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<ul><li><keyword id="830092" type="General" weightage="20" keywordseo="zomato" source="Orion">Zomato</keyword>’s promise to turn net profit positive in a year has cheered investors. </li><li>Margins in its core food delivery business has hit a multi-quarter high. </li><li>The worry? Monthly transacting users and gross order value has declined versus the previous reported quarter. </li><li>Nomura believes Zomato will find it difficult to achieve double-digit contributory margin with high growth in the long term </li></ul>Two years after it listed on the bourses, Zomato is on a recovery path. The stock which hit a high of over ₹150 per share fell sharply subsequently to below ₹50 a piece. However, the last quarter (Q1FY24) has seen a recovery from that level and it has now surpassed its listing price of ₹76. The stock has been rising steadily in the last three weeks, after its Q4 earnings report where it turned EBITDA positive in its core business, without including Blinkit, its quick commerce business. EBITDA is net income (earnings) with interest, taxes, depreciation, and amortisation. Moreover, the management also promised to turn positive not just at the consolidated adjusted EBITDA level but also at the profit after tax level in a year. Financial services company, JM Financial says this commitment is the ‘cherry on the cake’. “Tough macro posed growth headwinds but management showed urgency on profitability and that was despite the Gold programme launch,” said Jefferies. Zomato Gold is a subscription plan that offers free deliveries within a 10-kilometre radius for orders above ₹199. During the quarter, as many as 30% of the gross order value, from 1.8 million customers, came from Gold. The Gold plan could hurt its contributory margins (CM) because of its inability to charge every order. Yet, as of Q4, its CM in core food delivery business are comfortable after hitting a multi-quarter high. Contributory margins represent the incremental money generated for each unit sold after deducting the variable portion of the costs. “The core business milestone was achieved mainly on the back of solid expansion in the food delivery contribution margin to 5.8% in Q4 vs 5.1% in Q3. This was because profitability levers such as improvement in restaurant commissions and ad income, and lower discounts/variable cost offset the adverse impact of Gold launch,” said JM Financial. Ordering effects After the post-pandemic boom effects faded away, a lot of consumption patterns have changed, also evident in consumer spending on fast food — impacting growth in quick service restaurants. These headwinds have been impacting Zomato as well. The growth in Zomato’s food delivery business seems to have flatlined. Food gross order value declined 2% quarter-on-quarter, even as it grew 12% year-on-year. Moreover, its monthly transacting users (MTU) declined by 5% QoQ to 16.6 million, while growing at 6% YoY. Apart from the one-time impact of its decision to exit from 225 cities, the company attributes MTU decline to optimised marketing spend and withdrawal of the human support interface for abusive customer cohorts. “Also because of Zomato Gold, the MTUs have come down and not gone up because we do see an impact of clubbing some orders in the same households, which might have just a single membership,” Akshant Goyal, chief financial officer of Zomato said in an earnings concall. The management, however, remains confident about food delivery ordering going up in the first quarter of FY24. Analysts, on the other hand, are not too confident about their ability to sustain growth beyond the first quarter as summer holiday and IPL impact during April/May are one-off events. Its other businesses, however, continue to display good growth. Blinkit’s gross order value grew 17% QoQ, while order volume grew 24%. Revenues of Hyperpure, its business to supply ingredients to restaurants, grew 13.5% QoQ. Offsetting margins with growth While it’s on a path to profitability, Zomato is also caught between a rock and a hard place — of growth versus margins. To boost growth, it will have to go in for discounts – the lack of aggressive discounting by all players is already visible in the moderation in food ordered during the IPL season, generally a big occasion for online food platforms. This year, the IPL spike in food ordering was at a modest 7% for the industry as compared to the 2020 IPL when it was over 50%, as per Redseer. This time, there were no high <a href="https://www.businessinsider.in/business/news/ipl-2023-sees-tier-2-cities-order-more-on-swiggy-zomato/articleshow/100673879.cms">decibel ads along with deep discounts.</a> Like other players in the business, the company will also find it tough to keep up with the high margin trajectory, while also chasing growth. “Overall, we lower our growth assumptions for its food delivery’s gross order value growth, from around 20% to around 17%, but raise our FY24F contributory margin estimate from 5.8% to 6.5%. We continue to believe Zomato will find it difficult to achieve double-digit contributory margin, with high growth in the long term,” said Nomura. Restaurant commissions grow but may hit an ONDC wall In the last two years, the company was also able to improve take rates or the commissions it charges restaurants consistently. Its take rates are now close to 18%. “Broadly, with our take rates, the mission is to be competitive, and we are lower than what the competition is charging. So, as we continue to add more value to restaurant businesses, we expect some improvement in commission revenue going forward,” said Goyal. But competition is heating up in the sector. The Department for Promotion of Industry and Internal Trade’s Open Network for Digital Commerce (ONDC) has breached the territory that was hitherto dominated by Zomato along with Swiggy. On the face of it, it might seem like restaurants might be offered better terms on ONDC. While Zomato will be able to compete with ONDC on efficiency and also even overall costs – as third party deliveries might be costlier– HSBC Global Research believes that it might flatten growth. “Estimates for food delivery revenue in the long term remain largely unchanged. Our short-term estimates change slightly as we build in a marginally slower increase in take rate,” the research firm said. In spite of short-term and long-term challenges ahead, Zomato seems to have settled into its listed company status to deliver value to investors by chasing topline growth instead of customers, with discounts.

