Zomato in talks to raise up to $200 mn from Alibaba, Alipay

MUMBAI | BENGALURU: Online food ordering and restaurant discovery firm Zomato is in advanced talks to raise up to $200 million from Alibaba and its payments affiliate Ant Financial, also known as Alipay, according to three persons familiar with the development. The round, which could see the Chinese ecommerce giant pick up a major stake in the company, may value Zomato at $1.1 billion, potentially earning it the Unicorn tag that it missed by a small margin during the last round of financing.

The deal, if it goes through, will be part of Alibaba and Alipay’s global play as Zomato has a strong presence in Southeast Asia and Middle East as well, according one of the sources mentioned above.

“There are synergies between the two players in the international markets, especially Southeast Asia where Alibaba is building a strong presence. But the deal is not finalised as there is no term sheet yet,” said the source.

Zomato last raised $60 million from Temasek and Vy Capital in September 2015 in a round that valued the Info Edge-backed company at about $960 million.



When contacted by ET, spokespersons for Ant Financial, Alibaba and Zomato declined to comment on what they termed as ‘market speculations’ and ‘rumours’.

Interest of global players in Zomato points to a significant turnaround for the beleaguered foodtech sector that struggled to raise funds until a year ago.

South African media giant Naspers led a $80-million round in Zomato’s main rival Swiggy earlier this year, while global tech giants such as Uber and Google also launched operations in this market.

Rapid Growth in Food Delivery Space
Over the last one year, Zomato has been steadily fortifying its balance sheet with revenues surging 80% to Rs 334 crore in FY17. But the game changer has been its ability to significantly shrink its annual operating burn by 81% to Rs 77 crore in FY17 from the Rs 441 crore it lost in FY16. It also narrowed operating losses by 34% to Rs 389 crore in FY17.

Zomato is looking to put equal focus on growing its high-margin advertising business this financial year along with the food-ordering business. Advertisement business, which grew by 58% to $38 million in the financial year ended March 2017, still accounts for a lion’s share of revenues compared to the food-delivery business, which grew 8 times to $9 million, according to an earlier blog post by Zomato. It hired former Tata Docomo chief executive of Deepak Gulati as president and chief operating officer to drive advertising revenue for 2017-18.

But Zomato is also locked in a battle for market leadership in the food delivery space, which is more capital intensive. Zomato claimed to have delivered over 3 million monthly orders for the first time in July this year compared to competitor Swiggy's claims of 4 million monthly orders. Zomato, however, maintains that its average order value is higher than that of its Naspersbacked competitor, resulting in higher gross sales.

ET had reported in June that Zomato, which had kept away from self-fulfilled deliveries in a bid to cut losses, is also evaluating that option for a small set of restaurants. The move comes even as the company is in the last leg to acquire hyperlocal delivery startup Runnr, as reported by ET earlier this month. The interest of Alibaba-Ant Financial in Zomato comes as the Chinese ecommerce giant is aggressively expanding its presence across the world, especially in markets like Southeast Asia.

Alibaba Group's founder and chairman Jack Ma had said last year that the company is targeting to more than double its gross sales to $1 trillion by 2020, and expanding in international markets is a significant part of the strategy to achieve that goal. Food delivery is seen as a strategic part of the payments business, as it has high frequency. Alibaba and Ant Financial have made similar bets in their home market as they have poured more than $2 billion in Chinese food ordering platform Ele.me since 2016.

Alibaba has invested close to $2 billion in Southeast Asian ecommerce company Lazada, and Ant Financial has closed deals with players like Thailand-based Ascend Money, Mynt in the Philippines, Emtek in Indonesia, and Singapore’s M-Daq.