"Ek garam chai ki pyali ho, koi usko lane vali (zomato app) ho." Arre hum hai na - le ayenge abhi! - Tap now
I'm sure you must have seen such quotes somewhere. Yes, you guessed it right! It's a notification alert sent by Zomato through its app to the users or customers on various occasions like New year, Holi, Diwali, Christmas, etc, or during any normal day.
The food delivery company had an amazing IPO session. The company was aiming to raise 9400 crore INR and it got overwhelming applications for close to 3.5 lakh crore INR but since then it has wiped out almost -63.37% of its value with its stock price currently trading at ₹46 vs its listing price of ₹126. So, let's understand everything about the company.
Founded by Deepinder Goyal and Pankaj Chaddah in August 2008, Zomato is one of the leading food service platforms in India in terms of the value of food sold as of the data from the last quarter, 2022. It was initially launched as "DC Foodiebay Online Services Pvt Ltd" in January 2010. It is currently present in 500+ cities in India with more than 400000+ active restaurant listings. Through its superior technology platform, it connects customers, restaurant partners, and delivery partners, serving their respective needs. The company also provides restaurant partners with industry-specific marketing tools, which enables them to engage and acquire customers to grow their businesses while also providing a reliable and efficient last-mile delivery service. Over the past 12 years, it has grown from a food discovery platform to a food service platform with four major segments i.e. Food Delivery, Dining out, Hyperpure, and Zomato Pro. It not only offers its services in India but also has footprints across 23 countries outside India.
SWOT analysis of Zomato
S: Strength
Strong consumer brand in India.
Have an insane and super creative marketing team who has enhanced the brand image and has connected well with its customers.
We know that in this era, data is the new gold. It has wide access to a large number of customer data and their taste and preferences across pan-India.
W: Weakness
High surge fees are charged by Zomato during peak order time. In this situation the person ordering either switch to its competitor or finds an alternative like calling the restaurant directly which have its delivery services, etc.
To earn good profits, Zomato charges high commissions from its restaurant partners which is slowly giving rise to growing dissent among the restaurant partners in India because of which many restaurant partners have either delisted from Zomato services or switched to available alternatives.
To provide their services at a low cost, most of the time they charge fewer delivery fees from the customer which creates dissatisfaction among the delivery partners. Because of giving high commission and incentives to the delivery partners by its competitors like Swiggy, Eatsure, etc. the delivery partners of Zomato are shifting their base to the competitor delivery camp.
O: Opportunity
The food consumption industry is a $100+ billion opportunity and is expected to grow further in the coming years.
Due to the rapid increase in urbanization and the fast-paced world, people will have money but no time, which creates a pathway for Zomato to make a good profit in the market.
The food delivery market is highly unorganized and uneven. If planned well and with a stellar execution at the ground, Zomato may become the next food giant or you can say the next Google or Apple.
T: Threat
India is a developing country and markets are highly unpredictable because of rapid changes in the taste and preferences of customers. And most importantly customers in India are the most dangerous elements whose preferences change overnight because of the availability of substitute goods and attractive discount offers from other market players. For example- Swiggy, Rebel Foods, etc.
To win the market share and increase profitability, Zomato needs to create a sustainable monopoly model different from its competitors. But in India, there are a large number of small unorganized businesses which may get affected because of this grand plan of Zomato. So, here comes into action the CCI (Competition Commission of India)- A statutory government body that is the chief national competition regulator in India. For example- the Hypersure(B2B) plan of Zomato, where it provides ingredients and kitchen products to its restaurant partners via direct sourcing from farmers. It's a big threat to the existing and small suppliers to the restaurants as they may lose their unorganized small businesses. In this case, CCI may restrict the activities of Zomato.
The shareholding pattern of Zomato is a big threat to retail investors and Zomato itself because its shareholding pattern is unevenly distributed and the dilution is extreme among a large number of investors. The promoters(who are the brain of business) have a lower stake in their own company. In the investment world, this is a threat as any dispute may overthrow the promoter at any point in time by forming a syndicate with other large investors. For example- Refer to the below table. Find the name Deepinder Goyal from the below table and compare.
