Zomato Boss Goyal Tries To Reassure Staff After Valuation Controversy

In the wake of the recent markdown of valuation at restaurant listing portal Zomato by HSBC Securities and Capital Markets (India), Founder & CEO Deepinder Goyal wrote a letter to his employees in a bid to give them some reassurance.

“You must have woken up today to Google Alerts with mentions of Zomato’s valuation being marked down by HSBC. As you already know, the media is all over it, and we are trending on Twitter,” these were his opening sentences.

Taking up the markdown in valuation, he addressed key points that have been mentioned in the letter. “The report claims that we have low market share. Our internal data shows that we drove a large percentage (>50 per cent) of business to some of the biggest restaurant names in the country,” as per excerpts from the letter. “Our traffic in India, our home market, also grew 8% in April 2016 over March 2016. We have over 8.5 million monthly uniques in India alone – very few Indian companies can claim that much traffic share in a single category. Also, we are currently present in 23 countries, and we are the market leaders in 18 of them.”

Well, Zomato has been hitting headlines for quite some time now and that too for not the best of the reasons. In 2015, they were in news for slashing a part of their workforce. Just when things seem to lie low, the venture is back in the midst of the storm with the investment bank doing slashing the valuation by about 50 per cent.

Addressing issues on profitability, Goyal said: "The report then goes on to say that it is unlikely we will hit profitability in our markets in the near term. But we already have, and we made an announcement when it happened." He then cites an example. "Our revenue in the Philippines is 1.5x of the total cost of the operation. When I say “total cost of operation”, I literally mean cashflow. And our Philippines team is using its profits to charge its growth going forward. We are aiming to hit overall profitability (without compromising on growth) at an overall company level in the next 6-12 months – depending on how well we execute in the near future. And we will re-invest those profits in our business to grow further, and faster.

So, what does this mean for the company? Well, while the recent development comes as a blip for the online food portal, the larger question applies to all startups operating in the sector. Since last year, several food portals have been in news for either slashing their workforce or closing their operations all together. For instance, TinyOwl Technology, a Mumbai-based online food ordering firm, back by a clutch of marquee venture funds, Matrix Partners, Sequoia Capital and Nexus Venture was in news last last year for slashing over 110 jobs. Zomato, too, at that point in time had announced lay-offs. While they were adopting measures to trim their expansion plans, there are others who had also shut down shop. Bangalore-based food tech startup, Dazo wound up operations within a mere year of launching as it failed to keep pace with its competitors and was short of capital even after raising its first round of funding in April 2015. Similarly, SpoonJoy, an online restaurant, announced that it would be shutting down its operations in Delhi and in parts of its headquarters city.

While food portals were the first in the startup space to have faced the heat, early stage businesses in other sectors too have been struggling to keep pace with their competitors and finding it difficult to scale their businesses and take them to the next level.

All in all, if the current situation is any precursor to the trends to emerge, startups are definitely in for a bumpy ride ahead.