Zomato, the popular food delivery platform, reported a net profit of ₹175 crore in the last quarter (Q4 FY24), marking a turnaround from a loss of ₹188 crore in the same period last year. This translates to a 27% increase in profit compared to the previous quarter.
However, despite the positive results, Zomato’s share price fell by 6% in early trading. This could be due to investor expectations not being fully met.
Here’s a breakdown of the key takeaways:
- Profitability: Zomato turned profitable, showing strong progress.
- Revenue Growth: Revenue from operations jumped by 73% year-on-year.
- Blinkit Update: Zomato’s quick commerce arm, Blinkit, achieved operational break-even, indicating strong growth potential.
- Analyst Views: Most analysts remain bullish on Zomato, with some raising their target price due to Blinkit’s performance.
Zomato, the leading food delivery platform in India, has reported a significant turnaround in its financial performance. For the fourth quarter of FY24, the company recorded a net profit of ₹175 crore, a stark contrast to the loss of ₹188 crore incurred during the same period last year. This represents a growth of 27% even compared to the previous quarter, showcasing a positive trajectory.
However, despite this encouraging news, Zomato’s share price experienced a surprising dip of 6% in early trading on Tuesday following the announcement of its Q4 results. This seemingly contradictory scenario begs the question: why would a company exhibiting clear signs of financial progress see its stock value decline? Let’s delve deeper into Zomato’s Q4 report and explore the factors at play.
Growth Across the Board
Zomato’s financial report paints a picture of a company on the rise. Revenue from operations witnessed a remarkable 73% year-on-year increase, reaching a total of ₹3,562 crore in Q4FY24. This growth is further amplified by the significant rise in Gross Order Value (GOV) across all B2C (business-to-consumer) segments. The GOV for the March quarter grew a noteworthy 51% year-on-year, reaching ₹13,536 crore. These figures indicate a substantial rise in customer activity and order volume on the platform.
Blinkit Shines Bright
A critical element of Zomato’s growth story is its quick commerce arm, Blinkit. This segment, focused on rapid delivery of groceries and essentials, achieved a significant milestone by achieving operational EBITDA break-even in March 2024. This signifies that Blinkit is no longer incurring losses on a daily operational basis, demonstrating its potential for future profitability.
Analyst Optimism, Yet Cautious Tweaks
Financial analysts generally maintain a bullish outlook on Zomato’s future. Several brokerage firms have even raised their target price on the stock, acknowledging the continued positive performance of Blinkit. However, some adjustments are being made. Emkay Global Financial Services acknowledges exceeding revenue expectations but also highlights a miss on margin projections due to higher-than-expected employee stock option (ESOP) costs. As a result, the firm has slightly reduced its FY25E earnings per share (EPS) estimates while maintaining its ‘Buy’ rating on the stock.
Nuvama Institutional Equities takes a different approach. They attribute the rise in Zomato’s value primarily to the impressive growth trajectory of Blinkit. The firm sees Blinkit rapidly emerging as the leader in the quick commerce space, justifying their increased valuation for the segment. This bullish stance on Blinkit translates into a significant upgrade in Nuvama’s target price for Zomato shares.
Elara Capital adopts a balanced perspective. They acknowledge Zomato’s strong position in the food delivery industry, projecting a promising adjusted EBITDA growth. However, Elara Capital also recognizes the need for Blinkit to focus on expansion, which might impact short-term profitability. Consequently, they raise their consolidated revenue estimates for Zomato but maintain a more cautious approach regarding earnings upgrades due to higher ESOP charges and Blinkit’s expansion focus. Despite this, Elara Capital retains its ‘Buy’ rating while raising the target price for Zomato shares.
Investor Expectations: A Double-Edged Sword
The stock price dip despite positive financial news can be attributed to investor expectations. While Zomato’s turnaround is undeniable, it’s possible that some investors anticipated a more significant profit jump or a faster path to profitability for Blinkit. The unexpected cost pressures from ESOPs might have also played a role in tempering investor enthusiasm.
Looking Ahead: A Balancing Act
Zomato’s future success hinges on its ability to navigate several key areas. Maintaining strong growth in its core food delivery business is crucial. Additionally, ensuring Blinkit’s continued rapid expansion while simultaneously accelerating its path to profitability will be vital. Furthermore, managing employee stock options effectively to minimize cost pressures will be essential in meeting investor expectations.
Beyond the Numbers: A Story of Transformation
Zomato’s journey to profitability is a testament to its successful business transformation efforts. The company has effectively navigated a competitive landscape, leveraged technology to enhance customer experience, and strategically expanded its offerings through Blinkit. While the road ahead requires addressing investor concerns and optimizing profitability across segments, Zomato’s recent performance signifies its potential to establish itself as a dominant force in the online food and delivery ecosystem in India.
The Road Ahead: Challenges and Opportunities for Zomato
Zomato’s turnaround story is inspiring, but the journey is far from over. Several challenges and opportunities lie ahead, demanding strategic navigation to solidify its position in the Indian market.
Challenges:
- Maintaining Growth Momentum: Sustaining the current growth rate in both its food delivery and quick commerce segments will be crucial. Facing fierce competition from players like Swiggy and Dunzo, Zomato must continuously innovate and improve its services to retain existing customers and attract new ones.
- Balancing Expansion and Profitability: Blinkit’s impressive progress towards operational break-even needs further acceleration on the path to sustained profitability. The aggressive expansion strategy, while crucial for market dominance, requires careful cost management to ensure financial sustainability.
- Managing Investor Expectations: Zomato needs to maintain open communication with investors, clearly outlining its growth strategy and addressing concerns regarding profitability timelines. Meeting or exceeding investor expectations will be essential for maintaining a healthy stock price and attracting further investment.
- Competition in Quick Commerce: The quick commerce market is witnessing rapid growth, attracting new players and significant investment. Zomato needs to stay ahead of the curve by constantly refining its delivery infrastructure, product selection, and user experience to maintain its leadership position in this burgeoning segment.
Opportunities:
- Leveraging Technology: Technological advancements in areas like automation and artificial intelligence can further optimize operational efficiency and delivery speed. Zomato can explore partnerships with tech startups to implement innovative solutions that enhance customer convenience and reduce costs.
- Building Brand Loyalty: Zomato can develop targeted marketing campaigns and loyalty programs to cultivate a strong brand identity and foster customer loyalty. Enhancing the in-app experience and offering exclusive deals can further differentiate Zomato from its competitors.
- Data-Driven Decision Making: Harnessing the vast amount of data generated through customer interactions can unlock valuable insights. Zomato can leverage data analytics to personalize user experiences, predict customer preferences, and tailor marketing strategies for maximum impact.
- Expanding Delivery Verticals: Zomato can explore venturing into new delivery verticals outside of food and groceries. Partnering with pharmacies, retail outlets, and other businesses could broaden its service offerings and attract new customer segments.
Conclusion
Zomato’s financial turnaround marks a significant milestone, but the true test lies in its ability to capitalize on these opportunities while navigating the challenges. By fostering a culture of innovation, prioritizing investor communication, and focusing on sustainable growth across all segments, Zomato can solidify its position as a leader in the Indian online food and delivery ecosystem. The company’s success will be closely watched not only by investors but also by consumers and the broader Indian tech industry, as it paves the way for future growth in the online commerce space.
