Despite widening net loss in the third quarter ending December 2022, online food delivery platform Zomato due to higher spending and slowdown in food delivery business, it reported better-than-expected revenue growth and said in January its core earnings summary turned positive The increase in orders helped.
Order volume in the food delivery business grew 14%, while average order value (AOV) grew 6%. Excluding the contribution from local grocery delivery service Blinkit, its adjusted EBITDA turned positive in January.
“Zomato continues to show an urge to reduce losses with adjusted Ebitda (ex-Blinkit) < 0.4 bn, a positive. Food GOV flat remained near QoQ which is mgmt. Attributed to the tough macro. The outlook looks positive as the break-even target remains as early as 4QFY23 - another positive in terms of Zomato Gold. January is also seeing green-shoots in on-demand food delivery. Blinkit also sees strong growth with a sharp reduction in losses. More updates post the call on Friday," Global Jefferies said.
Calling the third quarter results a good delivery, with a promising outlook, the brokerage has maintained its Buy rating on the stock with a target price of ₹100 per share.
“Zomato is a play on the growing food service industry in India as well as the adoption of digital commerce. With users currently conducting only 15 million monthly transactions, Zomato has a long runway for customer acquisition and revenue growth, though it may come at the cost of near-term profits. The platform also has an optionality to expand into other adjacent categories such as grocery etc," highlighted Jefferies.
Zomato Gold, launched in late January, which offers range of benefits, already has >900k members – interestingly, the management hopes to offset the impact of higher subsidy through other items, Which is an important positive. Guidance remains at break-even with an endeavor to achieve it by 4QFY23.
Another global brokerage Morgan Stanley has assigned overweight rating on Zomato shares with a target price of ₹82 per share. As per the brokerage, unit economics in the core business have surprised positively and the management is also confident of its break-even target. Apart from this, Quick Commerce is also showing good traction.
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