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When Indian startups finally took the leap to public markets through IPOs in 2021, we did not expect the story to turn into one about crashes and value erosion. For Zomato too, it’s been 52 weeks of ups and downs!

It is exactly one year since the Zomato IPO concluded on July 16, 2021, followed by the stock exchange debut — and it has felt like a really long year.

Much of this is because of Zomato’s unabashed enthusiasm for staying in the news — through investments, acquisitions and more, the company has always been in the conversation, making it feel like it’s been a public company for a while now.

And as one of India’s most celebrated tech companies completes a year on the stock exchanges, we decided to take a look at where Zomato is heading and the lessons from the past year.

But first, as usual, a brief albeit worthy detour into some of the stories that have grabbed everyone’s attention this week:

•  An Edtech Unicorn’s Litmus Test: Can Unacademy arrest its downward spiral by untangling its product strategy to emerge stronger after a shaky 2022?
• Slice’s Existential Threat: The BNPL player has been hit hard by RBI’s PPI notification even as it’s looking to plug the glaring holes in its business model. Our deep-dive into the fintech unicorn
• Coinbase Crashes: As one of the world’s largest crypto companies plunges from a $100 Bn valuation to $10 Bn, can the Indian crypto market escape the ripple effects?

Zomato’s Rocky Ride

It all started with cheers and celebrations when Zomato listed on the stock exchanges on July 23, 2021. The stock ended its first day of trading at INR 125.20, listing at INR 116, a 53% premium on the IPO price of INR 76.

But the questions had already been raised even at that high point. Many including noted valuation expert Ashwath Damodaran said the company’s valuation was too rich and that the shares should be valued at INR 41.

One year later, with Zomato finishing the most recent week at INR 53.95, those estimates are ringing closer to the reality of the stock. Over these past nearly 52 weeks, the stock has fallen by 56%, while the market cap has gone from INR 98,221 Cr ($14 Bn) to INR 42,478 Cr ($5 Bn), well below its last private valuation of $5.4 Bn.

Big Bets Raise Eyebrows

While the company has faced some regulatory hurdles in terms of GST and most recently in relation to service charge by restaurants, which may have given investors some reason to worry about the unit economics of Zomato in 2022, the bigger problems are around its acquisitions and corporate governance issues.

Right after listing, Zomato would have been expected to spend capital to expand its operations, but it also went to splurge $150 Mn in backing Curefit, Magicpin and Shiprocket.

This was followed by a $5 Mn investment in kitchen automation company Mukunda Foods, another investment in UrbanPiper and the completion of the contentious Blinkit acquisition.

The Zomatoverse, which began to take shape in 2021, has now grown too large for some investors.

“Everyone knows that newly public companies will acquire others to expand market share and show value to the shareholders. But venturing into unrelated businesses or over-leveraging key parts of the operations such as its gig workers is detrimental to long-term shareholder value creation,” a security analyst at a large private lender’s brokerage advisory told Inc42 on the condition of anonymity since they are not allowed to speak to the press.

Losses Grow Amid Acquisitions 

While Zomato’s IPO came at a time when the company had reported losses throughout its lifetime, the expectation was that in 2021-22, Zomato would focus on its unit economics and improve its per-order margins.

But it ended FY22 with INR 1,222.5 Cr in losses, 50% higher than INR 816.4 Cr in FY21. Revenue from operations more than doubled to INR 4,192.4 Cr, but the average order value remained flat in comparison to FY21 at INR 398.

As for CEO Goyal, he remains bullish about Blinkit curbing its operating losses. But not everyone is convinced. “We believe Blinkit will require investments beyond the $400 Mn envisaged by Zomato given rising competitive intensity,” Kotak Institutional Equities Research said soon after the Blinkit deal was confirmed by Zomato.

Indeed, shareholders need a lot more than a big-name deal to be convinced. The spate of shutdowns in quick commerce globally is a testament to the cashburn required to compete with rivals and the imperfect unit economics of this category.

The Question Of Disclosures

Then there are the corporate governance and inadequate disclosure issues. Midway through the year, the company stopped disclosing delivery cost per order and merely claimed in its latest financials that this metric had stabilised over the course of the year. Such lack of disclosures have turned off investors.

“In the public markets, it’s best to stay away from the limelight, but we know Zomato is always in the news for some controversy or the other,” said one prominent Bengaluru-based VC firm’s founder who is also a retail investor in Zomato. They declined to be named due to potential signalling to other retail investors.

While in private many investors may not appreciate how Zomato goes about communicating versus the more staid IT services brigade, in public, their concerns have been in relation to untimely disclosures by Zomato, particularly about the Blinkit deal.

As per reports, retail investors complained to SEBI that speculation about the deal had been leaked to the press before the INR 4,447 Cr ($568 Mn) deal was confirmed by Zomato.

And earlier, there have been murmurs about similar lack of disclosures around the investment in Grofers (before the name change to Blinkit) approved last year. For instance, Zomato did not disclose that key managerial personnel and then CFO and now cofounder Akriti Chopra is the wife of Blinkit CEO Albinder Dhindsa.

Similarly, CEO Goyal’s personal investments came under the scanner as well. Last year, Goyal disclosed that he had sold his personal stake in Blinkit to Tiger Global, and that he had his personal investment in logistics tech startup Shiprocket exited at zero profit/loss.

Will Zomato Get Serious?

The same retail investor added that even in Zomato’s FY22 shareholders’ presentation — where CEO Goyal and CFO Akshant Goyal respond to a fictitious character called MS Savvy —  shows the company is maybe a little too playful whereas public markets investors require companies to be serious about disclosures.

“Zomato has not been smart when it comes to decisions around allocating capital, governance. It was thought that Zomato would set an example for startup listings to follow, but instead it’s showing exactly what not to do,” the securities market analyst quoted above.

While no one can predict Zomato’s state next year, the experience of 2021-22 has not convinced many investors or analysts that things will change dramatically. After all the challenges of food delivery will not be solved overnight and then the competition in hyperlocal, quick commerce is also set to intensify.

Tech Stocks & Startup IPO Tracker

Here’s how the past week has been for the listed tech companies we are tracking:

Announcing The D2C Summit 2022

India’s largest D2C and ecommerce conference is back and just ahead of the hotly anticipated festive season for 2022. The retail landscape in India has changed drastically since 2020 with ecommerce embedding itself in mainstream consciousness as well as making inroads into the untapped markets.

After two successful editions last year, D2C Summit 3.0 is dedicated to the ecommerce revolution created by burgeoning D2C brands, marketplace giants, the ecosystem partners, retail and corporate behemoths and of course the investors and product makers of modern day India.

The D2C Summit 2022, presented by Pickrr and co-presented by BharatX, will be hosted on September 16 and 17, 2022.

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Startup Funding Tracker

• Funding Picks Up : In the past week, Indian startups raised $448 Mn across 30 deals. This is a 286% increase from $116 Mn that Indian startups raised in the previous week
• Two New Unicorns! Much of this growth has come due to two unicorn rounds — fintech startup OneCard touched $1.25 Bn in valuation after raising $100 Mn, blockchain startup 5ire also entered the unicorn club with its Series A round of $100 Mn

Edtech Under Scanner & Other Top Stories 

That’s all for this week. Look forward to seeing you next Sunday with another weekly roundup.