Fundamental Analysis
Initially, the fundamentals of Zomato were rated as "Good" and worth the hold for the long term provided the financials of the company improve and attain stable cash flows in the coming days. Everyone was very excited about the Zomato IPO, especially the retail investors. It so happened that a huge section of retail investors invested their money without doing a proper analysis of past performance and assessment of the prospects of its business and revenue model.
To advance its growth agenda, Zomato has continued to acquire small businesses. While many of these acquisitions have been modest in size, its most recent acquisition of Blinkit has prompted concerns about whether this growth is occurring at a reasonable cost. There are also cases of conflict of interest in the acquisition of Blinkit.
As a retail investor, you often miss important micro and macro factors associated with a company and stock markets in large, so I would like to advise you to be careful of these external environmental factors. As per the current sentiments, due to instability in the revenue model, uneven cash flows, and other corporate governance decisions various fund managers and rating agencies have degraded the fundamental outlook of Zomato from "Good" to "Average".
Pro-tip: IPO is a process where the shares of a company are transferred from informed and intelligent initial investors(to give them an exit) to uninformed retailed investors. So, don't be emotional just because you love the Zomato app, its creative and fancy marketing tactics or if any of your so-called trader friends boast about the share of Zomato without any prerequisite qualification or experience. It's always advised to take your call by assessing various internal and external factors like:-
What is the current valuation of the company?
What is the vision of the founder?
SWOT analysis and how efficient is Corporate Governance?
Is there a stable revenue model and cash flows?
How practical is the business model?
Or, if you think you don't have proper market and investing knowledge then do not hesitate to consult any registered financial adviser to assist you.
In case you don't want to take the help of financial advisers then make the most out of the resources available from the open source for free or at reasonable prices on the internet. Focus more on value investing education than speculation. Speculation may look fancy and appealing in the short-term and you may even make some good money through speculation but never forget that you are just a small uninformed fish in the market and there is a pool of informed bigger fish who will ensure that you fall in their trap some or other day.
Technical Analysis
As of now, the majority of technical indicators are signaling "RED" following the talks of acquisition of Blinkit (an online grocery delivery service) and the end of the lock-in period post-Zomato IPO, where the eligible shareholders can sell their shares in the open market. Both these events occurred very closely with one another, thus affecting the investor's sentiments at large. It has resulted in a huge crash in the share price of Zomato by bringing down the share price to a 52-week low in recent times(concerning the publishing date of this article). However, many big investment banks and other fund managers though skeptical are waiting for a good time and stable price levels(support) to buy the share to make good profits in short term. But as far as long-term investments are concerned, there is a big doubt over the intention of the business because Zomato is changing its strategies (which is not a good sign for long-term investment) frequently, acquiring small loss-making businesses and the recent corporate governance decisions raises questions.
Final Words
I know that some of you were very excited and did buy Zomato shares in their best days in 2021 and are either holding the share or have already sold the share by incurring capital losses. It's a lesson for retail investors that when an entity or a company is a startup(or privately held company) then there is least concern for revenue, stability, decision making, etc. and the company keeps on raising funds from various private investors in the hope of future cash inflows and ultimately sky-rocket their valuation. But once the company is listed in the capital market and owned by the public then it cannot continue to increase its value and build trust by giving anticipation of future cash inflows because the valuation of the company is directly proportional to its profitability, business model, potential, etc.
This article is just a piece of the opinion of the author and is not a "recommendation". You are requested to do your own research or consult a qualified investment professional before making investment decisions in Zomato because equity instruments are subjected to market risks that are highly volatile.
I personally use "Groww" for my stock and mutual fund investments and so far I do not have any complaints against them. This is not sponsored. However, if you are planning to open an account using Groww, you can use my referral link, through it both of us can get ₹100 deposited in our account when you activate your account on Groww. It is a win-win situation. Click here to open an account on Groww.
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Let me know your thoughts on the fate of Zomato in the comments below.