Deepinder Goyal’s Zomato Faces Blinkit Challenges: Stock Drops 8 per cent - What Investors Need to Know

Insights from Zomato’s Q3 Earnings, Shareholder Letter, Key Investor Concerns, and Stock Outlook

Zomato’s shares dropped by 8.02 per cent during intraday trading to Rs 228.80 but recovered to close at Rs 240.95 on Monday, January 20, 2025. Both Zomato and Swiggy, which dominate India’s food delivery market, have seen their share prices decline by 26.37 per cent and 28.81 per cent, respectively, from their 52-week highs in December 2024.

In its December quarter results, Zomato reported a 57 per cent year-on-year (YoY) decline in net profit to Rs59 crore, compared to Rs138 crore in the same quarter last year. However, revenue grew by 64 per cent YoY to Rs5,404 crore, crossing the Rs5,000 crore mark. Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) increased to Rs162 crore from Rs51 crore YoY, with margins improving by 140 basis points to 3 per cent.

The food delivery business recorded a 17 per cent YoY growth in Gross Order Value (GOV) but showed only 2 per cent sequential growth, attributed to a broad-based demand slowdown. Blinkit, Zomato’s quick commerce segment, witnessed a 117 per cent YoY revenue increase and 21 per cent sequential growth. However, the segment posted an EBITDA loss of Rs30 crore compared to a profit of Rs48 crore last year, with a net loss of Rs103 crore due to accelerated investments. Blinkit exceeded 1,000 stores this quarter and aims to achieve 2,000 stores by December 2025, a year ahead of its earlier target.

In its investor presentation, the management stated, “The biggest impact of intensifying competition has been the acceleration in customer awareness and adoption of quick commerce. We have seen this play out in the early days of the food delivery business as well.” They added, “Heightened competition has temporarily paused the margin expansion of the business, but this is expected to be a short-term challenge.”

This commentary highlights key investor concerns about increasing competition in the quick commerce segment and significant investments in Blinkit’s supply chain, including its dark stores and warehouse network. The management acknowledged these challenges but remains optimistic about the business’s long-term potential.

Zomato's Q3FY25 Highlights

• Overall Growth:
  • GOV grew 57 per cent YoY to Rs 20,206 crore.
  • Adjusted EBITDA rose 128 per cent YoY to Rs 285 crore.
• Food Delivery:
  • GOV increased 17 per cent YoY despite a slowdown in November.
  • Adjusted EBITDA margin improved to 4.3 per cent, targeting 5 per cent soon.
• Quick Commerce:
  • GOV surged 120 per cent YoY, with plans to expand to 2,000 stores by December 2025.
  • Segment losses stood at Rs103 crore for the quarter.
• Going-Out Business:
  • GOV rose 191 per cent YoY, aided by the acquisition of Paytm’s ticketing business.
  • District app achieved 6.5 million downloads since November 2024.
• Hyperpure (B2B):
  • Revenue grew 95 per cent YoY.
• Innovation:
  • Piloting 10-minute delivery and “Bistro” services for office markets.
• Financial and ESG Updates:
  • Cash balance increased to Rs 19,235 crore.
  • Delivery partners earned an average of Rs 28,000/month in CY24.

Outlook

Analyzing new-age, technology-driven businesses using traditional valuation metrics can be challenging. However, cash flow remains a critical factor. Zomato is currently the only major hyperlocal delivery company in India generating free cash flows while maintaining top-line growth, giving it a clear edge over peers.

Additionally, Zomato’s strong market leadership, proven execution capabilities, and robust balance sheet make it the most resilient player in the quick commerce space. For long-term investors, Zomato presents a compelling growth opportunity.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.