Zomato On The Verge Of Profitability; Revenues Up 80%, Burn Down By 81% In FY17

“Energy and persistence conquer all things.” – Benjamin Franklin.

Thus begins Zomato’s recent blog and, apparently, the adage holds true for the company too. The nine-year-old startup released a short form unaudited annual report for FY2017. The numbers came as a surprise since the restaurant discovery and food ordering platform was scaling back operations, trimming workforce, and facing valuation markdown until last year. But these unaudited numbers reveal that the unicorn might well be back on track to consolidate itself strongly in the food ordering space.

Here’s how its financials stacked up in FY2017:

• The restaurant discovery and food ordering platform witnessed an 81% drop in the annual operating burn for FY17 at $12 Mn compared to the $64 Mn in FY16.
• Revenues for the company’s Indian operations surged to $49 Mn– an 80% rise over FY16.
• March 2017 revenues alone have touched the $5 Mn mark paving the way for an annual revenue run rate of $60 Mn in FY17.
• The average monthly cash burn for the period of December 2016 – March 2017 is a little less than $250K globally, down from $4.2 Mn last March.
• The company crossed 2 Mn orders in March 2017 – a move that gave it a 23% month-on-month growth.
• Food ordering revenue grew to $9 Mn in FY’17, 8x of FY16.
• Ad sales revenue grew to $38 Mn in FY17, an increase of 58% over 2015-2016.

The company also claimed that “user retention and increasing frequency is so good that even if we don’t acquire any new users in April 2017, we will still grow 8% over our March volume.”

But that isn’t all. The company, in another blogpost, which went live last week, mentioned that March will see ~23% growth over February 2017. Till date, they have served over a million orders.

Zomato had a turbulent 2016 where it battled high cash burn and was solidly consolidating/rationalising international operations. Amidst rising losses, it rolled back operations from nine countries out of 23 overseas markets, in May last year. Investor HSBC Securities and Capital Markets (India) Pvt. Ltd also slashed its valuation by about half to $500 Mn, leading to an erosion in valuation. In 2015 its advertising and promotional expenses amounted to $3.54 Mn(INR23 Cr), rising to $6.78 Mn(INR44.15) Cr in 2016. Meanwhile, salaries rose from $15.39 Mn( INR100 Cr) to $55.11Mn(INR 358 Cr) in 2016.

What Is Zomato Banking On?

The year 2017 comes with a significant turnaround for the company. Zomato is confident it is on the road to profitability. As per the firm, what has helped is the focus on reducing burn, ramping up revenue, and not compromising or cutting down on any growth engines.

More so, Zomato has been steering clear of a discount-based customer acquisition strategy. Last month, in a blogpost the firm spoke about how there’s more to growth than discounts. “All that matters is getting the right users/customers to try out your product and keep using it.”

The company, over the past one year, has brought in a number of strategy changes and launched numerous new features to gain traction. The foodtech venture was founded by Deepinder Goyal and Pankaj Chaddah in 2008 and has raised over $200 Mn in funding, and made 10 acquisitions.

Let’s take a look at what’s working in Zomato’s favour:

A Recalibrated Ad Strategy

To start with, in mid-2016, Zomato redesigned its ad serving product to drive more value to users as well as merchants. Thus, it stopped accepting advertising from low-rated restaurants. The new product provided smarter targeting, simpler interface and greater visibility to the well-rated advertisers. As per Zomato’s claims, this product rolled out globally by September 2016 helped its merchants realise a 3x increase in value from advertising on Zomato.

The result – a significant 58% jump in ad revenues.

Further, its focus on enhancing the efficacy of its sales team led to over 83% growth in productivity (revenue/headcount) in the ads business.

Launching Zomato Infrastructure Services

Newer initiatives too did their job in ramping up growth. For instance, the platform’s new initiative for cloud kitchen services through Zomato Infrastructure Services and efforts to scale up food ordering delivery along with table reservations gave the company an 8x surge in food ordering revenues. More so, the focus was increased on user onboarding, experience, and retention along with restaurateur experience and real-time payment settlements. This is what helped in hitting 2.1 Mn monthly order volume in March while keeping unit economics positive.

The food ordering business – which contributes 20% to the company’s top line – is currently present in 13 Indian and three Middle Eastern cities. Interestingly, this makes Zomato one of the few Indian unicorns to have a global presence. While last year, it had rolled back operations from nine countries, it will be launching soon in Beirut. Outside of India, Melbourne, Dubai, Lisbon, Auckland are strong markets for Zomato.

Zomato is also banking on its cloud kitchen which rolled out in Delhi NCR recently. With this service, the company will create kitchen spaces in areas where there is a lack of good restaurants. Under the service, partnering restaurants will prepare and deliver food exclusively for Zomato through these kitchens.

Table Reservations

The Table Reservations product was launched in July 2016 where users could book tables via the Zomato app and website. This comes after Zomato acquired Nextable, in April 2015. Currently, Zomato offers the table reservation option across 24,000 restaurants in 12 cities. In the month of March, it claims to have seated 600K guests via the table reservations product.

Zomato Gold

In March 2017. it also launched a premium membership programme, Zomato Gold, in Lisbon and Dubai. The programme will be rolled out in India around June with Delhi, Mumbai and Bengaluru being the initial stops. Simply put, it is a membership programme for a premium nightlife experience in the cities of Dubai and Abu Dhabi, allowing users to have an affordable experience. For this, it has partnered with 200+ restaurants, bars, and lounges, so far.

Zomato Base

Another product it is banking on is the Point of Sale (PoS) product Zomato Base, which is undergoing paid beta trials at over 200 restaurants. It is expected to see greater uptake this year across India, UAE and beyond. Zomato Base is an Android-based POS system that helps a restaurateur manage day-to-day operations from a single platform. It offers a variety of features for including menu, recipe, and inventory management, a built-in payment solution that accepts debit and credit card payments, CRM, and real-time analytics.

Zomato, meanwhile, faces tough competition in the food ordering space from Swiggy among a clutch of competitors which include Foodpanda and Runnr. As per a Mint report, the company’s filing with the Registrar of Companies showed that Swiggy’s cash burn stood at around $2 Mn (INR13 Cr) per month in FY16.

Space is marred with high customer acquisition costs. Deepinder, however, allays these fears by ending with his oft-repeated quote – “We are only 1% done”. It will be interesting to see Zomato’s remaining 99% as the battle in the food ordering space further intensifies.

A Glimmer Of Hope

Zomato’s financials come a day after another Indian unicorn InMobi also declared that it has become profitable. However, despite the high market opportunity, Indian consumer internet companies are still struggling to generate revenues and become unit positive. In February,  Mint published a report on the financial health of 41 consumer Internet companies in India.

According to the report, Flipkart leads the charts, accounting for 75% of the clubbed revenues of all, but only 46% of the total losses, for the financial year ending March 2016. Snapdeal, Paytm, ShopClues, followed Flipkart to mark the second, third and fourth position on the ladder, respectively. Sector-wise, as expected, ecommerce rules the industry, amidst eight other sectors including health, auto, hyperlocal, services, finance/insurance, real estate, travel and messaging service.

Hence, profitability and attaining positive unit economics still remain sore points for most hyper-funded consumer internet businesses. In 2016 alone, 50 startups in the foodtech space raised $152.3 Mn in investor funding, as per Inc42 Datalabs.  The year also saw over 37 shutdowns of foodtech startups. In such a scenario, Zomato’s path to reducing cash burn, ramping up revenues is a beacon of small hope that after years of struggle, some startups might finally begin to get it right soon – using energy and persistence to conquer all things.

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