In this week's Finshots Markets we talk about Zomato's rebranding
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The Story
What do Google, Facebook, and Zomato have in common?
Well, in the past few years, all of them have decided that a rebrand could help them improve outcomes. They’ve adopted a fresh new look to scale new heights.
Google rebranded to Alphabet in 2015. Facebook became Meta in 2021. And according to Moneycontrol, it seems like Zomato wants to be called Eternal (at least internally).
But there’s something else too…you see, in each case, investors were also overjoyed when the news hit the market.
When Google rebranded to Alphabet, its shares rallied by 5% over the next couple of days. When Facebook morphed into Meta, the shares jumped by 6% shortly after. And when Zomato’s internal rebranding plan became public, its shares soared by over 15% within an hour of the stock markets opening the next day. Now, granted Zomato also released its results right around the same time and they were pretty decent overall, but the rebranding may have also caught investor attention.
But wait… Is this for real?
Do investors really care about rebrands or is this just a happy coincidence?
Well, there’s not a lot of research on the matter. But we did find one paper from 2018 that examined 215 corporate brand changes across a 20-year period — from 1996 to 2015. And it concluded that in most cases, the average stock price rose by 2.50% whenever the company announced a change in strategy.
Why did this happen you ask?
Well, you see, if a company is busy fighting off a lot of competition in its primary domain, investors expect the company to make some noise and redial its vision. They believe it’s the only way the company can stay nimble and continue delivering value.
Like Apple in 2007 — when the company was called Apple Computer Inc and the traditional business wasn’t exactly growing exponentially. So it dropped the word Computer and changed its name to Apple Inc and said, “The Mac, iPod, Apple TV and iPhone. Only one of those is a computer. So we’re changing the name.”
And investors were overjoyed. They knew that Apple had already proven itself with new products. The only thing left to do was double down on that plan and build its future. And the stock price jumped 11% immediately.
If you look at Google too, it was the same thing at play. Google wanted to show that it wasn’t just a search engine. It wanted to establish this much and show everyone that it intends to have its finger in every pie.
In fact, here's an excerpt from the then CEO of Google describing the idea —
As Sergey [Brin] and I [Larry Page, the CEO] wrote in the original founders letter 11 years ago, “Google is not a conventional company. We do not intend to become one.” As part of that, we also said that you could expect us to make “smaller bets in areas that might seem very speculative or even strange when compared to our current businesses.”
Then there’s Facebook.
The company called itself Meta because it wanted to call dibs on the whole metaverse trend. It wanted to position itself as the future of the internet and not just a social media brand.
“I think that there was just a lot of confusion and awkwardness about having the company brand be also the brand of one of the social media apps,” he [Mark Zuckerbeg] said. “I think it’s helpful for people to have a relationship with a company that is different from the relationship with any specific one of the products, that can kind of supersede all of that.”
In both cases, the vision was futuristic.
And if you think about it, if Zomato does decide that being Eternal is the way to go, it may be taking a leaf out of the playbook of both tech giants.
Like Google and Facebook, Zomato has also been making investments in multiple other entities. With a war chest of $1 billion, it has already invested in food robotics company Mukunda, digital advertising company Adonmo, fitness platform Curefit, hyperlocal discovery business Magicpin, and logistics firm Shiprocket. Not to forget the acquisition of Blinkit (formerly Grofers) for grocery delivery.
Even internally, Zomato has bet on projects that may raise eyebrows — a video streaming platform, a foray into selling Nutraceuticals like whey protein. It even has plans to enter financial services and launch its own Buy Now Pay Later Product (we’ve written about it earlier).
This plays well into Zomato’s strategy of being more than just a food delivery app.
The company knows it’s operating in a very competitive space with very little customer loyalty. They need more drivers of growth and they need to hedge their bets also. And maybe the best way to get the team aligned to that vision is to make it clear that the company is Eternal. It’s boundless. It’s timeless. That sometimes, it needs to take bets that might look and sound silly. Some of these bets will work. Some of them won’t. But it needs to take these bets to evolve and survive.
In 2019, Zomato’s CEO wrote a blog post about how he sees risks. And one kind of risk he was excited to take was what he called “Multiplier risk.”
"This is when you take a risk which is not-existential; could be large enough, and if it plays out well (a.k.a if it works), then you get multiplier returns. ‘Multiplier’ starts with at least 2x outcomes. Anything else, according to me, is not a multiplier outcome, just an additive outcome. Now, I am not saying that a 2x multiplier effect is a great outcome — it is a barely passable multiplier. Relative to a large (but non-existential) risk, multiplier risks should aim for at least 3–5x return/outcomes."
Could this new path that Zomato (or Eternal) is forging be one such multiplier risk for the company?
We’ll have to wait and see. But at least investors seem excited for now.
Until then…
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