Alibaba: Appetite Growing for Indian Tech Startups

Alibaba (BABA) and its payments affiliate Ant Financial could invest up to $200.0 million in Indian food-ordering startup Zomato, according to a report in India’s business newspaper Economic Times. The report stated that the investment may value Zomato at more than $1.0 billion. The startup was valued at about $960.0 million in its last funding round in September 2015.

Although Zomato is largely viewed as a food-ordering company, the bulk of its sales comes from advertising. In the fiscal year ended March 2017, advertising sales were $38.0 million compared to $9.0 million from food delivery. However, food delivery is Zomato’s fastest-growing business.

Since Zomato has a strong presence in international markets such as Southeast Asia and the Middle East, it’s viewed as a fit for Alibaba’s international push. Alibaba, which relies on China (MCHI) for the majority of its revenues, may be seeking to diversify its revenue geography to beat a potential slowdown in its domestic market and take advantage of international revenue opportunities. Investing in Zomato could allow Alibaba to use the food-ordering startup to grow its digital payments business outside of China.

Alibaba has recently shown a strong appetite for Indian tech (technology) start-ups. For example, it has increased its stake in India’s e-commerce and digital payment provider Paytm and is in talks to invest in Bigbasket, an online grocer.

According to IGD, India’s food and grocery market will expand to $482.0 billion by 2020 from $302.0 billion in 2010, as shown in the above chart. As times goes by, Indians are expected to make more of their grocery purchases online.

This massive revenue potential is drawing e-commerce and online payment companies such as Alibaba, Amazon (AMZN), eBay (EBAY), and PayPal (PYPL) to India.