Loyalty, discoverability, frequency: Decoding Zomato’s bid to acquire Paytm Insider 

Zomato

Online ticketing for movies and events has been around for a while. It's certainly been around longer than food delivery and quick commerce. While the space hasn't seen any buzz of late, that might change soon, as Zomato seems to have decided to shake things up.

As reports of Zomato holding talks with Paytm to acquire its events and movie ticketing arm (Paytm Insider) for Rs 1,500-2,000 crore emerged over the weekend, brokerages and industry experts have been trying to decode the Gurugram-based restaurant aggregation company's plans.

While no one wants to prematurely write off a Zomato acquisition after its success with Blinkit's turnaround, there are concerns about the move from a capital allocation perspective.

“Nobody questions (Zomato founder) Deepinder Goyal’s ability to turn around an acquisition as Blinkit has delivered well for the stock. But, the issue here is capital allocation. When there is a large opportunity like quick commerce and you are in a high interest-rate environment, does it make sense to buy a loss-making company,” said an analyst at a brokerage firm, who did not want to be identified.

However, the overarching sentiment seems to be that Zomato could spruce up the movie ticketing and events business via an integrated loyalty programme, find a way to crosssell its food offerings, and create better discovery of entertainment options for users.

“At the end of the day, it is not a diagnostics lab that Zomato is acquiring… What it is doing is trying to get a bigger wallet share of the user’s lifestyle spends which is an area the company already plays in,” said Sreedhar Prasad, a former Partner at venture capital firm Kalaari.

According to experts, Zomato will bring an element of discoverability to the movie ticketing and events business—something that is currently missing. Typically, users first log on to a ticketing platform when they have already decided to watch a certain movie or attend a comedy show. They purchase a ticket and leave, without spending any time exploring what else is on offer.

“Zomato is better at making customers discover new things when they are on the app. More importantly, food and quick commerce have more frequency of use as opposed to a vanilla ticketing platform that you might visit only on the weekends,” said Prasad.

Further, it is no secret that the high-growth phase of food delivery has run its course. That is one of the major reasons Zomato and Swiggy are pumping hundreds of millions of dollars into the quick commerce business.

As such, making a bold bet on movie ticketing and events could help Zomato drive up its revenue growth in the long-term. However, estimates made by brokerages in the last couple of days indicate that acquiring Paytm Insider will only add about 2.5 percentage points of incremental revenue to Zomato’s consolidated financials to begin with.

“Based on our primary checks, we estimate that Paytm’s revenue from its live events and online ticketing business is in the range of Rs 300 crore to Rs 350 crore (approximately 43 percent of Paytm’s revenue from commerce marketing services) in FY24,” said Karan Taurani, a senior analyst, who tracks the media and e-commerce sectors for brokerage firm Elara Capital.

"More than 95 percent of the ticket booking for cinema multiplexes is online, and aggregators such as BookMyShow and Paytm combined account for about 90 percent of online bookings for multiplexes. Improved visibility on content and higher ticket prices on premium content would drive convenience revenue. Apart from this, aggregators also produce their own events, which, too, report strong growth, led by higher F&B and ad revenue," he added.

Zomato Live's current revenue streams include a take-rate from third-party event organisers on sale of tickets through the platform, ticket sale collections for events managed by Zomato (e.g., Zomaland), sponsorship revenue relating to Zomato live events, rentals, commission charged on sale of food and other products from restaurants/merchants participating in Zomato managed live events.

In FY23, the business sold 190,000 tickets on its platform and reported revenue of Rs 52.9 crore.

India’s live events and ticketing business may continue to report healthy double-digit growth, backed by increased acceptance of live events in Tier II markets, higher ticketing revenue led by price hikes, new sports events, such as WPL, PKL and ISL, international format events, such as Lollapalooza, and rising per capita income, according to  Elara Capital.

“The M&A in discussion with Paytm will likely help bolster Zomato’s presence in the events ticketing space as Paytm offers broadly similar services to Zomato Live… In fact, in FY23, Paytm Insider was more than 3.5x the size of Zomato Live in revenue terms, likely due to access to a wider range of events as well as event genres such as sports, theatre & art, and workshops, among others,” said a note by analysts at brokerage firm JM Financial.