Zomato and Swiggy have never been this close to making profit, say Goldman Sachs analysts

• Analysts at Goldman Sachs have revised their estimates for the food delivery segment in India to say that profitability is now closer by a year for these startups.
• The two foodtech unicorns – Zomato and Swiggy – are neck to neck in competition and both claim a market share of at least 55% in India’s food delivery segment.
• For Deepinder Goyal-led Zomato an IPO is on the cards.

India’s food delivery market is dominated by two players – Zomato and Swiggy. The two foodtech unicorns are neck-to-neck in competition and both claim a market share of at least 55% in India’s food delivery segment, as per Goldman Sachs analysts.

With the competition majorly centered around the two unicorns and food delivery in India witnessing a V-shaped recovery, analysts at Goldman Sachs have revised their estimates for the segment to say that profitability is now closer by a year for these startups.

“We turn incrementally more constructive on this space, and now forecast the segment to reach US$9.8 bn in GTV (gross transaction value) by FY25E, vs US$8.8 bn earlier. In addition, we forecast EBITDA profitability for the segment in FY22, vs FY23 earlier,” said a Goldman Sachs report on the Indian internet economy released on November 2.

Metric	Zomato	Swiggy
Presence	500 cities	500 cities
App downloads	22 mn	23 mn
Orders per day	1.5 mn	1.5 mn
Funds raised	$1.2 bn	$1.6 bn

Source: Goldman Sachs report on India Internet businesses

Zomato: Break-even close, an IPO closer

For Deepinder Goyal-led Zomato an IPO is on the cards. According to reports, Zomato CEO Goyal in an email to his employees said that the company is looking to list publicly in the first half of 2021.

By September 2020, the company said its food delivery orders had reached pre-COVID levels and the transaction value per order was increasing. “With more premium restaurants, i.e. restaurants where a meal for two may cost ₹1500 and above, now opening up to online delivery, a larger number of affluent consumers are embracing online ordering. Overall spends on such premium restaurants have grown by over 25% over pre-COVID levels,” wrote Goyal in a blog.

While this order value has been increasing, the company has been cutting costs. It laid off 1,300 employees in the beginning of the pandemic, announced permanent work from home and cut down real estate costs.

All of this has helped the company’s unit economics. “While COVID-19 has impacted the size of our business, it has accelerated our journey to profitability,” wrote Goyal in a blog in July.

However, the Goldman Sachs report quoted Zomato to say that the company has reached EBITDA (earnings before interest, taxes, depreciation, and amortization) profitability for its food delivery business. “Zomato mentioned it is now profitable at the EBITDA level in the food delivery business (was burning c.US$40 mn of cash a month 15 months ago, but is now generating US$3-4 mn of profits,” said the report.

Zomato’s financials	Revenue	EBITDA Loss
FY19	$192 million	$277 million
FY20	$394 million	$293 million

Swiggy: Betting on hyperlocal

Bengaluru-based Swiggy has been moving beyond food delivery. Over the years, Swiggy has expanded to grocery (a segment Zomato plans to leave soon) with Swiggy Stores, hyperlocal delivery service called Swiggy genie, and also launched its own dairy service called Supr Daily.

In a recent announcement, Swiggy had said that it had reached 80-85% of its pre-COVID levels in terms of food delivery. On Tuesday (November 10), Swiggy announced that during IPL alone its food delivery orders had risen by 30% from the months before.

For Swiggy too, its average order value has been increasing.

Period	Swiggy average order value
Currently	$5
Pre-COVID	$4

Source: Goldman Sachs report

“Swiggy expects to be EBITDA positive by early 2021 for food delivery, but will continue to invest in other business in the near term,” said the report.

Swiggy’s financials	Revenue	Loss
FY19	$152 million	$318 million
FY18	$59.5 million	$53.5 million

Source: media reports
Swiggy hasn’t released its FY20 numbers.

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