Shares of online food delivery platform Zomato zoomed nearly 18 percent in a time span of two days, after the company announced its result for the latest quarter. The company reported its first-ever profit after tax of ₹ 2 crore in the April to June quarter (Q1FY24), as compared to a net loss of ₹ 186 crores in the corresponding quarter last year.
The company’s consolidated revenue from operations in the first quarter of the current fiscal came in at ₹ 2,416 crores, against ₹ 1,414 crores in the corresponding quarter a year ago.
Deepinder Goyal, Managing Director and Chief Executive Officer (CEO) said that the company has been working hard to make its business less complex and that it is putting the right people at the right spots within its businesses.
In the month of May, he said that the company was confident of achieving profitability for the entire business in the next four quarters. However, it has already turned profitable.
In Goyal’s words, Zomato just needed to do two things — “increase profits in food delivery and reduce losses in the quick commerce (Blinkit) business.”
The company’s Gross Order Value (GOV) climbed 11 percent when compared to the previous quarter. This number indicates the total money spent by users while ordering food. The increase can be attributed to seasonal factors like school holidays, the Indian Premier League (IPL) and other events that take place in summer. Zomato’s GOV grew sideways last year, thus, an 11 percent increase makes it look better.
Around 17.5 million people use the platform on a monthly basis This number hasn’t moved much in the latest quarter. Moreover, Zomato decided to exit from 225 cities.
Zomato’s Average Order Value (AOV) has climbed to ₹ 407 per order moreover, the frequency has gone up from 3 orders per month to 3.4 orders per month, probably aided by its Zomato Gold Program.
Zomatos food delivery business is making profits, however, its quick commerce segment Blinkit indicates trouble. In fact, Zomato’s share price fell by more than 30 percent after it acquired Blinkit in June 2022. Reports suggest that Blinkit has been cutting down the amount of money it pays out to delivery riders. They would receive ₹ 50.00 per order delivered when Blinkit was Groffers (formerly), later, they started receiving ₹ 25 per order and currently, they receive ₹ 10 per order.
Despite its efforts, the company suffered a loss of ₹ 15 crores, however, it had deferred tax worth ₹ 17 crores and once the adjustment was made, it looked like the company made a profit of ₹ 2 crores. However, this isn’t something new in its books. Zomato has been claiming deferred taxes for a few quarters now.
If the deferred tax adjustment is ignored for a bit, Zomato has still minimized its overall loss from ₹ 186 crores to ₹ 15 crores. Going forward, the company might further slash its costs and may turn profitable.
Motilal Oswal Financial Services reiterated a ‘buy’ rating on Zomato after the earnings announcement. It pointed out that it sees the food aggregator’s strong all-round performance “as an indicator of an accommodative competitive environment in both food delivery and quick commerce verticals”.
“Zomato has delivered profitability earlier than promised. There is clarity on vastly improving revenue growth. This company in a duopoly business has a long runway for growth,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Written by Simran Bafna
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