Zomato, an online food delivery service, has been in the news for a variety of reasons since it filed for its IPO. This food delivery service is said to be in merger talks with Blinkit, which used to be Grofers, an online grocery delivery service.
It announced on Tuesday (Mar 15, 2022) that it had invested $150 million in Blinkit in the form of debt. This is to help a struggling grocery delivery service pay its bills, so they can stay in business. The loan will be paid out in several instalments with a 12% annual interest rate.
Zomato's share of the market has gone down almost 8% in the last week, and it's gone down 46% in the last six months. Because the stock of Zomato is going down, this blog will talk about why and what the main reasons are for it.
Many of the new tech stocks that have recently gone public have had the same thing happen to them. Paytm, Nykaa, PB Fintech, and CarTrade are some of them. Some of these new-age tech stocks took a big hit in the recent corrections because of the world's stock market fall-out. People who work in the market say that these stocks were overvalued when they went public, which is one of the main reasons why they didn't do well.
At the moment, the stock of Zomato is worth about Rs 76 per share as of March 16, 2022.
To help you as an investor, let's try to learn more about the company. This way, you can make an informed decision about whether to buy or sell the stock.
Why is the share price of Zomato correcting?
With fears about rising prices, the Fed meeting, and the expected rate hikes, the US and Indian stock markets are in a downturn.
Investors of tech stocks are selling off in other stock markets as well as in India, according to reports in the media. This is because there is a chance that interest rates will go up even more in the future. People who own shares in Zomato aren't happy about that.
That's not all: There are also other things that could make the stock go down. People like Swiggy and restaurants. The stock is worth a lot of money, so there is a lot of competition.
There is a lot of money and interest in Zomato because it's well-known. This makes it easier for restaurants to work with them, which leads to more market share gains. Many experts don't agree on how much the stock should be worth.
Zomato’s business
When you understand Zomato's business better, you'll be able to see the whole picture.
Zomato is in the business of getting food to people. It connects people with restaurants. It gets 90% of its money from restaurants in this segment as a commission. It also makes money from ads that show up inside the app and paid memberships (it contributes to a minor portion of the revenue).
At the moment, Zomato and Swiggy are almost competing against each other in the market. It's not yet possible to connect the whole country, which leaves room for growth.
The following are some reasons why Zomato is in a good place to grow its market share: The main points
Zomato's growth depends on the people who use it. How many people use the service and how much money they spend are the two main things to look at They were making steady progress on this front. The number of people who use it every month has gone up from 8.4 million in 2021 to 15.3 million in this year's October to December quarter. The number of people who joined the company was also going up. There were about 5.5 million new users in December. According to a lot of different reports, with more people having the internet, this segment is going to grow. There, it also helps the company.
This is good for the company because lockdown and control restrictions have been lifted, which has helped it a lot. It has been getting more and more expensive for people to order food. Zomato's gross order value went up 84% y-o-y in the December quarter of FY22. A lot more people were using the service, as well as a lot of active food delivery restaurants and service providers, which led to this growth, the company says. With more people living at home, the delivery business is likely to grow. With so many people trying to find good restaurants online, this also bodes well for the company's growth in the near future.
A lot of room for change. While Zomato focuses mostly on food delivery, the company has been growing, though at a very slow pace, over the last few years. It carries groceries and business-to-business (B2B) segments where the company sells meat and vegetables and stores them.
Financials
With good things looking up for Zomato's business, it is still a company that makes money. As of December 2021 (FY22), the company lost Rs 67.2 crore. But it was down from a loss of Rs 352.6 crore the same time last year. The main reason for the loss was because of high employee costs and unique items.
On the other hand, the revenue of the company went up a lot. As of December 2021 (FY22), revenue was up to Rs 1,112 crore from $609 million last year. A rise of 84% year-over-year.
Recently, Blinkit got a loan extension, and it might buy or buy Mukunda Foods. This could put a lot of strain on its balance sheet. That said, keep in mind that the company has a lot of money because of its investors.
Bavadharini KS is a research analyst.