Food ordering and restaurant listing service Zomato has been valued at $500 million, a reduction of 50% from its current $1 billion valuation, by HSBC Securities and Capital Markets. In the research note, HSBC raised concerns about Zomato's advertising-heavy business model, growing competition and businesses abroad. The report also added that Zomato should instead develop a sustainable delivery business. In a blog post, Zomato co-founder Deepinder Goyal countered the report on several points. Here's a lowdown on what HSBC and Zomato said: 1. HSBC's valuation method: HSBC's note said that there was a consensus which valued Zomato at $1 billion but it disregarded them and added "we don’t think private valuations are a good benchmark". Instead, it employed a methodology called Discounted Cash Flow (DCF) which uses future free cash flow projections and discounts them to arrive at a present value estimate. The DCF first determines a company's trailing twelve month free cash flow (FCF). It would then compare previous years' cash flows in order to estimate a rate of growth. Other things which determine values is sales and costs associated with it. More on that here. Zomato's response: Zomato says that the report acknowledges that HSBC differs from consensus, which 'means that this report is an outlier, and there are enough analysts, VCs, and founders out there who have called us (Zomato) “the only defensible Indian unicorn”, and have said “there’s multiples more inherent value in Zomato” about us.' Zomato's numbers: 2100 employees Traffic up 8% in April 2016 over March 2016 8.5 million monthly uniques in India Present…
