Zomato’s Q3 FY25 results revealed a significant drop in net profit (57.2% decrease to ₹59 crore), despite increased revenue, due to soaring expenses and heightened competition impacting margin expansion. This led to a sharp decline in Zomato’s share price (over 10%), mirroring a similar drop in competitor Swiggy’s stock. Zomato attributed the slowdown to increased competition in the quick commerce sector, notably Blinkit’s rapid expansion to combat this. Despite the challenges, Zomato maintains that core customer loyalty remains strong.
Zomato Shares Plummet After Q3 Results and Cautious Management Commentary Spark Investor Concerns
Zomato, the leading restaurant aggregator and food delivery company in India, experienced a significant drop in its share price on January 21, 2025, following the release of its December quarter (Q3 FY25) results. The stock price fell by as much as 13.3% to ₹207.80 on the NSE.
The decline in share price was triggered by several factors, including:
A 57.2% decrease in consolidated net profit to ₹59 crore for Q3 FY25, compared to ₹138 crore in the same quarter of the previous year.
Heightened competition in the food delivery and quick commerce sectors, which has led to a pause in margin expansion.
A 2% quarter-on-quarter and 17% year-on-year growth in food delivery, driven by a “demand slowdown”.
Subpar Food Delivery Performance
Brokerage firm Nomura commented that Zomato’s food delivery business performance was subpar in the third quarter, with lower growth in gross order values than expected. Nomura now projects 17-20% growth in GOV for the food delivery business in FY 2025 and 2026, with a contribution margin of 8-9%.
Intensifying Competition and Impact on Blinkit
Zomato acknowledged in its letter to shareholders that intensifying competition has had a significant impact, particularly in the quick commerce sector, where it owns Blinkit. The company noted that increased competition has led to accelerated customer awareness and adoption of quick commerce, similar to what was observed in the early days of the food delivery business.
Despite the competitive pressure, Zomato stated that it has not seen any attrition of its core customers for Blinkit, indicating that customers continue to prefer its services.
Expansion of Blinkit’s Store Network
Zomato’s quick commerce arm, Blinkit, has been focusing on expanding its store network due to its low penetration levels. The company has already surpassed its initial target of 2,000 stores by the end of the year, having expanded to 1,007 stores in the first nine months of FY25.
Impact on Swiggy
The negative sentiment surrounding Zomato also affected its competitor, Swiggy, whose shares tumbled by 11% on the NSE.
Conclusion
Zomato’s Q3 results and cautious management commentary have raised concerns among investors, leading to a significant decline in its share price. The company is facing challenges from intensifying competition, particularly in the quick commerce sector. However, Zomato remains optimistic about its long-term prospects and is continuing to invest in growth initiatives, such as the expansion of Blinkit’s store network. It remains to be seen how the company will navigate the competitive landscape and return to profitability in the coming quarters.