From the surface, it looks like the IPO will give a huge boost to Zomato’s market position in comparison to Swiggy.
Indian food delivery business is on its way to entering the public shareholding arena with Zomato’s initial public offering (IPO) set for the first half of 2021. It will so become India’s first modern consumer internet startups on the stock market. It is also the first internet IPO since InfoEdge launched its IPO.
“Our finance/legal teams are working hard to take us to IPO sometime in the first half of next year,”Deepinder Goyal, Zomato’s founder and CEO, told employees in an email.
The news followed Zomato’s massive exploits in the fundraising department. Most recently, it raised $102.5 million from Tiger Global, taking its total funding to $319.5 million this year. With its growing kitty, Zomato’s total valuation has reached $3.4 billion, just $0.2 billion less than Swiggy, the biggest player in the market. A more astonishing figure came when HSBC Global Research valued Zomato at $5 billion. Even if we take $3.4 billion valuation into account, Zomato looks likely to take the driver’s seat from Swiggy after the launch of the IPO. If it happens, it will be no mean feat for Zomato which was far behind Swiggy till two years back. Zomato started turning its fortunes around in the beginning of this year.
Battle of the Biggest
Zomato upped the ante in January by acquiring Uber Eats. The acquisition bode well for the company as it helped Zomato surge ahead of Swiggy in market share at 55%. However, Swiggy still had the highest revenue share at 60% with 45 million monthly transactions. But these figures are from eight months back. The launch of the IPO could further turn the equation in Zomato’s favor. It will certainly be a boost for Zomato. But its not a setback for Swiggy. In the long term, both companies can benefit from stiff competition.
Watch: Will the IPO help Zomato beat COVID-19 Blues?
The continuous battle for the No. 1 spot keeps encouraging Zomato and Swiggy to come up with innovative ideas – from restructuring service, branding and advertising strategies. Their discount policies and revenue share policy with restaurants could also evolve in the face of new market equations, in the wake of the pandemic which has affected Zomato and Swiggy’s revenues in equal measures. Due to the COVID-19 related restrictions, their number of orders hit an all-time low. There have also been reports of a large number of lay-offs at both companies.
However, with many of the restrictions gone now, the industry is recovering, with new discovered potential – groceries, essentials and hyper-delivery. Zomato and Swiggy will further see their revenues climb with restaurants reopening but people still preferring ordering food in to dining out.
Like everyone in the world, food delivery business is also hoping for launch of a successful COVID-19 vaccine. Companies like Zomato and Swiggy can expect change in their fortunes once the vaccine comes out and enable people to restart the dining out culture. Considering the serious focus of governments and private companies globally in developing a vaccine, it may not be a distant future.
Zomato’s emergence in last two years
Zomato and Swiggy broke new grounds in 2019 as number of their monthly orders reached over 50 lakh. Zomato seemed to take the edge over the market leader in FY2019-20 as it had doubled the year-on-year revenue to $394 million. It maintained its momentum in the beginning of this year before coronavirus threat hit its revenue badly. The company still managed to record revenue of $41 million with an EBITDA loss of $12 million for Q1FY20-21.
With Swiggy as its main rival, Zomato also has to face competition from a new entrant Amazon Food. But the newcomer is limited to just a few cities and it will take some time for it to emerge as a serious contender for No. 1 position. As the second quarter of FY21 comes close to an end, it is a contest between Zomato and Swiggy where the former seemed to have an edge over the latter in food delivery market.
Watch: How Swiggy is evolving its services during the pandemic
On the other hand, Swiggy knows the ins and outs of food delivery business. It has firmly cemented the top spot on the market leaderboard for years. Furthermore, Swiggy has the knack for coming up with innovative ideas and will be wary of letting ground slip away from beneath its feet so easily. If Zomato’s push comes to the shove, Swiggy is not only expected to switch its gears, but has the innovative potential to immensely benefit from healthy competition.