Zomato refutes HSBC report; says investors back company's valuation

Hitting back at HSBC analysts for marking down its valuation by half at $500 million, online restaurant guide and food ordering firm Zomato on Monday said the investors have backed the current valuation.

In a mail to the company's 2,100 employees, Zomato Founder and CEO Deepinder Goyal hit out at the HSBC report and said the "assumptions and statements" make it look like "they're coming from someone who doesn't and hasn't bothered to understand the space well".

Stressing that "nobody who knows our business has marked down our valuations", Goyal said "In fact, our existing investors are bullish about us and are willing to back us further, if needed. And they have categorically said that our valuations are justified".

In a point by point rebuttal of the report, he said Zomato has been "more than doubling year on year, and the next year looks even more exciting for us. But external perceptions of valuations are determined by the state of the market, and the availability of facts to the person who is analysing these numbers."

Highlighting the company's growth, Goyal said, "Our ad revenue has doubled over the past nine months. Costs have been rationalised. Burn is down 70% from the peak it was high because we were experimenting with various business models and geographies, which we have cut down drastically and we are now focused on the large opportunity in front of us in our core business and core markets. We do not need to raise another round of funding to sustain the business, or steer it to profitability." Goyal countered the claims that Zomato hasn't been profitable in any of the 23 markets that it is present.

"The report 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 wrote in the mail.

In February, Zomato had said that it had become profitable in six regions, including India, after achieving operational break-even of its businesses. The other regions were the UAE, Lebanon, Qatar, the Philippines and Indonesia.

"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," Goyal said.

Contesting the claim in the report that Zomato has low market share, he added: "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."

Goyal claimed HSBC never spoke to the company's management before filing the report to get an understanding of the company's business.

"It (report) claims that the US is an overcrowded market, and we will not be able to make inroads into the US. HSBC, because it never spoke to us, doesn't know that we didn't acquire Urbanspoon for its US presence," he said.

Stating on the acquisition done for Australia and Canada, he said: "We are monetising the traffic in Australia already, and Melbourne and Sydney are already in the top 5 revenue generating cities for us across the world." On the report claims that Zomato needs to heavily invest in building last mile logistics on its own, and win in the order business to defend its advertising business, Goyal said: "delivery is a small part of our advertising business".

Most of the company's advertising revenue comes from the dining out and nightlife categories, he added.