Zomato Shares Plunge After Disappointing Q3 Results; Is It a Buy Opportunity?
Shares of Zomato, the leading food delivery and restaurant aggregator, experienced a steep decline on Tuesday, January 21. The stock dropped by as much as 13.3%, hitting ₹207.80 on the NSE, following the release of its Q3 FY25 results. The disappointing numbers and cautious management commentary have sparked concerns among investors.
Q3 FY25 Highlights
Zomato reported a consolidated net profit of ₹59 crore for the December quarter, marking a significant 57.2% drop compared to ₹138 crore in the same quarter last year. While consolidated revenue from operations surged 64.4% year-on-year to ₹5,405 crore (up from ₹3,288 crore in Q3 FY24), the company's expenses also soared to ₹5,533 crore from ₹3,383 crore, eroding profitability.
Segment-Wise Performance
The company’s revenue segments include:
- India Food Delivery: Showed 2% QoQ and 17% YoY growth, though the pace of growth has slowed.
- Hyperpure (B2B Supply Business): Witnessed consistent expansion.
- Quick Commerce (Blinkit): Aggressively scaling up with a store count of 1,007 as of Q3 FY25, aiming for 2,000 stores by year-end.
- Going Out and Residual Segments: Showed stable contributions.
However, food delivery, Zomato's primary business, has been underwhelming. Brokerage firm Nomura highlighted that Zomato’s growth in gross order value (GOV) underperformed expectations.
Management’s Perspective
Zomato attributed the slowdown to broader market demand challenges and intensifying competition, particularly in the quick commerce space. According to the company's shareholder letter, while customer retention remains strong for Blinkit, heightened competition has temporarily stalled margin expansion.
Competitive Landscape
The quick commerce sector is witnessing fierce competition, with players investing heavily in customer acquisition and store expansion. Zomato, however, views this as an industry-wide phenomenon that could ultimately favor companies with strong execution capabilities.
Swiggy’s Ripple Effect
The competition is not limited to Zomato alone. Swiggy, Zomato’s key rival, also faced investor backlash, with its shares dropping by 11% on the NSE.
Is Zomato a Buy?
The sharp decline in Zomato’s stock price may present a buying opportunity for long-term investors. While short-term challenges like rising expenses and competitive pressures persist, the company’s revenue growth and strategic investments in quick commerce are promising.
Bullish Indicators:
- Revenue growth outpacing industry trends.
- Rapid expansion of Blinkit stores indicates potential market dominance in quick commerce.
- Strong customer loyalty despite heightened competition.
Bearish Indicators:
- Declining profitability due to escalating costs.
- Slower-than-expected growth in food delivery GOV.
- Temporary pause in margin expansion.
Analyst Take:
Brokerage firms, including Nomura, project Zomato’s GOV to grow at 17–20% in FY25–26, with a contribution margin of 8–9%. If the company manages to control costs and sustain customer retention, its long-term prospects remain intact.
Investor Verdict:
For risk-tolerant investors, Zomato could be a good buy at current levels, especially if you believe in its quick commerce and B2B growth story. However, conservative investors might prefer to wait until the company demonstrates consistent profitability improvements.
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