Shares of Zomato at All-Time High: What are the Growth Drivers?

Zomato has risen by 258% in the last 12 months and along with the stock price has come market expectations of it. When Zomato was trailing near its bottom there was the intense narrative of the company not being profitable. Now the market viewpoint has totally switched as most of the market is backing the company to do well, despite the planned Swiggy IPO in the future, so this sudden turnaround really makes you wonder what could be drivers for this shift, let’s have a look at that;

Early In the Game

Zomato is in the food delivery business and the industry believes they’re still quite early in the game and there’s a long runway of growth with a massive market share and solid growth numbers in the tank. Zomato’s only real competition is Swiggy, making the whole sector to be a duopoly, this assures future volume growth. There are expectations that the delivery business and Hyperpure will report a strong 38% adjusted revenue CAGR over FY24-26.

Operations in Blinkit 

Zomato’s quick commerce arm, Blinkit is gaining good traction and has been showing good growth according to Zomato management, Blinkit is an integral part of Zomato’s expansion strategy. Zomato has made sure Blinkit’s utilization of stores reaches a threshold of 50-60%, before opening up a new store, showing a cautious and thought-out path of expansion. Zomato management even hinted that their quick commerce business might project better growth than their food delivery business as the demand for food delivery business is discretionary in nature, while quick commerce is a critical element for any household.

Expected Results and Financials

Zomato in the third quarter of FY24 saw a revenue jump of 15% QoQ and 69% YoY, beating the industry expectations of 60% YoY. Here the growth was fueled by Blinkit, which rose 27% QoQ, while food delivery revenue only grew by 10% QoQ, 

Even in the Q4 of FY24, there are slight nudges by the management which suggests they might yet again see good growth in Blinkit. The management has stuck to its long-term revenue growth guidance at 40%+ YoY and made it clear that the growth strength in Blinkit will more than compensate for the slower growth in food delivery.

Conclusion: Zomato shows great growth prospects and the company is also thinking one step ahead with their business as they see a slowdown in the food delivery business but the growth is being substituted by their quick commerce arm, Blinkit. Most of the brokerages are bullish on their stock despite the massive run-up.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.