Independent analyst Anand Tandon, says eventually the cost of client acquisition has to be brought down to a level where it begins to make sense and you start making operating profit. Zomato is showing some signs of progressing in that direction. The challenge there is quite high because the cost of logistics cannot be brought down beyond a point and the challenge will remain that there is already some amount of pushback from the restaurants and the food suppliers to the margins that they are having to shell out to these companies.”There seems to be a big change of heart from the investors and also from the promoters/founders about what are the essentials to survive in the auction market and that is getting rewarded. Zomato stock price has gone up post numbers or Policybazaar has gone up of late. But now markets are convinced that these folks are here and they mean business. What is the way forward after the recent run up?You have to look at two things first.
One, which of them is still able to raise money or at least has enough cash to give them a long enough runway till they reach profitability. Second, if you assume that there is going to be a focus on cash flow and profitability, how much of the top line growth will have to go because so far or at least till they got into IPO, the focus was on trying to gain more and more market share and build up the top line and not worry too much about the cost of client acquisition. Eventually the cost of client acquisition has to be brought down to a level where it begins to make sense and you start making operating profit.
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