Losses have more than tripled for Zomato, the Indian food delivery ‘unicorn’, in the first quarterly earnings report since the company went public in July.
It has suffered a consolidated net loss of $48m during the quarter that ended on 30th June, 2021, compared to $13m in the corresponding period last year. The loss has been attributed to the adverse effect of COVID-19 on their dining services, which reversed the revenue of $113m, earned through operational sales. Furthermore, non-cash employee stock ownership plan expenses have also increased, bringing the total expense to $168m.
According to Zomato, the revenue left after its variable costs was considerably low due to growth investments and a costlier business environment brought forth by the pandemic. Zomato, along with its rival Swiggy, dominates the food delivery market in India. It started trading on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) on 23rd July, 2021, and recorded a high of Rs. 138.90 ($1.87), 80% up from the issue price of Rs. 76 ($1.02). Despite being a lossmaking company, it drew bids worth $26bn as it was subscribed 38 times before its debut.
The company deals in both food delivery and dining services, with the former seeing a surge during 2020, when India was under one of the world’s most stringent lockdowns. It had the biggest IPO for an Indian company in over a year, and is backed by Jack Ma’s Ant Group, Uber and Singapore state investor, Temasek.
Until now, India’s fast growing tech groups have relied on foreign investment to fund their ventures. But an ever increasing number of firms are now eyeing the public market after regulatory changes have allowed lossmaking companies to list in Mumbai. For example, competitor Swiggy, and ant group-backed Fintech Paytm have both filed draft prospectuses and are expected to go public in the coming months.
The road for Zomato will be tricky to navigate, analysts say. In addition to the waning of Covid outbreaks which may impact the firm’s food delivery business, Zomato is also facing increased competition from Swiggy. The latter has recently raised $1.25bn from a variety of investors, such as SoftBank’s Vision Fund 2 and Prosus, the Dutch listed investment unit of South Africa’s Naspers, at a valuation of $5.5bn.
In the past, both Zomato and Swiggy were responsible for eliminating rivals such as Uber Eats by offering generous discounts, and expanding into hundreds of Indian cities. Yet Zomato remains optimistic for its future. "India’s food delivery business reported the highest ever GOV (gross order value), number of orders, transacting users, active restaurant partners and active delivery partners to date in any quarter in our history," the food delivery platform stated.
The strong growth prospect resulted in an enthusiasm for Zomato’s shares which doubled in price in the days after its debut. Although the stock price has reduced since then, the shares are trading at about 75 percent higher, at Rs 134 ($1.79) per share. Thus, the question remains whether Zomato’s popularity amongst its investors will help it make a profit one day.