DoorDash Inc., an American food delivery services firm, recently had a massively successful IPO debut with a listing gain that soared 90% over its issue price.
Now, following their success, many investors are getting excited about its Indian peers Zomato and Swiggy heading down the path. But, will they be able to replicate DoorDash’s success? Let’s dig in and find out.
Market Conditions: The US vs India
Even though DoorDash is five years younger than Zomato, which is reportedly planning for an IPO in 2021, the U.S. based delivery startup, in terms of valuation, is 15 times bigger than the latter as well as Swiggy. This is primarily because the two Indian food delivery giants are operating in a much less mature market when compared to DoorDash.
|Startup||Valuation ($ Billion)|
It is important to note that the last reported valuation of DoorDash before the IPO was $16 billion.
In 2019, the U.S. food delivery market space reached $18.8 billion whereas the Indian space for the same was pegged to be at $3.9 billion.
There is little that the DoorDash’s stellar IPO debut does to set up the stage for Zomato and Swiggy plans to go public in the near future beyond what can only be called a ‘feel-good’ factor.
In a developed economy such as that of the United States, the food delivery business operates on a whole different scale when compared to the budding market of India.
This is why DoorDash took only 5 years to turn into a unicorn while Zomato took 10 years for the same.
|Startup||Founded In||Time Taken to Become A Unicorn|
Swiggy which launched in 2014, took lesser time compared to Zomato to hit the 1 billion valuation mark as they entered the Indian market space when the concept of food delivery had gained quite a bit of traction.
Currently, analysts believe that Dalal Street might find it difficult to replicate the smash-hit success DoorDash witnessed on Wall Street, with Zomato has the market of food delivery in India is relatively too small.
The AOV aka average order value for DoorDash is close to $31 which is over 5x more than Zomato’s AOV which is of $5.7 or ₹420. Swiggy’s average order value is close to Zomato as a recent Goldman Sachs report estimated it to be $5.
The Silver Lining For Zomato and Swiggy
Now, all is not lost for Zomato and Swiggy. The Indian food delivery horses are springing up quickly after the onset of the coronavirus pandemic.
A recent report estimated that Zomato and Swiggy’s profitability is now closer. Because of the continuing social distancing norms, consumers are willing to pay a lot more for services such as contactless deliveries. Thus, as a result, in Q2 2020, Zomato reported an increase in a contribution margin of ₹27 per order in the June 2020 quarter, compared to a loss of ₹47 in the Q2 2019 quarter.
But, all said and done, even though the margins are being expected to further improve for both the Indian companies as they continue to expand to more cities, they are nowhere close when it comes to matching up to the scale of DoorDash in the United States.
Goldman Sachs believes, even if Zomato happens to be on a winning streak from here on, their GMV five years from now will stand at $9.8 billion which is a little over what DoorDash makes right now.