Zomato, a leading food delivery and quick commerce platform in India, has recently faced a significant decline in its stock price, dropping over 10% due to disappointing financial results. Swiggy shares also declined 8%, with Zomato’s disappointing earnings rubbing off on its smaller rival.
Zomato has attributed the weaker numbers to the increased investments in accelerated new dark-store openings and customer acquisition efforts in the quick commerce (QC) business. Swiggy has not reported its October-December results yet.
“Zomato has been trying to scale up its quick-commerce business along with its competition by front-loading capex, as all of them have raised capital recently. This has raised its operational expenses and will impact its profits for the next two quarters, and there will be short-term pain in the stock,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Khemka said such worries have also rubbed off on Swiggy’s shares. “Swiggy’s path to profitability will also be extended further because, unlike Zomato, it isn’t profitable in its food delivery business yet.”
Brokerage Macquarie has retained its ‘underperform’ and its price target of ₹130 on Zomato, citing a limited margin of safety for the shares.
“While the company’s expansion, particularly in quick commerce, positions it for future growth, achieving a balance between growth and profitability remains crucial.
This will remain a challenge with neck-to-neck competition and rising costs leading to paper-thin margins and extreme operational prowess,” said Dharan Shah, founder of Tradonomy.com, a Mumbai-based investment research advisor.
A JM Financial note said that while near-term uncertainties in Blinkit’s profitability trend may lead to pressures in the stock, they strongly suggest long-term investors use the opportunity to build “sizable” positions. They have a ‘buy’ rating and set a price target of ₹280, indicating a 30% upside from Tuesday’s close.
Motilal Oswal, too, maintained its ‘Buy’ rating on Zomato but slashed the price target from ₹330 to ₹270. They remain neutral on Swiggy.
Analyst Perspectives
Brokerage firm Macquarie has maintained an ‘underperform’ rating on Zomato with a price target of ₹130, reflecting skepticism about the company’s near-term recovery prospects due to limited margins of safety3. Conversely, JM Financial has suggested that long-term investors might consider this downturn an opportunity to accumulate shares, setting a price target of ₹280 for Zomato, indicating potential upside from current levels