HSBC’s brokerage arm HSBC Securities and Capital Markets has slashed the valuation of Zomato by half to $500 million. This information was made available in a note covering Zomato’s majority investor Info Edge circulated last month. The note has raised concerns around Zomato’s ad-heavy business model, its international operations and growing competition in the online food ordering segment.
According to Mint, HSBC analyst Rajiv Sharma reportedly said in the note:
“Zomato is present in 23 markets so early on and none is profitable, which implies that to address both the investments in last-mile delivery and losses in international operations, fund-raising will be a continuous phenomenon, suggesting current valuations don’t make much sense. We do a discounted cash flow (DCF) analysis and value the business at 50% lower to the $1-billion valuation”
Zomato was valued at $1 billion when it picked up $50 million funding from Info Edge, Sequoia Capital and Vy Capital in April last year. Overall, it has raised about $225 million since its launch in 2008.
It is being said that Info Edge which currently owns a 50.1% stake in the company, has disagreed with HSBC’s estimate. Info Edge founder and Vice Chairman Sanjeev Bikhchandani has said that-
“revenue has more than doubled in the last nine months. Costs have been rationalized and burn is down by more than 70% from the peak. The company has plenty of cash and its unit economics are really good…We value our investments at cost and Info Edge has not marked down Zomato at all”
According to a Zomato spokesperson:
“Our ad business in various countries has up to 93% gross margin… We are profitable in eight countries as of today….We are growing fast and are on course to becoming profitable as a company very soon. Beyond this, we do not want to comment on valuation markdown speculations of third parties”
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