Even as online food delivery platform Zomato’s net loss widened for the third quarter ended December 2022 due to higher expenses and slowdown in food delivery business, it posted a better-than-expected rise in revenue and said its core earnings briefly turned positive in January, helped by an increase in orders.
Order volumes at food delivery business rose 14%, while the average order value (AOV) increased 6%. Its Adjusted EBITDA, excluding the contribution from local grocery delivery service Blinkit, turned positive in January.
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“Zomato continues to show an urgency to reduce loss with adjusted Ebitda (ex-Blinkit) now < ₹0.4 bn, a positive. Food GOV stayed near flat QoQ which mgmt. attributed to tough macro. Outlook seems positive as break-even target stays, as early as 4QFY23 – another positive in the context of Zomato Gold. Green-shoots in food delivery are also visible on demand in Jan. Blinkit also sees strong growth with swift reduction in losses. More update post the call on Friday,” said global Jefferies.
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Calling the Q3 results a good delivery, with 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 growing food services industry in India as well as increasing adoption of digital commerce. With only 15mn monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability. The platform also has an optionality of expanding into other adjacent categories such as grocery, etc,” Jefferies highlighted.
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Zomato Gold, launched in end-Jan, which offers series of benefits already has >900k members – interestingly, the management expects to offset the impact of higher subsidies through other heads, a key positive. Guidance on break-even stays with effort to achieve this by 4QFY23 itself.
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Another global brokerage Morgan Stanley has overweight rating on Zomato shares with a target price of ₹82 apiece. As per the brokerage, unit economic in core business has surprised positively and the management is also confident on its break-even target. Further, quick commerce is also showing good traction.
