of the operation. When I say “total cost of operation”, I literally mean cashflow. And our Philippines team is using its profits to charge its growth going forward. 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.

Also, my thoughts on valuations – 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. Especially because we are more than doubling year on year, and the next year looks even more exciting for us. But external perceptions of valuations are determined by the state of the market, and the availability of facts to the person who is analysing these numbers.

Having said that, we have a lot of work to do to justify the faith (not the valuation) our investors have put in us. We need to continue producing high quality work, innovate on our product, build and scale our new businesses to a point where they become meaningfully large and highly profitable contributors our overall business.

The Economist in its coverage on us also says – “India has surprisingly few brands that are recognised abroad….consumer marques from India ring few bells internationally. Newcomers in its ebullient startup scene are mostly focused on the 1.3 billion-strong home market. So Zomato, a restaurant listing service now striving to diversity, counts as an exception.

No pressure. There’s that much more to live up to, and win.

There’s something that we say often – “we are only 1% done”. We are truly 1% done, and if we continue to focus on execution, the noise will die down very soon.

Let’s get back to work.


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