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Zomato Share Price Hit Record High as Platform Fee Hike Excites Investors
Last Updated: 15th July 2024 - 12:27 pm
On July 15, Zomato shares increased by over 3% to reach a record high of ₹232, following the company's announcement to raise its platform fee from ₹5 to ₹6 in select markets across Delhi and Bengaluru. This fee increase is anticipated to have a mildly positive impact on Zomato's profitability.
Zomato share price have surged nearly 20% in the past month. As of 09:18 am IST, the shares were trading at ₹228.62 on the NSE.
Zomato's food segment handles approximately 870 million orders annually. An increase of ₹1 in the convenience fee per order could positively impact EBITDA by ₹85-90 crore, representing a 6-7% increase in profitability, according to Karan Taurani, Senior Vice President-Research Analyst at Elara Capital.
If the platform fee hike were applied across all cities, it could improve profitability by 30-35 basis points (currently at 20.6% as of Q4FY24). However, since the hike is only effective in selective markets, the positive impact on EBITDA might be just 1-2% (5-10 bps), Taurani added.
Taurani also predicts that Zomato's platform fee could rise to ₹8-10 per order in select metro markets over the medium term, which would help offset the negative impact of zero delivery charges from loyalty programs.
"We do not foresee a significant increase in restaurant commissions in the near term, as they have largely plateaued. The main factors for adjusting EBITDA as a percentage of GOV towards management's medium-term guidance of 4-5% (currently at 3.3% in Q4FY24) will be ad revenue and the platform fee," he stated.
This marks the fifth time Zomato has raised its convenience fee in the past year, moving from ₹2 to ₹5 incrementally. Additionally, adjusted EBITDA as a percentage of Gross Order Value (GOV) has increased by 80 bps to 3.3% in Q4 FY24 since the fee was first introduced in Q2 FY24.
Taurani has already projected significant margin expansion for Zomato’s food business, estimating an EBITDA CAGR growth of 35% (excluding ESOPs) over the next two years, with take rates rising from the current 19.7% to 21% during the same period.
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Tanushree Jaiswal
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