HSBC halves Zomato's $1 billion valuation. Zomato has zero profitable markets, though Info Edge says revenues have doubled

HSBC Securities and Capital Markets, the brokerage arm of HSBC, has halved the valuation of Zomato, bringing it down from $1 billion to $500 million, said a note that Zomato's majority investor Info Edge circulated last month.

In the note, concerns have been raised regarding Zomato's ad-heavy business model, its international operations and growing competition in the online food ordering segment, says a Mint report.

"Zomato is present in 23 markets so early on and none is profitable, which implies that to address both the investments in last-mile delivery and losses in international operations, fund-raising will be a continuous phenomenon, suggesting current valuations don't make much sense. We do a discounted cash flow (DCF) analysis and value the business at 50% lower to the $1-billion valuation" HSBC analyst Rajiv Sharma reportedly said in the note.

Last year, Zomato’s valuation has jumped to $1 billion after it had secured funding worth $50 million from Info Edge, Sequoia Capital and Vy Capital. Talking of the overall funding that it has raised since its launch in 2008, the figure comes to around $225 million.

Info Edge, which owns a 50.1% stake in the company, has disagreed with HSBC's estimate, with founder and VC Sanjeev Bikhchandani saying that Zomato's "revenue has more than doubled in the last nine months. Costs have been rationalized and burn is down by more than 70% from the peak. The company has plenty of cash and its unit economics are really good."

"We value our investments at cost and Info Edge has not marked down Zomato at all" Bikhchandani added.

"Our ad business in various countries has up to 93% gross margin... We are profitable in eight countries as of today" a Zomato spokesperson told the publication. "We are growing fast and are on course to becoming profitable as a company very soon. Beyond this, we do not want to comment on valuation markdown speculations of third parties."

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