Zomato Sees ‘Huge Improvement In User Metrics’, Plans To Expand Food Delivery Business

Infoedge, the biggest investor in Zomato, has said that the food delivery service saw a huge improvement in user metrics towards the end of FY 18 and that it has “significantly scaled up” after the investment from Alipay in February.

Infoedge, which has a bunch of investments in Internet companies like Naukri.com, 99acres.com, and Jeevansathi, had diluted its share in Zomato by 6.66% when the Gurgaon-based company raised $200 Mn in a round led by Ant Small and Microfinancial Services Group, a subsidiary of Alibaba which operates the mobile and online payment platform, Alipay.

Infoedge, which posted its fourth quarter and FY 18 results on Wednesday, said in its earnings call that Zomato is focussed on aggressively expanding its delivery service and is going through a “certain amount” of cash burn as it goes head-on against its arch nemesis Swiggy.

As Zomato increases its delivery volume, the average order value has come down (as expected), but by estimates, it is still higher than Swiggy. The gap in the number of orders between Swiggy and Zomato is narrowing, said Hitesh Oberoi, CEO of Infoedge.

Last month, Zomato reported that it had seen a 45% year-on-year growth on a revenue of  $74 Mn in FY 18. The company is also aggressively focussing on its Zomato Gold service, where it partners with restaurants to offer deals like 2+2 on drinks and 1+1 on food and has partnered with 2,000 restaurants. The Gold subscription, launched in November last year, and priced at INR 1,899 for a year, has over 150K subscribers.

It will be interesting to see how the company addresses the issue of burn rate, having previously reported an operating burn of $11 Mn, lower than $15 Mn in FY17. Now that it aims to expand its delivery service, one can expect this to shoot up.

This year has so far been good for Zomato — the company has raised additional funds and Morgan Stanley has increaded its valuation estimate to $2.5 Bn. Zomato has attracted interest from the likes of Japanese technology conglomerate Softbank and is even said to have held talks with it. It is important to mention here that Softbank was earlier interested in investing in Swiggy, but those talks didn’t materialise.

Swiggy, on the other hand, has also raised funds with $100 Mn in the form of a Series F led by Naspers with Meituan-Dianping, one of China’s largest ecommerce players, on board. The Bengaluru-based company is also looking to diversify and is reportedly working on a service called Dash, a hyperlocal service that could include categories such as medicine and grocery.

Swiggy is also reported to announce its first employee stock repurchase programme, which will make it one of the youngest Internet companies to do this. The plan is expected to be rolled out in June and is estimated to be valued at $4 Mn (INR 27 Cr).

India is expected to become the third-largest consumption economy by 2025 and it suffices to say that consumption of Indian households will go up, quite literally. Just a few years ago, some of the offers and minimum delivery amounts of today would have seemed unreasonable. As Zomato and Swiggy play out the delivery war, consumers will only get more spoilt for choice and with the luxury of “convenience”.

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