Mint Explainer: Zomato’s Paytm deal and its big bet on entertainment

Zomato Ltd is expanding from one duopoly market—online food ordering, where Swiggy is its main rival—to another—entertainment and ticketing, where BookMyShow is the dominant player, followed by smaller platforms including Paytm’s Insider for events and another section for movies. In the quick-delivery market, Zomato’s Blinkit competes with tougher rivals, including Swiggy’s Instamart and Zepto.

After experimenting with events for a few years—Zomaland by Zomato Live is billed as a ‘food and entertainment carnival’ that hops across cities—Zomato has bitten the bullet and decided to buy Paytm’s entertainment and ticketing business for ₹2,048.4 crore, or $244 million.

The new business, called ‘District’, which Zomato folds under what it calls the going-out sector, is part of the company’s efforts to broaden its services beyond food delivery. Zomato plans to use its app’s traffic to build District as a separate brand, with a focus on movie and events ticketing, live performances, and sports. That’s pretty much BookMyShow’s arena.

Mintdigs into the opportunities and challenges for Zomato in this space.

Why did Zomato plunge into events and ticketing?

Zomato has been dipping its feet in the ticketing business for more than a year now. Its ‘going-out’ business, which covers dining out and event ticketing, clocked ₹3,225 crore in gross order value in 2023-24. GOV is the total value of an order, including taxes and other costs billed from customers.

Buying tickets for movies, Indian Premier League cricket matches, and other live entertainment, table reservations for dining out, and booking weekend getaways will all be covered under the new app called District, which will be launched in a few weeks.

“We want to position ‘District’ as the brand that consumers turn to when they are thinking of going out,” Zomato’s co-founder and chief executive Deepinder Goyal said in a statement.

Also read | What Zomato’s sizzling results teach investors, VCs

Paytm has been operating in this space the past few years. In 2023-24, it only generated a combined GOV of about ₹2,000 crore but enabled the purchase of 78 million tickets for more than 10 million unique customers. By acquiring this business, Zomato will get access to Paytm’s vast customer base, as well as about 280 of Paytm’s employees familiar with how this sector works.

“Food and entertainment are the most logical adjacencies, so the acquisition makes a lot of sense for Zomato. If they strategically structure it by introducing offers and combos, it could be a huge win for Zomato,” said Sreedhar Prasad, a former Kalaari Capital and KPMG executive who has advised several new-age consumer startups.

People who buy a movie ticket online are also most likely to use quick commerce or food ordering platforms, underscoring the rationale behind Zomato’s decision, he added.

Will District as a separate app be viable?

Zomato plans to launch District as a separate app as it wants customers to distinctly identify this business for going-out purposes. The company said this would also make it easier to add new use-cases for customers, and allow the Zomato app to focus on and be associated with food delivery. Zomato also plans to build a loyalty program for District users to boost customer retention.

Blinkit also functions as a separate app, although the Zomato app has a tab directing users to the quick-delivery platform.

Also read | Zomato: It’s time for investors to open their eyes to Blinkit

Some industry experts, however, see this as a challenge.

“Creating another app and communicating to the consumers that it is owned by Zomato itself is a huge expense,” said Prasad. “I don’t think the concept will last long if treated as a separate app and this will create a lot of friction from the customer perspective.”

He suggested that if Zomato instead bundled District under its primary app, users are likely to spend significantly more time on the platform. “Movie ticketing takes time because you want to choose a theatre, then seats, etc. So the total time spent by the customer on the (Zomato) app will increase and this makes it more efficient,” Prasad said.

How are analysts reacting to the acquisition?

Analysts at Elara Capital said Zomato’s live-ticketing business will continue to account for a large share of revenue.

“More than two-thirds of the revenue for entertainment businesses such as Paytm Live is derived from convenience fees related to ticketing sales of live events, and from sports and cinema, which will continue to grow due to rising income and varied properties in such genres,” Elara’s Karan Taurani said.

Zomato’s live-ticketing business, which is currently at an annualised run rate of ₹4 billion, will improve by 75% to ₹7 billion post this acquisition, the brokerage estimated.

Other brokerages have also lauded the acquisition, expecting it to take Zomato a step closer to capturing a higher wallet share from urban customers.

Also read | Zomato-Paytm ticketing deal appetizing for both

“With this acquisition, the third vector (after food delivery and quick commerce) of growth has been established and the valuation looks compelling in the context of growth forecast and ultimate margins,” Jefferies said in a note, raising its target price on Zomato shares to ₹335 from ₹275. Zomato shares on NSE were down 0.16% at ₹259.61 each in late trading on Thursday.

Citi analysts see the acquisition as “moderately positive” for Zomato, as its own going-out business had higher growth (more than 100% year-on-year) than Paytm’s events business, which grew at under 10% due to losses in the company’s monthly transacting users.

However, the Citi analysts added that Zomato stands to gain from leveraging Paytm’s ticketing traffic and driving consolidation in consumer entertainment verticals such as sports, events, and movies as it competes with BookMyShow.

How does the sale mean for Paytm?

Several experts believe the sale will help Paytm focus more on its core business as the fintech giant reels from a loss in customers after the Reserve Bank of India cracked down on Paytm Payments Bank earlier this year.

RBI had banned activities such as deposit and credit facilities, and top-up on prepaid and post-paid accounts on Paytm Payments Bank for “persistent non-compliances”.

The Citi analysts view the sale as a positive for Paytm, although the company retains train and bus ticketing businesses. Paytm’s ongoing transformation into a pure distribution business model for payments and financial services is a positive, it added.

Paytm’s shares on NSE were down by about 3% at ₹556.35 each in late trading on Thursday.

Also read | Paytm Bank gets a knock on the door from ED