Zomato's Blinkit buy unnerves investors

Profitability At Stake

- Zomato has made at least 6 investments worth around $200 mn

- It includes $75 mn in Shiprocket, $50 mn each in Magicpin and Curefit

- Zomato says latest buyout will not impact profitability

Bengaluru: Share prices of Zomato continued its downward trend with the food delivery company losing around $1 billion worth of market capitalisation (mcap) in two days as investors remained unconvinced about the company's Blinkit buy.

In a significant move, Zomato's board decided on Friday to acquire Blinkit for Rs4,447 crore ($570 million) in an all stock deal in its bid to enter the quick commerce market. However, the move has created concerns among investors as the quick commerce segment is a highly competitive one with many players like Swiggy, Reliance Industries-backed Dunzo, Tata-backed BigBasket and Zepto competing for gaining market share.

Also, Zomato's entry into grocery segment may further delay its path to profitability, industry watchers said.

"Zomato's entry into quick commerce may be ill-timed. At a time, when the food delivery company is chasing profitability aggressively, such an entry into highly-competitive quick commerce space may further delay the whole process," a source familiar with the development said.

Zomato has been investing into many entities as part of its diversification plan. Apart from the Blinkit acquisition, Zomato has made at least six investments worth around $200 million including $75 million in Shiprocket, $50 million each in Magicpin and Curefit among others.

While the share price of Zomato has fallen by around 15 per cent in the last two trading sessions, the founder of Zomato has defended its decision to invest in Blinkit.

"The improvement in unit economics in the last five months gives us confidence that Blinkit is on the right path. We have good visibility on the various levers for achieving profitability in this business. Many dark stores are already trending towards contribution break-even. With continued solid execution and synergy realisation with Zomato, post the transaction, the journey to profitability should only accelerate," CEO and co-founder of Zomato, Deepinder Goyal said in a blogpost.

He, however, said that it would be difficult to commit any timeline of profitability given the early stage of Blinkit's business. Goyal also denied that acquisition of Blinkit wouldn't delay the path to profitability for Zomato. "No, it should not. Our food business is trending towards profitability faster than what we had thought at the time of our IPO, last year.

Hence, the timeframe for overall Zomato profitability does not change in our minds. In fact, we believe we will now get to profitability within the same timelines (as we thought last year), but with a much larger addressable market. We are also not envisaging any further capital raise to get to profitability in this timeframe," he added.

Goyal also said that the concerns of high competition will not be necessarily bad for the quick commerce market given the under penetration of this segment.

The improvement in unit economics in the last 5 months gives us confidence that Blinkit is on the right path. We have good visibility on the various levers for achieving profitability in this business

- Deepinder Goyal, CEO& co-founder, Zomato