With Zomato rallying over 25% in the past month, street looks at the road ahead

Food delivery startup <keyword id="830092" type="General" weightage="100" keywordseo="zomato" source="Orion">Zomato</keyword> is in a soup for several reasons – the primary one being the 70% fall in its stock price since it hit an all-time high back in November last year. The other reason is the “high conviction buy” recommendation by a research firm, putting focus on an already-battered stock. Zomato has been unable to keep any of the parties it serves happy – customer complaints are unending, its restaurant partners have <a href="https://indianexpress.com/article/business/companies/ban-after-complaints-amid-pushback-by-restaurants-zomato-defers-quality-policy-7872695/">raised concerns</a> several times, its delivery executives are <a href="https://www.thehindu.com/news/national/kerala/zomato-delivery-agents-go-on-strike/article65217978.ece">unhappy</a> over incentives being cut down, the government is <a href="https://www.businessinsider.in/stock-market/news/zomato-shares-dip-after-ccis-probe-order/articleshow/90656032.cms">wondering</a> if Zomato’s business practices are anti-competitive, and lastly, shareholders have seen their investment value fall faster than the escape velocity of Jupiter. And the one equity research firm which stood behind the company was also trolled. Brutal times, these. <div type="twitter" handle="nilishamantri_" handlename="CA Nilisha Mantri" image="http://pbs.twimg.com/profile_images/1552626634905485319/U5oOtwAR_normal.jpg" favoritecount="1327" retweetcount="94" status="Zomato delivery charges are higher than the share price 🥴#Zomato" createdat="1658846745000" id="1551941852496273408"></div> <div type="twitter" handle="sir_jeeee" handlename="Anup Gupta" image="http://pbs.twimg.com/profile_images/1547959528087375872/1Lj3EKv8_normal.jpg" favoritecount="60" retweetcount="8" status="#Zomato to share holders #ZomatoShares https://t.co/TDMc6qzoxV" createdat="1658825900000" id="1551854421654511616"></div> But memes on social media don’t always tell us the full story – retail investors have actually increased their stakes in the food delivery startup over the last three quarters. <div type="image" title="Zomato shareholding pattern Q1 FY23" msid="93198743" hostid="261" sizebytes="20884" caption="&amp;lt;p&amp;gt;Zomato shareholding pattern Q1 FY23&amp;lt;/p&amp;gt;"></div> In the same period, foreign investors and mutual funds have pulled out their money – the foreign investor pullout can be attributed to the <a href="https://www.businessinsider.in/stock-market/news/foreign-investors-have-pulled-out-more-money-this-year-than-they-brought-in-between-2009-2021/articleshow/91747269.cms">overall FII selloff</a> that emerging markets like India have seen over the past few months, but the mutual fund pullout suggests institutions are paring their stakes. Retail investors, on the other hand, have increased their stake by more than two times. Here’s what a Stocktwits India poll suggests about the stock. <div type="image" title="Are you buying Zomato at current levels" msid="93196272" hostid="261" caption="&amp;lt;p&amp;gt;Are you buying Zomato at current levels&amp;lt;/p&amp;gt;"></div> Delivery issues aside, Zomato charges and price hikes are a pain, too To be clear, the kind of business that Zomato is in, customer complaints are but a given. From wrong food items being delivered to quality, hygiene, delays – this is just a sample of what companies like Zomato and Swiggy face on a daily basis. Keeping those issues aside, Zomato has also been called out by its customers over prices – food prices on Zomato are often higher than the actual prices in those food outlets. It’s a problem which no one seems to be keen on solving – not Zomato and not the restaurants either. The reason for the sometimes-massive difference in prices is easy to understand – Zomato charges 24-28% of the order value as a commission from restaurants, who understandably pass on the cost to customers. Essentially, you are paying a much higher price for dining in than dining out. In some cases, the prices could be as much as 35% higher. And it’s not a problem restricted only to Zomato – even Swiggy users have similar complaints. Sample this – I wanted to order everyone’s favorite, fried rice, the other day. I went over to Zomato since I have a membership, but the service did not have any delivery partners to assign to that eatery. Naturally, I switched to Swiggy and tried to place the order, but backed out because the final price was 75% higher than what I would have to pay at the eatery myself. I thought to myself that I would much rather pay the additional cost to the eatery instead of having Swiggy take it away. And it’s not just a few instances of Zomato (and Swiggy) charging much higher prices – social media is full of these experiences. <div type="twitter" handle="akshita71499181" handlename="akshita" image="http://pbs.twimg.com/profile_images/1252850560299962381/paCThm0v_normal.jpg" favoritecount="56" retweetcount="7" status="What type of customer service is this @zomato ?? For a dish worth ₹88 I have to pay ₹213. This is sick 😤😤😤… https://t.co/6AASECkT9R" createdat="1658836351000" id="1551898253620232194"></div> Zomato’s boilerplate response to this is that the prices being charged by restaurants on its service are not under the company’s control. However, things like <keyword id="3947714" type="General" weightage="20" keywordseo="Delivery-Charges" source="Orion">delivery charges</keyword> and surge pricing are under the company’s control. And the reason restaurants charge higher on Zomato is because of its commissions, nothing else. This is a cash burning business – and analysts think Zomato has no other option Zomato’s ballooning losses could continue to be its Achilles' heel for the foreseeable future. This is a cash burning business, and analysts think Zomato has no other option but to continue doing this. Zomato’s ₹4,400 crore acquisition of Blinkit has drawn flak for different reasons – from it being an expensive purchase to being a cash sink, the overall outlook has been negative. However, analysts at HSBC Global Research suggest this is a necessary evil for the company if it wants to remain competitive with Swiggy. To jog your memory, Blinkit is a grocery delivery service, rivaling the likes of Big Basket, JioMart, Swiggy Instamart among others. Analysts at HSBC believe Zomato needs to now integrate Blinkit into the Zomato app if it wants to realize the synergy gains from this acquisition. Not only would this help Zomato users, it would also help the company increase user stickiness and reduce customer acquisition costs for both Zomato and Blinkit. On the outset, this logic looks sound – after all, acquisitions are made for synergy gains. But the analysts at Jefferies believe this could likely be a cash guzzler – something that Zomato investors might not like, yet. Zomato’s task is cut out, and for the sake of its investors and everyone else who loves food and wants it delivered, let’s hope the company manages to weather this storm. <div type="image" title="“Zomato’s delivery charges are more than its stock price”" msid="93196242" hostid="261" caption="&amp;lt;p&amp;gt;&amp;#8220;Zomato&amp;#8217;s delivery charges are more than its stock price&amp;#8221;&amp;lt;/p&amp;gt;"></div> Before we let you go, here's something we would like you to know- Startup to Unicorn to Scion... Innovaccer stands tall as the healthcare tech giant who is accelerating healthcare innovation and transformation. Catch Sandeep Gupta, COO &amp; Co-Founder, Innovaccer, and Dan Sheeran, GM, Healthcare and Life Science, AWS in conversation in the upcoming episode of Business Insider India’s SaaS Scions, powered by AWS. <div type="image" title="Business Insider India&amp;#39;s SaaS Scions, powered by AWS." msid="93196317" hostid="261" caption="&amp;lt;p&amp;gt;Business Insider India&amp;#39;s SaaS Scions, powered by AWS.&amp;lt;/p&amp;gt;"></div>

SIMPLY PUT: “Zomato’s delivery charges are more than its stock price”

<keyword id="830092" type="COMPANY" weightage="100" keywordseo="Zomato">Zomato</keyword>, the online restaurant search and discovery service startup headquartered in Gurgan, has announced that it processed two million online food orders on its platform in the month of March, thus representing a 23% month-on-month growth. 
 
