Swiggy vs Zomato - Which one is worth investing as Swiggy IPO is coming?

 Swiggy and Zomato are two of the biggest names in India's food delivery industry, each with its unique strengths, strategies, and challenges. While Zomato took the plunge and became a publicly listed company in 2021, Swiggy remains private but has been preparing for its Initial Public Offering (IPO) in the near future. In this article, we’ll explore the journey of both Swiggy and Zomato, their competition, and how Swiggy’s upcoming IPO compares to Zomato’s performance as a public company.

Swiggy vs Zomato: A Competitive Overview

Swiggy and Zomato have been vying for dominance in India’s food delivery market for years. They operate in a highly competitive environment, characterized by price wars, deep discounts, and rapid technological advancements. Let’s look at various aspects of their competition:

1. Market Share and Reach

Zomato and Swiggy have both grown exponentially over the years, with each claiming substantial shares of India’s food delivery market. While Zomato, as of FY23, is estimated to have around 55% market share, Swiggy holds about 45%. These numbers fluctuate slightly based on geography and consumer preferences.

Zomato has a significant presence in both Tier-1 and Tier-2 cities and has expanded aggressively into smaller towns. Swiggy, on the other hand, has been a leader in Tier-1 cities, but it has also made strides in expanding into Tier-2 and Tier-3 cities. Swiggy’s competitive advantage in smaller towns stems from its unique hyperlocal delivery model.

2. Revenue Models

Both companies have revenue streams built primarily around restaurant commissions, delivery charges, and advertising. However, they have diversified in different ways to capture a larger market share.

Zomato operates three main business verticals: food delivery, Zomato Pro (subscription service), and Hyperpure (B2B business providing ingredients to restaurants). In 2022, Zomato also acquired Blinkit, a quick-commerce platform, marking its entry into the 10-minute grocery delivery segment.

Swiggy, apart from food delivery, operates Swiggy Instamart (its grocery delivery service), Swiggy Genie (a parcel delivery service), and a cloud kitchen network. Swiggy Instamart has been a major growth driver for the company, especially in urban areas where convenience delivery is in high demand.

3. Profitability and Unit Economics

One of the biggest challenges for both Zomato and Swiggy is achieving profitability in an industry where deep discounts and free delivery have conditioned consumers to expect low prices. As public companies need to report their financials, we have a clearer view of Zomato’s journey toward profitability.

In its earnings reports post-IPO, Zomato’s path has been challenging. Although Zomato reported strong revenue growth, the company has been grappling with high costs related to promotions, rider incentives, and technology infrastructure. By FY24, Zomato began showing signs of narrowing losses, thanks to a focus on operational efficiency, higher order volumes, and better unit economics. However, it remains far from a steady profit.

Swiggy, being a private company, does not disclose detailed financials, but reports suggest that it has been working on improving its unit economics over time. Unlike Zomato, Swiggy has been aggressive in diversifying into grocery delivery with Swiggy Instamart, which has become a significant contributor to its revenue. While food delivery might still be in the red for Swiggy, its non-food businesses have likely helped reduce overall losses.

4. Funding and Valuations

Both companies have raised billions of dollars from investors over the years. Zomato’s pre-IPO valuation was around $8 billion, and it raised ₹9,375 crore (~$1.3 billion) in its IPO. Post-IPO, Zomato’s market capitalization fluctuated significantly, peaking at around $15 billion before settling lower as market conditions and profitability concerns impacted investor sentiment.

Swiggy, meanwhile, was last valued at around $10.7 billion in its most recent funding round in 2022. As the company gears up for its IPO, investors are watching closely to see how it positions itself compared to Zomato, particularly as concerns about profitability and growth sustainability loom large.

Swiggy’s IPO: What to Expect

Swiggy IPO has been one of the most anticipated listings in India’s tech ecosystem. While no official date has been set, industry insiders expect Swiggy to go public in the first half of 2024. The IPO comes at a time when the food delivery industry is consolidating, with only a few players left standing after years of fierce competition.

1. Comparing to Zomato’s IPO

Zomato’s IPO in 2021 was one of the most successful tech IPOs in India, signaling strong investor appetite for food delivery businesses. However, after the initial euphoria, Zomato’s stock faced significant volatility, largely due to concerns about profitability, high valuations, and the long-term sustainability of the food delivery model.

Swiggy will inevitably be compared to Zomato when it lists, and its IPO will be scrutinized in several key areas:

- Valuation: Swiggy’s current valuation of $10.7 billion is comparable to Zomato’s pre-IPO valuation. However, given that investor sentiment has shifted since 2021, Swiggy IPO valuation could be more conservative. Investors today are more focused on profitability and unit economics than they were during Zomato’s listing.

- Revenue Growth:Investors will look at Swiggy’s revenue growth across both food delivery and its non-food businesses like Instamart. Swiggy’s ability to grow its grocery delivery and other verticals will be a critical factor in determining how the market values it during the IPO.

- Profitability: One of the biggest factors affecting Zomato’s post-IPO performance was its inability to turn a profit quickly. Swiggy will need to show a clear path to profitability to convince investors, particularly in an environment where tech stocks are being punished for losses.

- Non-Food Businesses: Swiggy has diversified beyond food delivery more aggressively than Zomato, and this could be a double-edged sword. On the one hand, Swiggy has multiple revenue streams to fall back on, but on the other, it may face higher operational challenges in managing such a broad portfolio.

2. Challenges for Swiggy’s IPO

Swiggy faces several challenges ahead of its IPO:

- Profitability Pressure: Like Zomato, Swiggy’s biggest challenge is its ability to turn a profit. The food delivery industry has notoriously thin margins, and Swiggy’s heavy investment in Swiggy Instamart and Genie could mean a longer road to profitability.

- Economic Environment: The economic environment has changed since Zomato’s IPO. Rising interest rates, inflation, and tightening liquidity could make it harder for Swiggy to achieve the kind of high valuations that were common during the tech boom of 2020-2021.

- Competition: While the food delivery space has largely consolidated, Swiggy still faces significant competition from Zomato and smaller regional players. Additionally, quick commerce players like Blinkit and Zepto are fighting for the same hyperlocal grocery market that Swiggy’s Instamart operates in.

3. Investor Sentiment

Swiggy’s IPO will test investor sentiment toward the Indian food delivery and quick-commerce sector. If Swiggy can convincingly show a path to profitability, improve its unit economics, and deliver strong revenue growth across multiple verticals, it could attract significant investor interest. However, if the company’s IPO faces the same post-listing volatility as Zomato, it could dampen enthusiasm for other tech IPOs in the pipeline.

Conclusion

The battle between Swiggy and Zomato has shaped India’s food delivery landscape, and both companies have evolved beyond their initial business models to include grocery delivery, cloud kitchens, and more. As Swiggy prepares for its IPO, the comparisons to Zomato’s public market journey will be inevitable. While Swiggy can learn from Zomato’s experience, it must carve its own path by showcasing growth in its diversified business model and ensuring a clear trajectory toward profitability.

Swiggy IPO will be a crucial moment for India’s tech ecosystem, especially in a post-pandemic world where investors are more cautious about valuations and profitability. Whether Swiggy’s listing will mirror Zomato’s success or face similar challenges remains to be seen, but one thing is certain: the competition between these two giants is far from over.

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