The Reason Behind Zomato’s Turnaround

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In the wake of a challenging 2022 that saw Zomato’s market capitalisation plummet by over 60%, few could have foreseen the remarkable turnaround the company has experienced. Fueled by a shift in investor sentiment and substantial improvements in its financial performance, Zomato’s stock has surged by more than 90% in the past six months on the Bombay Stock Exchange (BSE). As of the current trading price of INR 109.80, Zomato’s shares have reached a level last observed at the close of January 2022.

Zomato, which had a stellar market debut in 2021, began a downward trajectory after January 2022, hitting record lows along the way. In just six months, the stock reached an all-time low of INR 40.55 in July 2022, nearly 65% lower than its listing price of INR 115.

The situation worsened following Zomato’s acquisition of the quick-commerce platform Blinkit, which raised concerns about delaying its path to profitability. Early investors began offloading their stakes, further pressuring the stock. As a result, Zomato’s market capitalization fell from $14 billion after its 2021 listing to below $5 billion.

The stock continued to face pressure until January of the following year, at which point it began a slow recovery. The uptrend gained momentum from March 2023 onwards.

Zomato’s Highs and Lows on the Stock Market

IPO Price INR 76 
Lowest Price INR 40.55
Current Price INR 109.80
Listing Price (BSE)INR 115
Listing Price (NSE)INR 116

The data in the table provided pertains to the month of October 2023.

The Strategies Behind Zomato’s Turnaround

The turnaround can be attributed to a shift in market sentiment and Zomato’s determined efforts to achieve profitability. They initiated cost-cutting measures, including layoffs and exiting over 200 cities with less promising performance. Simultaneously, Zomato explored new revenue streams, such as increasing commission fees charged to restaurants and expanding the number of Blinkit dark stores.

Although Blinkit continued to affect Zomato’s overall financial performance, the company claimed adjusted EBITDA profitability in Q4 FY23, excluding the quick-commerce business, thanks to improvements in its food delivery business. This announcement in May spurred further optimism in the stock.

Despite concerns about the Open Network for Digital Commerce (ONDC) posing a threat to Zomato’s food delivery business and protests from Blinkit delivery executives, the stock remained resilient. Most brokerages expressed optimism about Zomato’s goal of achieving net profitability.

Also Read: Zomato- Key Insights

Zomato’s New Move – Introducing Platform Fees for Better Profitability

Zomato also introduced a platform fee of INR 2 per food delivery order in August, following in the footsteps of its competitor Swiggy. Later, it increased the fee to INR 3 for specific cities and users. This move aimed to bolster both the top and bottom lines. In its Q1 results, Zomato expressed confidence in remaining profitable going forward, and the introduction of the platform fee convinced investors that Zomato could enhance its margins and maintain profitability.

In August, Zomato reported a profitable Q1 with a net profit of INR 2 crore and improvements across various sectors. Despite challenges from Blinkit, the quick-commerce business turned contribution-positive for the first time in June 2023. The net profitability was achieved with the help of a deferred tax of INR 17 crore in the quarter. However, this did not dampen the market’s enthusiasm, as Zomato’s shares jumped over 18.5% in the past month and a half.

While Zomato’s stock currently displays positive signs, investors eagerly await the company’s Q2 performance, which is expected to influence the next major trend in its price.

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