Why has the markets wiped out $1 billion from Zomato market cap in a week?

In the one week after the acquisition of Blinkit was announced by Zomato, it lost 20% or more than $1 billion in market cap. What went wrong?

· Markets felt that the pay-out via stock swap of Rs4,447 crore for Blinkit was too steep. In fact, if you add assumption of debt and funding losses of Blinkit, the cost is closer to Rs7,500 crore. Market is unhappy paying so much for a loss making piece.

· The emerging consensus in the market is that quick commerce may be a fabulous story but a lousy business model. Since Zomato is already loss making, Blinkit will only add to the burden. Most Blinkit costs are front loaded but benefits are back ended.

· Zomato IPO investors have reasons to be unhappy. The deal price at Rs70/share indicative, is lower than the IPO price and sharply lower than the 52-week high price of Rs165. Most of the people who entered Zomato are feeling short changed. Since Blinkit and Zomato are owned by related parties, it is also a corporate governance issue.

· The consensus is that had Zomato focused on its core food delivery business and worked to narrow losses, shareholders would have been better off. Instead, Zomato bought a white elephant like Blinkit at a humongous price, when digital valuations are being seriously questioned. For now, Blinkit will remain the valuation overhang for Zomato.