Taking on Yelp: Zomato plans to raise $80 mn more to expand in US, Australia

In order to create a war chest to take on Yelp in the US, Zomato plans to raise $80 million from both existing and new investors, media reports said. The India-based restaurant listing website had earlier this month acquired Urbanspoon for $52 million, marking its entry into the US market where Yelp is the unquestioned leader in the business. According to a report in The Economic Times, the funds will be utilised to recruit more staff in various US cities and also to increase the marketing expenditure in Australia before the Cricket World Cup starts in February. [caption id=“attachment_2058683” align=“alignleft” width=“380”]  Zomato website[/caption] In an analyst conference call, Deepinder Goyal, the founder and chief executive of the company, said the company was in need of funds but did not reveal how much he was planning to raise. It has no plans for acquisition in the next six to nine months, Goyal said. “Now we need to make the new markets (US, Canada and Australia) really work for us and we have to get the organisational structure in place in next few months,” Goyal has been quoted as saying in the report. The website has witnessed a three-fold increase in traffic recently, Goyal said. This could be a proof that its acquisition strategy is already paying off. The company will also focus on the UAE and New Zealand markets. Goyal said in Australia and Canada, monetisation will be its focus. “In the US, we will do pilots with a few cities to increase traffic and see where it goes from there,” he told at the analysts call. Whatever the strategy, the company will not face any trouble in raising funds as it is “globally scalable”, analysts have said. According to them, Info Edge, which owns about 50 percent in Zomato, may have to dilute its stake or go for a qualified institutional placement to raise funds for Zomato. But just how far will these funds help Zomato in its fight against Yelp? Just a pittance. Take a look at the following comparison in this article in yourstory.com: Yelp’s revenue stands at $232 million, Zomato’s at Rs 30.6 crore (in FY14), which is just 3 percent of Yelp’s number. Yelp is now valued at $5 billion, Zomato at $750 million (if and when the $80 million fresh fund raising materialises; in November when it raised $60 million the valuation was $660 million). As of October 2014, Yelp 139 million unique visitors per month; Urbanspoon acquisition was expected to more than double the traffic of Zomato to 80 million per month. But then there is a difference in the business models of both the companies. This is how Goyal explains it in the yourstory article: “Yelp publishes crowd-sourced reviews about local businesses. It also hosts social events for reviewers; and provides basic data about businesses, such as hours of operation. Zomato’s core features include highly curated information – scanned menus, photos, and geocoded coordinates for restaurants; users can rate and review restaurants, as well as create their own network of foodies for personalized recommendations.” He believes the company’s focus on restaurants and dining gives it “an edge over competition”, the article says. As the article points out, the focus of Zomato, which is present in 22 countries through six acquisitions, has been on developing markets. With the Urbanspoon buyout, it may be signalling a change in the tack. Zomato is clearly bracing  for an interesting battle.