Indian food-delivery firm Zomato, backed by billionaire Jack Ma’s Ant Group and Uber, plans to raise up to 82.5 billion rupees ($1.1 billion) via an initial public offering in what would be the country’s largest stock-market listing this year.
The startup’s initial prospectus filed with the Securities and Exchange Board of India this week showed it plans to issue new shares to raise 75 billion rupees ($1.01 billion), while its top shareholder Info Edge India will offer shares worth 7.5 billion rupees ($101.2 million).
The company’s listing plans come as India combats a crippling coronavirus wave, with at least 300,000 new infections being recorded every day in the past week. Official fatalities have topped 200,000 as of Thursday, but the real number is thought to be far higher as the country’s health infrastructure appears to be collapsing under the volume of new cases.
Re-enforced lockdowns across the country have driven many Indian consumers to shift their spending online. Zomato, which serves around 70 million customers each month, saw its revenue grow 5.5 times between 2018 and 2020, after recording its highest-ever order value in history during the pandemic.
“The accelerated growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future,” the company said in its prospectus.
Zomato was founded as “Foodiebay” in 2008 by Deepinder Goyal and Pankaj Chaddah, the entrepreneurial alumni of the prestigious technical university IIT. What began as a weekend project for them grew into a well-known unicorn now present in 24 countries. At its last fundraising round in February, the company was valued at $5.4 billion.
Both the US and the UK have also seen food-delivery companies capitalizing on the stay-at-home environment during the pandemic with Deliveroo, DoorDash, and Grab all launching IPOs in the past six months.
The CEO of Uber got into a feisty Twitter exchange on Wednesday with a food delivery service rival.
After announcing that Uber Eats will expand into Germany – and a 5.4% drop in the stock of market-leader Just Eat Takeaway – the Dutch company’s CEO, Jitse Groen, insinuated Uber’s strategy was to “depress our share price.”
“Advice: pay a little less attention to your short term stock price and more attention to your Tech and Ops,” Uber CEO Dara Khosrowshahi replied.
Groen shot back: “Start paying taxes, minimum wage and social security premiums before giving a founder advice on how he should run his business.”
Neither company immediately responded to a request for comment on the exchange.
Just Eat Takeaway enjoys a dominant position in Germany after it acquired a local business in 2018, according to Bloomberg. The company also beat out Uber in a recent deal with GrubHub that will give the European company a major slice of the US food delivery market.
Across Europe, 24 million people used Uber Eats to order meals last year, but Just Eat Takeaway’s dominance in Germany suggests there’s room for Uber to expand there. Uber says it will start offering deliveries in Berlin in the coming weeks.
Uber’s head of delivery told the Financial Times that Germany is a “strategically important country” in the company’s push to profitability, and that Just Eat Takeaway’s fees are “extraordinarily high.”
“That translates into consumers and merchants actually being quite desperate for additional options,” he said.
Part of the challenge for Uber will be adapting its delivery model to a fleet management system in order to comply with German labor laws. Under that system, Uber pays a partner company that hires and pays drivers, as opposed to the independent gig-worker model that is common in the US.
Uber, which has expanded from ride-hailing to food delivery, package delivery, and courier service, is scheduled to release its earnings on May 5.
Deliveroo fell as much as 30% in the food delivery-startup’s public trading debut on Wednesday, marking a downbeat start to the biggest initial public offering in London in a decade.
The company’s shares were trading at an intraday low of 271 pence ($3.78) per share, lower than the offering price of 390 pence ($5.35). The price recovered to 313 pence ($4.31) at 8:45 a.m. London time.
“Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face,” said AJ Bell investment director Russ Mould. “It had better get used to the nickname ‘Flopperoo’.”
The UK-based company had priced 384.6 million shares at 390 pence per share, the bottom of its marketed range between 390 pence and 410 pence ($5.65), hoping to target a valuation of 7.6 billion pounds ($10.5 billion). But it’s the first of London’s top five deals this year that wasn’t able to open at its highest targeted valuation, shedding more than 2 billion pounds ($2.7 billion) in market value on its trading debut.
Analysts say its IPO took a turn for the worse when multiple fund managers said they wouldn’t back the business due to concerns about working practices, spooking many that applied for its shares and possibly racing to dump them.
“It reflects the cautious approach big funds have shown to the stock amid concerns about working practices and governance,” said Neil Wilson, chief market analyst at Markets.com. “A lot of the big UK funds are not on side, which was failure number one.”
Amazon-backed Deliveroo, which trades on the London Stock Exchange under the ticker symbol ROO, raised 1.5 billion pounds ($2.1 billion) via proceeds from investors. It could have raised 1.77 billion pounds ($2.4 billion) had the company priced its shares at the higher end of its IPO range. But its offering was priced at the lower end because of a drop in shares for food-service firms such as JustEat and Delivery Hero on Monday, the Wall Street Journal reported, citing a spokesperson.
The company grew to the point of launching on the stock market partly thanks to the exploitation of its workers, said Connor Campbell, a financial analyst at SpreadEx. “Now, said exploitation is one of the main reasons behind its sour start to life as a public company,” he said.
It approached its market debut uniquely compared to other IPOs. Only institutional investors are able to participate in Deliveroo’s market debut on March 31, but private investors buying into its 50 million pounds ($68.6 billion) community offer can participate once unconditional trading begins on April 7.
Deliveroo was founded in 2013 by former banker Will Shu and his childhood friend Greg Orlowski. The British firm offers food, groceries, and alcohol for delivery on demand via an app, and ferries goods out to consumers through a network of gig-economy riders.
Its IPO will be a test for the UK tech startup industry, where valuations for unprofitable, high-growth companies have become increasingly bullish, even as public investor appetite for riskier businesses remains largely untested.
The company faces stiff competition in the sector from direct rivals Uber Eats and Just Eat, plus niche grocery delivery apps such as Gorillas, Getir, and Weezy.
Deliveroo primarily makes money by charging its restaurant and grocery partners a commission on each order, up to 35% in some cases. Though hoping to permanently benefit from an uplift in takeaway orders during the pandemic, the firm remains loss-making.
The firm reported a £225.5 million ($311 million) pre-tax loss for the full-year 2020, a narrower loss than the £317.7 million ($438 million) it lost in 2019. Revenues were up 54% to £1.1 billion ($1.5 billion) from 2019.
Other revenue streams include its subscription programme for regular consumers who want lower delivery fees; food procurement deals; licensing out its “Editions” dark kitchens to restaurant brands; and its “Signature” marketing platform.
Its listing is also closely watched thanks to its dual-class share structure, which sees Shu retain control over the firm in a model similar to US listings. The CEO will be granted 20 votes per share, while other shareholders will receive one vote per share.
The IPO is set to make Shu a wealthy man, since he plans to sell approximately $36 million in shares, leaving him with a stake in the company worth around $662 million.
While Deliveroo has indicated that demand from institutional investors exceeded supply in the run-up to its IPO, a number of big firms publicly stated they would not back the company.
Aviva, Rathbones, Legal & General, and others variously cited Deliveroo’s lack of profitability, and the reputational and financial risk posed by the fact its riders are gig-economy contractors rather than workers entitled to a minimum wage.