Zomato’s Remarkable Turnaround: After A Painful 2022, Stock Up Over 90% In 6 Months

Shares of Zomato, which fell over 60% in 2022, have been on an uptrend this year following a change in investor sentiment and its financial performance

Zomato, India’s leading foodtech giant, has witnessed a remarkable resurgence, with its stock surging over 90% in the last six months. The unexpected turnaround comes after a challenging 2022, during which Zomato’s market capitalization plummeted by more than 60%. Today, the company’s shares are trading at INR 102.14 on the Bombay Stock Exchange, a level last seen in January 2022.

The journey to this remarkable rebound was marked by significant lows. Following a strong debut on the stock market in 2021, Zomato’s stock began a downward spiral after January 2022, frequently hitting record lows. By July 2022, the stock had reached its all-time low of INR 40.55, almost 65% below its listing price of INR 115.

One of the major setbacks for Zomato was its acquisition of quick commerce platform Blinkit, which raised concerns about delaying profitability. Additionally, early investors started divesting their stakes in the company, further weighing on the stock’s performance. Consequently, Zomato’s market capitalization dropped from $14 billion to below $5 billion.

Global macroeconomic factors, combined with company-specific challenges, created a difficult environment not only for Zomato but also for other new-age tech startups.

However, the tide began to turn in early 2023. Zomato’s aggressive efforts to achieve profitability and improved investor sentiment led to a positive shift. The company’s market capitalization increased from $5.3 billion in March to $10.5 billion today.

Several strategic measures contributed to this turnaround. Zomato initiated cost-cutting measures, including layoffs and exiting underperforming cities. It also experimented with revenue-enhancing strategies, such as raising commission fees for restaurants and expanding its Blinkit dark stores.

Despite Blinkit’s initial impact on financials, Zomato reported adjusted EBITDA profitability in Q4 FY23, excluding the quick commerce business, primarily due to improvements in its food delivery segment. This announcement in May ignited the stock’s rally.

In August, Zomato reported a profitable Q1, with a net profit of INR 2 crore. The quick commerce business also turned contribution-positive for the first time in June 2023.

While it’s essential to note that the net profitability was partly due to a deferred tax of INR 17 crore, investor confidence remained strong. Zomato shares surged over 18.5% in the last one-and-a-half months.

Analysts have raised their price targets on the stock, citing the company’s strong execution and profit performance.

Zomato’s introduction of a platform fee of INR 2 per food delivery order, later increased to INR 3 for select cities and users, is expected to bolster both its top and bottom lines. The platform fee is a strategic move aimed at improving margins and sustaining profitability.

As the company approaches Q2 earnings, investors will be keenly watching for further indications of Zomato’s financial health and its ability to maintain profitability, which could shape the stock’s future trends.

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