[What The Financials] Amid Protests And Controversy, Zomato Sees 8X Hike In Losses

[What The Financials] Amid Protests And Controversy, Zomato Sees 8X Hike In Losses


Zomato had said that it reduced its per delivery loss in FY19

However, the company’s advertising and promotional activities make upto 34% of its total expenses

In FY19, Zomato improved its revenues by 2.47X

Even as India’s foodtech industry has evolved over the last few years, it has relied on cash burn and promotions for growth, which has increased scepticism among observers. Admittedly, this has been a standard approach for most consumer services companies in India, however, as the market matures, the cash-burn has come under the spotlight, especially as the pace of revenue generation does not match the spending.

The two leading foodtech players— Zomato and Swiggy— are under increased scrutiny to churn more revenue and inch towards profitability. But both are busy offering better discounts and vying for larger market share by spending heavily to acquire customers. With this year seeing restaurant protests and social media controversies, it’s going to be a hard task for foodtech companies to show profits, if Zomato’s FY2019 performance is any indication.

While Swiggy hasn’t announced its financial performance for FY19, a look at Zomato’s financials shows the grim reality of the foodtech industry. On a consolidated basis, the total income of Zomato is INR 1397 Cr, with expenses of INR 3598 Cr leading to a loss of INR 1001.15 Cr for the year ending March 31, 2019. The consolidated financial report includes the performance of 41 subsidiaries of Zomato.

On a standalone basis, Zomato reported total revenue of INR 1350.47 Cr and expenses of INR 3109 Cr leading to losses of INR 570.52 Cr for the same period.

Zomato: Identifying Sources Of Revenue

In its filings, the company said that its primary revenue source is through ad sales, online ordering commissions and the Zomato Gold subscriptions.

On a standalone basis, the company’s income is through the sale of services.

In FY19, the company earned INR 1130.81 Cr from sale of services, a 2x growth from INR 366.54 Cr in FY18. Further, it earned INR 16.28 Cr from provision of platform and food delivery services.

Earlier this year, Zomato had shared a foodtech report detailing its performance for FY19, saying that 85% of its revenue in March 2019 was driven by transactions, as compared to advertising representing 100% of its revenue and focus in FY15-16.

At the time, Zomato CEO Deepinder Goyal said, “We stopped considering advertising revenue as a standalone P&L last year, and we now think of our business as a combination of three key large pillars — Delivery, Dining Out, and Sustainability.”

The company said its delivery revenue was $155 Mn, while dining out revenue was $49 Mn and $2 Mn from sustainability.

On a consolidated basis, Zomato’s operational income was INR 1312.58 Cr, which is 1.8x increase from INR 466.36 Cr. The operational income includes revenue from services and income from provision of platform and food delivery services.

Understanding Zomato’s Expenses

In its earlier report, Zomato had said that it has reduced its loss per delivery by 43% in the last one year. While it lost INR 44 per delivery in March 2018, it now loses INR 25 per delivery.

At the same time, the company’s last mile cost per delivery is now INR 65, compared to INR 86 in March 2018. One of the bigger achievements for the company, however, is that its number of deliveries per rider per hour has gone up to 1.4 from 0.9 last year.

But that came at a heavy cost, from an advertising perspective.

On a standalone basis, the company has increased its advertising promotional expenses 14.16X reaching INR 1213.6 Cr in FY19. Notably, this makes upto 39% of company’s total expenses for the year.

Further, on a consolidated basis, advertising and promotion makes upto 34% of Zomato’s total expenses. The company spent INR 125.96 Cr on the same, which is 14.17% Y-o-Y increase.

On further understanding company’s expenses, we noted that it has spent heavily on outsourcing support services. On a standalone basis, support services cost INR 1165.7 Cr, a Y-o-Y increase of 28.5X. On a consolidated basis, this costs were INR 1330 Cr, a Y-o-Y increase of 29.2X. Notably, support services cost 36% of company’s total expenses and were 95.2% of total revenue for the year.

Even though FY19 saw significant improvement in the company’s revenues, the huge increase in expenses and losses overshadow the revenue gain. In 2019-2020, major protests forced the company to change policies and offer rules for Zomato Gold and it has also had to trim down the offers.

It has also spent a lot more this year in producing original content for the Zomato videos section, while from a tech point of view, it will be spending on R&D for drone deliveries and more. So even as it expands to more cities and adds more users to Gold, Zomato has far from cut down on its spending in the current year.

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