Zomato shares tumble 12% post Q3; what went wrong?

Shares of foodtech heavyweight Zomato faced selling pressure this week, losing 12% in first two days of trading, in an otherwise positive broader market, as investors weighed weak December quarter earnings. The Deepinder Goyal-led company’s profitability improved on a yearly basis, led by the quick commerce (QC), Hyperpure, and Going Out, but slowdown in food delivery segment amid heightened competitive, which resulted in higher customer acquisition cost, dented earnings.

Continuing its losing streak for the second day, Zomato shares declined as much as 9.1% to ₹219 in the first hour of trade so far. On Monday, the foodtech stock dropped as much as 9% post Q3 earnings report, before settling 3.14% lower at ₹240.95 on the BSE.

At the time of reporting, shares of Zomato were trading at ₹222.25, down 7.76%, with a market capitalisation of ₹2.14 lakh crore. At the current level, the largecap stock is down 27% from its 52-week low of ₹304.50 touched on December 5, 2024, while it is up 73% against its 52-week low of ₹128.10 hit on January 23, 2024.

Zomato shares have delivered solid returns of 71% in the last one year, despite losing momentum in the last six months. The counter has given flat returns in the past six months, while it corrected nearly 19% in a month and over 19% in the first 20 days of the new year 2025.

Blinkit drags Zomato’s Q3 profit

The restaurant aggregator and food delivery company posted a 57% year-on-year (YoY) decline in profit after tax (PAT) at ₹59 crore in the third quarter of financial year 2024-25, compared with ₹138 crore in the year ago period. It had reported a profit of ₹176 crore in Q2 FY25. The bottom line was impacted by higher expenses amid aggressive store expansion spree for its quick commerce business, Blinkit.

The revenue from operations climbed 64% YoY to ₹5,404 crore, from ₹3,288 crore in the same period last year. It posted a revenue of ₹4,799 crore in the September quarter of FY25.

On the operational front, Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) rose to ₹162 crore, compared to ₹51 crore in Q3 FY24, while margin expanded by 140 basis points to 3% from 1.6% earlier.

The gross order value (GOV) of its B2C business (quick commerce, food delivery, and going-out) was up 57% to ₹20,206 crore in Q3 FY25. Sequentially, the GOV inched up by 2%, which was attributed to a broad-based demand slowdown in the food delivery business.

The quick commerce arm Blinkit reported a (EBITDA) loss of ₹103 crore in Q3 FY25 compared to a loss of ₹89 crore in the same period last year. On a sequential basis, the adjusted EBITDA loss is significantly higher than ₹8 crore registered in Q2 FY25. Its revenue jumped over 117% YoY to ₹1,399 crore, compared to ₹644 crore in Q3 FY24.

Analysts retain ‘BUY’ rating on rapid expansion plan

Brokerage firm Motilal Oswal has reiterated ‘BUY’ rating on Zomato with a target price of ₹270, an upside potential of 13% from Monday’s closing level. Zomato’s food delivery business is stable, and Blinkit offers a generational opportunity to participate in the disruption of industries such as retail, grocery and e-commerce, it says in a note.

The brokerage has reduced estimates for FY25E/26E/27E by 30%, driven by the accelerated expansion of the dark store network and uncertainty arising from intense competition. “This expansion has led to reduced profitability due to higher capital expenditures and increased investments. Zomato should report PAT margin of 3.5%/6.8%/9.9% in FY25E/FY26E/FY27E.”

Nuvama has also maintained ‘BUY’ with a revised price target of ₹300, from ₹325 earlier, and rollover FY27 estimate.

“Blinkit dark store additions are outpacing expectations, driving faster growth while profitability may face short-term delays due to higher upfront costs for store openings. We believe this bunching up of cost for dark store addition shall hurt profitability in the short-term, but shall ultimately lead to bunching up of profitability in future quarters as these stores mature,” it says in its report.

Emkay has also retained ‘BUY’ with a price target of ₹310, citing mixed Q3 performance. It has cut FY25-27E earnings per share (EPS) by 46-83%, building in the Q3 performance, lower Blinkit margin, and expansion plans. The brokerage in its report says that Zomato’s management expects the losses in Blinkit to continue in the near term, due to aggressive store expansion; it now targets reaching store-count of 2,000 by Dec-25 (vs Dec-26 earlier). The agency believes that the pause in margin expansion is expected to be temporary.

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