Swiggy’s intention to go public appears promising, given the strong profitability of its food delivery operations. Furthermore, the company has established a profit objective for its grocery delivery division, known as Swiggy Instamart.
Following intense competition in the rapid commerce sector for approximately two years, it has come to light, through insights from three well-informed sources, that discounting and expenses related to acquiring consumers are beginning to stabilize.
“Swiggy has been witnessing significant improvement in Instamart’s economics in the July-September quarter,” said one of the sources requesting anonymity. “Encouraged by the level of efficiency [consumer acquisition cost and repeat purchases], the company has set an internal target to make Instamart profitable by March-April 2024.”
The profitability of Instamart is expected to be the catalyst for the company’s anticipated listing in August-September 2024. Entrackr was the initial source to report on Swiggy’s plans for a public listing and the profitability of its food delivery segment back in February.
According to a report by Reuters, Swiggy has extended invitations to JP Morgan, Morgan Stanley, and Bank of America to prepare the company for its upcoming IPO next month.
Read More: Swiggy resumes IPO plans, aims for stock exchange presence by 2024
“If the company manages to bring Swiggy Instamart in [the green], it will be a sort of turnaround as it bled heavily in the past year,” said the second source who also wished not to be named.
No immediate response was received from Swiggy in response to the queries that were sent.
Swiggy witnessed a significant increase in losses, soaring by 80% to reach $545 million in FY23, primarily attributed to substantial investments in its grocery business, as indicated by Prosus, a major backer, in their annual report. Meanwhile, the company’s earnings in the last fiscal year (FY23) reached approximately $900 million. In FY22, Instamart contributed INR 2,036 crore in revenue to Swiggy’s total income of INR 5,705 crore.
Insiders indicate that the company is currently in the process of determining its appropriate valuation for the public market, with expectations that it is unlikely to accept a valuation lower than the $11 billion mark. According to TheKredible, the firm achieved a valuation of $10.7 billion during its most recent funding round in February 2022, securing $700 million in funding.
When a grocery or rapid commerce startup focuses on achieving profitability, it typically signifies two key factors. First, it has reached a point where it deems its level of repeat usage as sustainable, allowing it to stabilize its operations before seeking new users. Second, the expenses associated with acquiring new users from this point forward are no longer sustainable. Embracing this reality and aiming for profitability often results in a substantial reduction in costs related to user acquisition and marketing. If profitability isn’t achieved in a reasonable timeframe, the startup may need to explore options such as securing additional funding or potentially seeking a buyer in the future.
No matter its level of funding, Swiggy is the kind of startup that genuinely has the opportunity for an IPO, thanks to its substantial market presence. It is expected that this move will become feasible in FY25, affording the company a brief window to maintain its growth momentum (which significantly influences valuations) without experiencing a sudden decline in its pursuit of profitability.