Why Zepto failed to deliver a timely IPO

Both Economic Times and Mint featured opinion pieces last week on Quick Commerce pioneer Zepto’s decision to postpone its IPO.

“With mounting losses, half-baked business plans and huge execution risks, the speed at which it was trying to blaze its way to the bourses would have upended all its gains,” opined ET’s Arijit Barman, “Zepto alone accounted for nearly one-third of the industry’s cash burn in the previous fiscal year. Continued losses and negative free cash flows have weakened the app’s sales pitch as a value retailer, making public market investors skittish about underwriting the story at premium multiples,” he added. Barman feels that if Zepto is unable to fix its issues, it should “be open to folding into a bigger rival, leveraging its heft and quick commerce expertise”.

Writing in the Mint, Karan Taurani, Executive Vice President at Elara Capital, feels Zepto’s decision could represent an inflec­tion point for India’s star­tup eco­sys­tem with (pub­lic mar­ket) investors demand­ing a cred­ible path to prof­it­ab­il­ity. According to him, while India’s Inter­net startups have proved they can scale, they will now have to answer a more important question: Can they earn? 

“India’s pub­lic mar­ket investors now have mul­tiple lis­ted bench­marks across sec­tors such as food deliv­ery, quick com­merce, fintech, beauty, insur­ance and e-com­merce by which they com­pare busi­ness qual­ity, oper­at­ing lever­age and cap­ital effi­ciency bey­ond just growth pro­spects. As a res­ult, one of the biggest changes is that private mar­ket valu­ations no longer serve as a bench­mark for pub­lic mar­ket pri­cing. Dur­ing the pre­vi­ous IPO cycle, many inter­net com­pan­ies lis­ted at premi­ums to their last private valu­ations des­pite lim­ited vis­ib­il­ity on prof­it­ab­il­ity. Today, that premium can no longer be taken for gran­ted.”

He drives home the point with the turnaround at Zomato. “The com­pany’s strongest phase of share­holder value cre­ation did not occur imme­di­ately after list­ing, but accel­er­ated only after the man­age­ment con­sist­ently demon­strated oper­at­ing lever­age by improv­ing food deliv­ery mar­gins and show­ing not just stronger advert­ising mon­et­iz­a­tion, but also dis­cip­lined exe­cu­tion at its quick com­merce ser­vice, Blinkit, and a vis­ible path towards sus­tain­able prof­it­ab­il­ity. Exe­cu­tion pre­vailed over ambi­tion as a con­sid­er­a­tion.” 

Related: Case Study on Zomato in the Venture Intelligence Indian VC Landscape Report.