Zomato Ltd’s strong outlook commentary in the June quarter (Q1FY23) earnings call kept the stock in a good position on Wednesday. Shares declined significantly in early trade on the backdrop of three wholesale deals. But the stock retraced its trajectory and ended flat, meaning it’s up 20% as the Q1 numbers were out late Monday.
Q1 results have encouraged analysts to lower their loss forecasts for Zomato. It also helps that the company has some visibility on profitability. It now expects the overall business to be on adjusted EBITDA by Q4FY23 or at the latest by Q2FY24. In Q1, the company achieved profit on adjusted EBITDA in the food delivery business.
see full image
But the goals seem like a stretch right now. “We believe it may be difficult to achieve accelerated profitability without seriously compromising on growth. We therefore only anticipate an adjusted EBITDA break-even for Zomato till H1FY25, while our Gross Order Value (GOV) Estimates marginally lower to account for macro headwinds in FY 23-25E,” analysts at JM Financial Institutional Securities said in a report on August 2. ,
True, in Q1, contribution as a percentage of GOV increased to 2.8% from 1.7% in Q4FY22, driven by the higher rate (that is, revenue as a percentage of GOV). Note, Zomato has achieved high contribution margin in the last quarters (FY21). Analysts said it was helped by lower relaxations and higher demand driven by the pandemic-led restrictions. Moreover, the inflationary environment at that time was comparatively benign.
With normalcy resuming and rising inflation outlook at present, it will be a long question for the company to reach those levels in the near term.
“Zomato is investing in expanding across cities, encouraging delivery and promoting its brand in new cities, which will weigh on the contribution margin. However, as Zomato grows and when it has the ability to charge higher for delivery without impacting growth, there will be a meaningful increase in contribution margin in future,” said an analyst requesting anonymity.
Meanwhile, Blinkit remains in red. But it did see an increase in key metrics. While Zomato has already invested $150 million in this business, it has lowered its total investment guidance from $400 million to $320 million.
Going forward, Zomato investors will be closely tracking how the Blinkit integration goes. Besides, delivery on EBITDA target will be a major trigger for the stock, which is still 27% lower than its issue price. 76 per.
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.