Zomato IPO: How much appreciation can one expect? [Hint: The devil is in the details]

If this was not enough, there is another devil in details. The company changed its revenue recognition method midway. Earlier, Zomato counted delivery charges as revenue & netted off the discounts. Since Oct 2019, it converted to a “pure tech platform provider”, whatever that means

Anurag Singh
1)#ZomatoIPO : LONG THREAD: Once in a decade opportunity…. for some? Is the IPO the golden opportunity for investors, as claimed by many? How much appreciation can one expect? A multi-year holding story or just a listing pop. This time it’s different, or is it? Let’s evaluate:
Hmmm, so valuation in Jan 2020 was abt $ 3.0 to $ 3.5 BN. That’s the rate at which Alibaba & Uber bought the stake, just before the pandemic. That grows to $ 8.5 BN in just 18 months ?.Did the market potential change so fast ? What changed ?
What’s more surprising is that the SAME investors are investing money at $ 3.9 BN & then at $ 5.4 BN ie 40% higher in just a span of 2 mths !! Well, if the owners have to sell something 3 times the price in 18 mths, they have to send “signals” that the venture is worth that much
So why did the revenues drop in FY2021 ? Company says – covid lockdown impacted business. Surprising, since online giants grew faster in pandemic. And why should the average order size drop? More importantly, why did new restaurants enrollment didn’t increase much from 143 K odd?
On monthly active users of 42 Mn, do you know that only 52% are from India & rest come from outside? No profitability details are provided for that analysis. We don’t know if global expansion is providing user base growth until IPO without any profitability. Try analysing that.
So Revenue now is the platform & facility fee provided to “delivery partners & restaurants”, & all promotions are included in advt/sales promotions expenses. Now how do you compare FY21 & 20 sales ? Isn’t it prudent to disclose revenues in both old & new methods of accounting?
Add this Rs 2500 crores to FY21 & the losses will be MORE THAN those in 2020. Vola….reduce sales promotion expenses in listing year & show a much lower loss. Agreed that sales is also lower but as discussed, revenue recognition changed midway so what sales do we compare with?
And what is this EPS calculation above ? When profits go up, EPS improves. Here we have losses. But the share base is also 25% up from FY 2020. So EPS (Loss) per share looks smaller than it actually is. As you can see, it is meaningless to compare EPS loss on increased share base
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