Zomato Share Price Falls 5% as Macquarie Predicts 50% Downside Amid Fierce Competition

On May 31, Zomato's shares dropped by over 5% following a prediction from foreign brokerage Macquarie that the food delivery platform's share price could plummet nearly 50% within the next year. This forecast is attributed to rising competition in the quick commerce sector. At 11:33 am IST, Zomato share price were trading at ₹173.80 each on the NSE.

Macquarie is one among the three analysts that have a 'Sell' or equivalent rating on Zomato. The brokerage reaffirmed its 'Underperform' rating on Zomato, setting a price target of ₹96 for the stock, which suggests a potential 46% decline from Thursday's closing price. Macquarie has maintained its 'Underperform' rating on Zomato since May of last year when it downgraded the stock from a 'Neutral' rating. It's important to mention that Macquarie's 'Underperform' rating is equivalent to a 'Sell' recommendation.

The global brokerage has set this bearish target mainly due to the increasing competitive intensity as multiple e-commerce platforms enter the market. It noted that many e-retailers have introduced new ambitions in the quick commerce sector. However, it acknowledged Blinkit as an efficient operator.

Macquarie analysts pointed to rising competitive pressure as the primary reason for their cautious outlook, especially with JioMart's upcoming plans to introduce 30-minute grocery delivery in several cities starting next month. Reliance Industries-owned JioMart aims to initially offer 30-minute grocery delivery services in eight cities, with plans to expand to the top 20-30 cities nationwide during the first phase.

Macquarie also anticipates a downside to both consensus forecasts and margins for Blinkit, presenting a contrarian view to Goldman Sachs' recent valuation, which assigned Zomato's quick commerce arm a higher multiple than its flagship food delivery business. In the March quarter of FY24, Blinkit turned EBIT positive, with revenue more than doubling year-on-year to ₹769 crore.

According to data from Trendlyne, a stock analysis platform, the consensus recommendation from 26 analysts for Zomato is a 'Buy,' with 17 of them indicating a strong buy. Additionally, the average one-year price target for the stock on the platform is ₹215, suggesting a potential upside of up to 19%.

On May 13, Zomato announced its quarterly results for the period ending in March 2024. The company reported a net profit of ₹175 crore for Q4 FY2024. Its revenue for Q4 FY2024 was ₹3797 crore, a decrease of 70.50% year-over-year. Adjusted EBITDA was ₹194 crore. Annually, Zomato's adjusted revenue increased by 56%. The company also reported a net profit of ₹175 crore for Q4 FY2024, a significant improvement from a net loss of ₹188 crore in Q4 FY2023, marking a 193.09% increase. On a quarterly basis, the net profit rose by 26.81%. 

Zomato announced the creation of a new ESOP pool comprising 2% of fully diluted equity. The company's food delivery segment saw a 28% growth in gross order value (GOV). The quick commerce and Going-out segments experienced year-over-year growth rates of 97% and 207%, respectively. In the B2B segment, Hyperpure reported a 99% year-over-year increase in revenue. Zomato plans to open around 1,000 stores by March next year. Additionally, Blinkit turned profitable in Q4 FY2024, with its revenue rising to ₹769 crore from ₹363 crore in Q4 FY2023, reflecting an increase of 111.8%.

Zomato, a prominent global restaurant aggregator and food delivery company based in India, was founded in 2008 under the name Foodiebay before rebranding to Zomato. The platform offers detailed information, menus, and user reviews of restaurants, along with food delivery services from partner restaurants in select cities. Additionally, Zomato has expanded into grocery delivery services through its subsidiary, Blinkit.