Also read: <a href="http://www.businessinsider.in/The-Zomato-of-fashion-is-here/articleshow/55354155.cms">The Zomato of fashion is here</a> 
 
In a blog post, Zomato said that the journey from one million orders to two million orders <a href="http://www.businessinsider.in/retail/e-commerce/Zomato-makes-profits-but-losses-also-triple/articleshow/53094564.cms">was not easy</a>, and the company learnt a lot about what matters and what does not <a href="http://www.businessinsider.in/enterprise/Zomato-performace-in-FY16/articleshow/52436254.cms">during this period</a>. 
 
Also read: <a href="http://www.businessinsider.in/HSBC-halves-Zomatos-1-billion-valuation/articleshow/52185955.cms">HSBC halves Zomato's $1 billion valuation </a> 
 
It adds that it has been able to reach the milestone because of better customer retention and a "maniacal focus on customer support." 
 
Also read: <a href="http://www.businessinsider.in/upskill-yourself-with-this-course-and-you-can-land-a-job-with-paytm-zomato/articleshow/57411457.cms">Upskill yourself with this course and you can land a job with Paytm, Zomato</a> 
 
The company, which spends only about $50,000 a month on marketing its online food ordering service, charges an average commission rate of about 8.5% (for restaurant-delivered orders), a major contributor in its financials. 
 
While a few months back, the restaurant supply was available from 12,000 restaurants, it has now gone up to 18,000. 
 
(Image source KnowStartup)

March saw Zomato processing 2 million online orders, with 23% MoM growth

<keyword id="477607" type="ORGANIZATION" weightage="100" keywordseo="HSBC-Securities-and-Capital-Markets">HSBC Securities and Capital Markets</keyword>, the brokerage arm of <keyword id="6358584" type="CITY" weightage="100" keywordseo="HSBC">HSBC</keyword>, has halved the valuation of Zomato, bringing it down from $1 billion to $500 million, said a note that Zomato's majority investor Info Edge circulated last month. 
 
In the note, concerns have been raised regarding Zomato's ad-heavy business model, its international operations and growing competition in the online food ordering segment, says a Mint report. 
 
"Zomato is present in 23 markets so early on and none is profitable, which implies that to address both the investments in last-mile delivery and losses in international operations, fund-raising will be a continuous phenomenon, suggesting current valuations don't make much sense. We do a discounted cash flow (DCF) analysis and value the business at 50% lower to the $1-billion valuation" HSBC analyst Rajiv Sharma reportedly said in the note. 
 
Last year, Zomato’s valuation has jumped to $1 billion after it had secured funding worth $50 million from Info Edge, Sequoia Capital and Vy Capital. Talking of the overall funding that it has raised since its launch in 2008, the figure comes to around $225 million. 
 Info Edge, which owns a 50.1% stake in the company, has disagreed with HSBC's estimate, with founder and VC <keyword id="295255" type="PERSON" weightage="100" keywordseo="Sanjeev-Bikhchandani">Sanjeev Bikhchandani</keyword> saying that Zomato's "revenue has more than doubled in the last nine months. Costs have been rationalized and burn is down by more than 70% from the peak. The company has plenty of cash and its unit economics are really good." 
 
"We value our investments at cost and Info Edge has not marked down Zomato at all" Bikhchandani added. 
 
"Our ad business in various countries has up to 93% gross margin... We are profitable in eight countries as of today" a Zomato spokesperson told the publication. "We are growing fast and are on course to becoming profitable as a company very soon. Beyond this, we do not want to comment on valuation markdown speculations of third parties." 
 
<a href="http://top10wala.in/wp-content/uploads/2013/07/Shri-Sanjeev-Bikhchandani-Co-founder-CEO-Info-Edge-India-Ltd.jpg">Image source</a>

HSBC halves Zomato's $1 billion valuation. Zomato has zero profitable markets, though Info Edge says revenues have doubled

<keyword id="830092" type="COMPANY" weightage="100" keywordseo="Zomato">Zomato</keyword>, the online restaurant discovery and food ordering service, has seen its losses growing up in big numbers, given that it has started to put in big money on online food delivery services, even as the Indian food-tech category is struggling to survive. 
 
For FY 2015-16, the loss before tax was up by 262% and reached Rs 492.3 crore, while it was Rs 136 crore in the previous year, revealed Info Edge, a majority investor in Zomato. 
 
Also, the operating revenues have nearly doubled to Rs 184.97 crore for FY 15-16 from Rs 96.7 crore in the previous year. 
 
