Zomato shares plunged about 9 per cent in Friday’s opening deals. The food delivery company, which declared its Q3 earnings, narrowed losses, helped by a one-time gain, while revenue jumped due to increased demand for restaurant meals. The company reported a consolidated net loss of Rs 67 crore, boosted by a one-time gain of Rs 315.8 crore from the sale of stake in sports platform Fitso
The company has come out with excellent numbers, narrowing losses by a big margin. Moreover, its revenues also shot up, almost doubling. The company said it was also close to achieving Ebitda break-even.
“We are very bullish on the product-market fit, unit economics, as well as the growth trajectory of the quick commerce category. It reminds us of the food delivery category a few years ago when many platforms competed over a large and growing market but ultimately only the few who delivered exceptional experience to their customers survived,” Deepinder Goyal, founder and chief executive of Zomato said in a statement.
“We are becoming increasingly confident in our decision to invest behind market leadership here with healthy unit economics. As a result, we are updating the upper bound of our potential investments in this category to $400 million cash over the next two years,” he said.
Commenting on the Q3 results, Abhay Agarwal, founder, and fund manager, Piper Serica, SEBI Registered Portfolio Management Service Provider, said: “Zomato results have no big surprises. The company is focused on building a large presence in out-of-home food consumption. The GMV and number of users have shown a sharp growth on a YoY basis without any drop in the AOV. The contribution margin has improved to 1 per cent and the company has guided to EBITDA level profitability when the contribution rate increases to 5 per cent.”
Zomato Shares: What Should Investors do?
Shares of Zomato have seen some buying in the last couple of days, though in a limited amount, reflecting cautious optimism in parts of investors.
“Zomato is taking a very strategic and long-term approach to building its business. Therefore, the short-term investors will feel disappointed by the recent operating performance. At the same time, it is an interesting entry opportunity if they believe that all the organic and inorganic growth initiatives by Zomato are in the right direction. We believe that a business like Zomato, which is a long-term play in the fast-growing out-of-home food consumption market, should be considered for its long-term value creation by long-term investors. With its clear market leadership, strong balance sheet and focus on profitability we believe that it will reward long-term investors handsomely,” Agarwal said.
Mirroring similar thoughts as Agarwal, Gaurav Garg, CapitalVia, said: “The revenue has shown a sharp rise, which is a good indicator, however, the loss narrowed not because of operational efficiencies, but because of a one-time gain of Rs 316 crore from its stake sale in Fitso. I think in short-term the stock is expected to remain under pressure. Long term investors should stay invested as the company has good enough cash on the balance sheet.”
At 10:01am, Zomato was quoting at Rs 88.80, down Rs 5.65, or 5.98 per cent, on the BSE.
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