With Paytm Bid, Zomato Looks For New Customer Inroads

After a rough first year on the bourses, Zomato’s fortunes seem to have changed, at least in public perception. A major reason is the exploding valuation of, and investor interest in the quick commerce business. Zomato’s BlinkIt may now be the more valuable part of the company, bringing in more customers, repeat transactions, and fat margins from in-app advertising.

This year so far, Zomato’s stock price is up more than 62% compared to a 9% bump in the benchmark Nifty 50 Index. Clearly, its valuation as a food and grocery delivery company is on the rise.

So why is it thinking of buying a ticketing and events company?

First, a recap. Earlier this month, Zomato told investors in a stock exchange filing (pdf) that it was in talks to buy Paytm’s movie ticketing and events business. Per The Economic Times, the transaction could value this business at Rs 1,600-1,700 crore.

Zomato isn’t new to the entertainment business. In 2018, it launched Zomaland, a food and fun carnival that allowed attendees to sample fare offered by its partner restaurants. A year later, it launched Zomato Originals, a set of food-focused web shows streaming on the Zomato app. The company shut that offering down soon enough (read more about Zomato’s entertainment investments in this edition of The Impression). Besides this, Zomato has been building a ticketing vertical within its food ordering app under the ‘Zomato Live’ tab. Among events available to book are comedy shows, live T20 Cricket World Cup screenings, concerts, and even entry tickets to a water park. 

Zomato runs its events business under its subsidiary Zomato Entertainment Pvt Ltd, which was set up in 2018, the year it launched its flagship Zomaland. In FY23, per latest available filings, the company made a turnover of Rs 52.9 crore, with losses of Rs 24.5 crore. Zomato Entertainment was a loss-making business in the pre-pandemic years too. In FY20, it made Rs 10.31 crore in total revenue, up nearly 2.5 times year-on-year while its total loss for the period was Rs 5.28 crore, down over 25% year-on-year.

But Zomato isn’t in a hurry to make it profitable. Rather, it wants to see how selling tickets to gigs in a city while programming its own live shows can help it build a ‘going out’ segment beyond its mainstay home delivery business.

“There are two pieces to [the] going-out business segment: dining out business and also, the events and ticketing business (Zomato Live),” Zomato’s chief financial officer Akshant Goyal told investors in a call (pdf) in February this year. “We are in a build-out phase here. The idea is both acquiring restaurants and creating [a] supply of events and onboarding ticketing partners. All of that requires investment.”

Apart from the initial investment in the events vertical, Goyal said the company expected to spend heavily on building a team dedicated to the events business. In the short-term, it’s treating this as an experiment that will run up losses.

“[We expect] the top line, which is measured by GOV [gross order value] here... to continue to grow,” Goyal said. “But both monetisation in terms of revenue growth and eventually profitability growth will take some time, and grow with the lag… the amount of commission we charge is not the focus area right now. The idea is to first create a large enough network here of restaurants [for dining out]. And similarly on the event side, a large enough supply of events.”

Make It Large

If the immediate aim isn’t to generate cash, why not ramp up the experiment?

That could explain why Zomato is interested in acquiring Paytm’s events business, comprising ticketing and events production under Insider.in. Company filings show that Wasteland Entertainment, the parent firm of Insider, hasn’t had one profitable year since Paytm acquired it in 2017. Little wonder then that Paytm is keen on offloading as it fights bigger fires in its main payments and loans business.

What this also means is that Zomato or any other potential buyer can drive a hard bargain for the business that contributes little to either Paytm’s topline or bottomline. In FY23, Wasteland Entertainment posted revenue of over Rs 192 crore, up more than 4x from the previous pandemic year, while it made losses worth Rs 19 crore, down by over 25%. In FY18, the company made more than Rs 97 crore in total revenue but posted losses of Rs 10 crore. Paytm spent nearly Rs 150 crore as equity investment in Wasteland Entertainment last fiscal, but the company contributed just about 1% to the company’s bottomline, Paytm’s FY23 annual report shows. Meanwhile, Paytm Entertainment Ltd is an even smaller (but much more profitable) entity, with Rs 4.4 crore in turnover and Rs 3 crore in profit after tax.

Selling tickets and events contributes less than 20% to Paytm’s overall turnover.

For Paytm, which wants to refocus on payments and loans, it makes sense to get rid of anything that can distract it from rebuilding its core business.

While Zomato can get the business at a bargain, it would know that even in the long-term, events aren’t an infinitely scalable, cash-generating business. Consider BookMyShow. In FY23, it made just over Rs 1,000 crore in total revenue with profit after tax worth Rs 85 crore, a slim 8.5% margin. In the previous fiscal – a pandemic year – it was in losses.

For Zomato, the appeal of buying a ticketing and events business isn’t so much in its ability to earn a lot of money. Rather, it will bring a new kind of customer to the app; mostly high-earning and urbane (with spending data), and likely to fit well with the ideal customer profile of Zomato’s existing food delivery, quick commerce, dining, and events business.

As Zomaland has shown, events are a successful way to augment existing lines of business, including food delivery, dining out, and advertising. E-commerce companies worldwide are increasingly chasing revenue from retail advertising, especially now that Amazon has shown it is possible to break through the two-decade long dominance of Google and Meta over the digital advertising business. In the first quarter of 2024, Amazon made $11.8 billion in ad revenue, up more than 24% year-on-year.

For Zomato, events have served as both a brand-building tool and can also help it expand its advertising business, which generally comes with bigger margins. For an aggregator like Zomato, kiosks, sponsorships, and plain-old hoardings at an event are brand new forms of advertising to offer clients (such as restaurants), a rich addition to its existing ad inventory of search results and sponsored posts.

Besides, data on the people attending an event will help Zomato build better insights into its existing (and potential) customer base, helping it become a stronger internet consumer company. Zomato isn’t alone in this endeavour. Last year, beauty retailer Nykaa held its inaugural ‘Nykaaland’ event in Mumbai, featuring partner make-up brands, celebrity make-up artists, and live musical performances. Nykaa co-produced the event with market leader BookMyShow.

As consumer internet companies get serious about the events business, its basic nature will likely undergo a change. So far, companies like BookMyShow and the ‘90s leaders like Percept and WizCraft were valued as event producers that merely generate cash from the shows they organise. For new-age players like Zomato and Nykaa, events will probably act as a marketing and brand-building arm, doubling as rich advertising inventory, and become a funnel for detailed customer data.