It was in February that Zomato had claimed that it has <a href="http://www.businessinsider.in/Zomato-achieves-operational-breakeven-in-six-countries-including-India/articleshow/50898853.cms">achieved operational break even </a>in six countries, viz. India, the UAE, Lebanon, Qatar, the Philippines and Indonesia. 
 
However, the year has not been easy for the Gurgaon-based company, which laid off about 10% of its workforce in October 2015, while <a href="http://www.businessinsider.in/Zomato-shuts-down-its-online-ordering-service-in-Lucknow-Kochi-Indoreand-Coimbatore/articleshow/50534661.cms">rolling back online ordering </a>in four cities in January 2016. It also shifted its strategy so that it can emphasise more on its enterprise products in the newer markets. 
 
However, not just Zomato, the entire food-tech category is <a href="http://www.businessinsider.in/Online-food-retailers-will-have-to-register-with-FSSAI-now/articleshow/51716970.cms">struggling in India </a>because of a funding slowdown, with several companies either shutting down or getting acquired by larger companies. 
 
Earlier this month, HSBC Securities and Capital Markets, the brokerage arm of HSBC, had also <a href="http://www.businessinsider.in/HSBC-halves-Zomatos-1-billion-valuation/articleshow/52185955.cms">slashed the valuation </a>of Zomato by half, raising concerns around the ad-heavy business model, something that owner <keyword id="476451" type="UNKNOWN" weightage="100" keywordseo="Deepinder-Goyal">Deepinder Goyal</keyword> had objected to in a <a href="http://www.businessinsider.in/Zomato-CEO-says-HSBCs-halved-valuation-report-is-half-baked-cites-figures-and-data-to-support-his-claim/articleshow/52187426.cms">blog post</a>. 
 
<a href="https://tctechcrunch2011.files.wordpress.com/2014/08/zomato_app1_hi-res-l.jpg">Image source</a>

Zomato saw losses shooting up to 262% and revenues doubling in FY16

<a href="http://www.businessinsider.in/HSBC-halves-Zomatos-1-billion-valuation/articleshow/52185955.cms">As reported earlier</a>, HSBC’s brokerage arm has halved Zomato’s valuation, which now stands at $500 million, citing lack of profitable markets. 
 Zomato’s CEO <keyword id="476451" type="UNKNOWN" weightage="100" keywordseo="Deepinder-Goyal">Deepinder Goyal</keyword> has responded to this in a blog post titled Unicorn or Not?, hinting at the former valuation which had made it a Unicorn, a term for companies with $1 billion valuation. He has called the HSBC report an analyst report, which differs from other analysts’ opinions. He also says that the report comes across as being written by someone who doesn’t understand the space of food delivery. 
 
"These assumptions and statements in the HSBC report make it look like they're coming from someone who doesn't - and hasn't bothered to - understand the space well," it says. 
 
He added that in India, Zomato holds a large share of its operational market, citing that it drove over 50% of business to some of the biggest Indian restaurants, with an 8% growth and 33,000 online orders. He added that Zomato will become profitable when the number crosses an average of 40,000 orders a day. 
 
Goyal's letter also talls about its international business, in markets like the Philippines, Australia and Canada, while not forgetting about the company's burn rate, which has come down 70% percent from its peak. He has clearly stated that “Fifteen out of the eighteen countries where we are traffic leaders are yet to see serious monetisation efforts,” while also hinting at the huge scope for improvement in the field. 
 
He ended the note by asking his team to get back to work, and focus on execution. 
 
You can read more from his blog <a href="http://blog.zomato.com/post/144085090016/unicorn-or-not">here</a>. 
 
<a href="https://i.ytimg.com/vi/WKsJ2S0XpK8/maxresdefault.jpg">Image source</a>

You Searched For "Zomato HSBC" and got 6 results

With Zomato rallying over 25% in the past month, street looks at the road ahead

Katya Naidu

SIMPLY PUT: “Zomato’s delivery charges are more than its stock price”

March saw Zomato processing 2 million online orders, with 23% MoM growth

BI India Bureau

HSBC halves Zomato's $1 billion valuation. Zomato has zero profitable markets, though Info Edge says revenues have doubled

BI India Bureau

Zomato saw losses shooting up to 262% and revenues doubling in FY16

BI India Bureau

Zomato CEO says HSBC’s halved valuation report is half-baked, cites figures and data to support his claim

BI India Bureau

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