Uber Gets 2X Return On Zomato Exit As Foodtech’s Shares Languish 58% Below Listing Price

Ride-hailing major Uber has exited Zomato while effectively doubling its investment. It exited the food delivery major Zomato in a block sale of 612 Mn shares, in a deal worth $392 Mn (INR 3,095 Cr).

According to a Reuters report, the deal was done at a price of INR 50.44 per share. In 2020, Uber acquired a 9.99% stake in Zomato for $200 Mn. 

The ride-sharing major’s stake was bought by around 20 new investors, including the likes of Fidelity, Franklin Templeton and ICICI Prudential.

Uber’s sale comes days after Moore Strategic Ventures sold 42.5 Mn shares in the foodtech startup at INR 44 apiece. Moore’s move had come after the one-year lock-in period expired for insider investors, following which Zomato’s share price hit an all-time low of INR 40.55 apiece.

The foodtech startup’s shares were trading at INR 53.75 apiece at 2 PM on Wednesday (August 3), down 3.24% from the last day’s close. Zomato’s shares rallied on Tuesday (August 2), after the listed foodtech startup announced a positive Q1 FY23 result.

Zomato managed to narrow its losses to INR 186 Cr in Q1 FY23, almost a 50% decline from the INR 360 Cr it reported in the corresponding quarter last year. At the same time, however, its expenses shot up by 40% year-on-year, reaching INR 1,767.7 Cr for the June quarter.

The foodtech startup’s food delivery business broke even on an adjusted EBITDA basis in the June quarter, which primarily drove its share price up. Zomato’s shares hit the upper circuit yesterday (August 2) after surging by more than 20% in a single day.

Are Zomato’s Stock Market Struggles For Retail Investors To Bear?

The Deepinder Goyal-led startup made its stock market debut slightly more than a year ago on July 23, 2021, with the first-day closing price of INR 125.20 apiece. The company’s stocks were listed at INR 116 apiece, at a 53% premium on the IPO price of INR 76 apiece.

Since then, however, Zomato has performed poorly on the stock market, resulting in its current share price being 58% lower than the first day of trading. With Uber doubling the money it put into the foodtech startup, it is clear that while big investors are making profits, retail investors are the ones seeing their wealth being wiped off.

Zomato has not painted itself in glory in other departments concerning investors as well. The disclosure on the Blinkit deal came so late investors had to write to SEBI to complain. 

Even after rife speculation that the deal was done, Zomato did not confirm or deny the development, leading to a plunge in share price and retail investors booking losses.

Issues related to Zomato’s cash burn and valuation have shaken investor confidence in the listed startup, which continues to weigh heavily on its share price and it is ultimately the retail investors that are losing money.