Last updated: 12 Nov, 2021 | 08:12 am
Losses widens: Zomato reported widening of its consolidated net loss to Rs 434.9 crore for the quarter ended Sept 21. The company had posted a net loss of Rs 229.8 crore in the year ago quarter. The losses went up specifically due to three reasons:
Revenue rises: Consolidated revenue from operations of the company stood at Rs 1,024.2 crore from Rs 426 crore for the same period a year ago. Revenue from the B2B supplies business, Hyperpure, grew by 49% on-quarter to Rs 110 crore this quarter.
Operations: Zomato had 1.5 million members and over 25,000 restaurant partners in India, while overall customer traffic on the platform in the country increased to 59 million average monthly active users (India MAU) in Jul-Sep quarter as compared to 45 million in the last quarter.
Gross Order Value: Gross Order Value (GOV) is defined as the total monetary value of all food delivery orders placed online on Zomato in India including taxes, customer delivery charges, gross of all discounts, excluding tips. Zomato's India food delivery GOV grew by 19% on-quarter and 158% on-year to ₹5,410 crore, driven by an increase in the number of transacting users, active food delivery restaurants and active delivery partners on Zomato. The contribution as a percentage of GOV was 1.2% in as compared to 2.8% in the last quarter.
Downsizing International presence: Zomato has shut down almost all its international businesses, including the United States (US), United Kingdom (UK), Singapore and now Lebanon. Their business continues to operate in the United Arab Emirates (UAE), but as a dining-out business and not food delivery one. Zomato believes that the food delivery market in India is still nascent, and there is an opportunity to grow the market at least 10x over the next few years.
New Investments: Zomato is in the process of selling Fitso to Curefit for $50 million. In order to cultivate a great long term partnership with Curefit Zomato is also investing $50 million cash in Curefit giving them a cumulative shareholding worth $100 million in Curefit (6.4% shareholding in Curefit). The company has also signed definitive documents for investing around $75 million in Bigfoot Retail Solutions Pvt Ltd (Shiprocket) for around 8% stake as part of a larger $185 million round and around $50 million in Samast Technologies Pvt Ltd (magicpin) for around 16% stake as part of a total round size of $60 million.
Including the $100 million investment in Grofers earlier in August 2021, Zomato has now committed $275 million across four companies over the past six months. Company plans to deploy another $1 billion over the next 1-2 years, with a large chunk of it likely to go into the quick-commerce space. The company has shut down its direct-to-consumer experiment in Nutraceuticals. Instead, it is choosing to back a platform play for all D2C brands by investing in Shiprocket.
Long term vision:
The 3 main agenda on the long term view of Zomato's business are:
In order to make this happen, Zomato is going to continue investing heavily in market creation, in addition to investing in ecosystem companies around their food delivery business so that the cost of running a better food delivery business goes down with time. The company is currently in talks with various restaurant point-of-sale players, e-vehicle fleet operators, among others, to evaluate investments in these companies keeping the long term in mind.
Zomato Q2 results review:
Zomato has reported yet another loss making quarter due to high delivery and investment costs. As dining-out is still recovering from the shockwaves of COVID-19, Zomato is continuing investing in product development and working with its restaurant partners to get the industry back in shape easier and faster. The core food related businesses, food ordering and delivery, dining-out, and hyperpure (B2B supplies for restaurants) will remain the key value drivers for Zomato for the next few years.
Brokerages on Dalal Street see up to 60% upside in Zomato post Q2 result. Here is what brokerages have to say about the stock and the company post the September quarter earnings:
Macquarie has kept an outperform rating on the stock with a target price of Rs 183 citing more clarity in long-term strategy and cash usage after Q2 results.
Goldman Sachs has maintained a buy call and has raised the target price on the stock to Rs 185. It feels that the market is likely to reward growth over profitability for the foreseeable future. It forecast a 51% FY21-25 CAGR for Zomato’s GOV (46% earlier) and the company is well-positioned to capture accelerated shift to online food delivery.
Morgan Stanley has kept an equal-weight rating on the stock with target at Rs 140. GOV of $721 million against Morgan Stanley’s estimate of $590 million. The contribution margin in food delivery dropped to 1.2%, while net loss of $57 million is in-line with the estimate.
Jefferies has maintained a buy call with a target at Rs 170. The Jul-Sep quarter’s MTU & GOV are a big positive, of course, coming at the cost of profitability. The management intends to exit non-core, with focus shifting from buy to build. Jefferies raises revenue & loss estimates.
ICICI Securities is of the opinion that Zomato’s Sept quarter revenue growth was incredibly strong and way higher than expectations. It further added that increase in delivery cost (Rs 5 per order) and higher Employee Stock Ownership Plan (ESOP) expenses led to Rs 160 crore higher EBITDA loss against the previous quarter. While some of these factors are outside the control of the company, other factors such as aggressive investments in Next 500 towns and branding should drive back-ended benefits. It has set a target price of Rs 220 for Zomato post Q2 results.