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Zomato enters US market with Urbanspoon acquisition

January 13, 2015
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Zomato, an online restaurant guide has upped the ante to acquire Seattle-based food portal Urbanspoon, based in the United States with the deal estimated around $50 million. The biggest challenge of this move, however, is the fight with the bigshot Yelp in the hopes of capturing a slice of the American market. Seattle-based Urbanspoon who competes with Yelp Inc., a popular website that lets users review and rate restaurants spas and beauty salons was previously owned by media mogul Barry Diller's InterActiveCorp. Yelp is listed on NYSE and operates in about 28 countries.

Urbanspoon has a dominant presence in Canada and Australia, so this adds to zomato’s expansionist policies. Zomato joining forces with Urbanspoon would be the best way to turbocharge their growth and make their way into the US, Canada Australia, and Ireland. Zomato will now cover over a million restaurants in 22 countries. The company has pretty much spent its entire last round of funding on this acquisition as Zomato expects to derive at least 60% of its traffic from the US as a result of this deal and boost its restaurant listings to more than one million. In other words, Zomato today is one step closer to achieving its vision of becoming the 'Google of Food.'

Zomato’s traffic will increase to more than 80 million per month from the current traffic of 35 million. Down the line, they’re planning to redirect the visitors, probably making it the largest restaurant search company in the world. But acquisition of Urbanspoon could also be the acid test for Zomato as it prepares to take on its biggest competitor Yelp, which had 139 million unique monthly visitors during the third quarter of 2014.

Zomato traffic estimates after acquiring Urbanspoon

Source:Zomato Blog

The aggressive expansion in overseas markets has helped boost the attractiveness of Zomato amongst investors who valued the company at $660 million in its last funding round when private equity investors including Sequoia Capital and India's Info Edge India Ltd, joined Vy Capital to invest $60 million in the company. Zomato's valuation will go up when it becomes a category leader in key markets.

Zomato last year acquired five restaurant search players in New Zealand, Poland, Czech Republic, Slovakia and Italy.

As per statistics portal Statista, dining and restaurants market grossed about $680 billion last year. It is important for Zomato to do well in the US.

Zomato relies solely on online advertisements as its major revenue source. However, they are now shifting gears by testing an in-house payment platform for diners in key markets. While the company has an advertisement-driven revenue model, it has added the table-booking feature and online food ordering may also be on the cards. This comes as significant news and a resounding alarm for rivals like Zagat and Opentable, who list and also book tables online or through mobile applications.

Google acquired Zagat in 2012 for about $150 million. In UK, OpenTable which claims to have 15+ million bookings a month for almost 35,000 restaurants partners with Zomato for table bookings.

It’s one of the biggest overseas deals by an Indian start-up and a company executive said it was in talks to raise about $100 million in fresh funding. This latest deal - the sixth and biggest acquisition so far by Zomato-- will be an all-cash transaction powered by the Gurgaon-based company's most recent round of funding that closed in November.

India's exponentially growing Internet and mobile-based companies have attracted billions of dollars in funding in the last couple of years from foreign investors including Japan's SoftBank Corp and Temasek Holdings Pvt Ltd.

"It's an all cash deal. We pretty much had to spend all our last round of funding on this and it's sort of a big deal for us," Zomato Chief Executive Deepinder Goyal told Reuters.

The startup is likely to be valued at about $1 billion after completing the fresh round of investment, Goyal said. Founded in 2008, Zomato is currently valued at around $660 million.

Next up on their chief Deepinder Goyal’s mind must be to tap the numerous categories including health, medical, beauty, spas, home services etc.


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