Zomato’s stock had been on a tear the the last year or so, but cracks now seem to be showing in its growth story.
Zomato and Swiggy’s stocks have crashed 10 percent each in trade today after Zomato declared weak results from the previous quarter. Zomato’s stock had fallen 7 percent in trade yesterday, and fell a further 10 percent in early trade today. The negative sentiment rubbed off on Swiggy, which too was down 10 percent in trade today.
Zomato’s fall has been particularly precipitous over the last month. On 6th December, the stock was trading at Rs. 302 per share. But it fell steadily in the coming days to reach levels of Rs. 250 per share. At this point, Zomato announced its quarterly results, which have brought the stock down to levels of Rs. 212. This means that Zomato has lost nearly one-third of its value in the last 45 days.
The trigger for the latest sell-off was Zomato’s Q3 results, which saw its net profit fall 57 percent on a year-on-year basis — Zomato had reported a profit of Rs. 138 crore in Q3 last year, but could manage a profit of only Rs. 59 crore in Q3 this year. Zomato’s profit was also much lower than the Rs. 176 crore profit it had reported in Q2 this year. The lowered profit number was in spite of its revenue from operations growing 64 percent year-on-year.
Zomato said that food delivery demand was muted his quarter. “Currently we are going through a broad-based slowdown in demand which started during the second half of November,” said Rakesh Ranjan, CEO of Zomato’s food delivery business. But Zomato’s overall results were chiefly dragged down by Blinkit, which saw its losses increase by Rs. 89 crore to Rs. 103 crore year-on-year. ““The losses in our quick commerce business this quarter are largely on account of pulling forward the growth investments in the business that we would have otherwise made in a staggered manner over the next few quarters,” Zomato CEO Deepinder Goyal said.
But it appears that Blinkit might find it hard to become profitable in the near term. India’s quick commerce space has seen an influx of new entrants. They’re in the form of stand-alone startups, like Zepto, and also from grocery delivery companies like Big Basket and Swiggy Instamart, which are actively eyeing the space. More crucially, e-commerce giants like Amazon and Flipkart have also launched their quick commerce initiatives, and they’ll look to corner the fledgling market for themselves. And then there are industrial groups like Reliance and Tata which are also on the quick-commerce bandwagon. With this much competition for a relatively small market — quick-commerce is still largely a Tier 1 phenomenon in India — all these companies could be engaged in a bruising war of attrition in the coming years, which means that no one company is able to make significant profits. And with Blinkit being such a large part of Zomato’s overall business, this appears to have made investors skittish about Zomato’s prospects at the stock market in the coming months.