Three reasons why Zomato stock crashed 7% today post-Q3 results

Three reasons why Zomato stock crashed 7% today post-Q3 results

Zomato shares declined over 7% on January 20 after the food delivery platform announced its December quarter results.

Here are three reasons why the Street wasn't enthused about the results:

1) Aggressive store addition: Zomato reported a 57% fall in third-quarter profit on Monday as its margins continued to face pressure from increased spending on opening more centres to fulfil orders at its Blinkit quick commerce platform. "On a QoQ basis, consolidated Adjusted EBITDA declined by 14% (or Rs 45 crore) despite the improvement in food delivery margins, largely due to accelerated investments in expanding our quick commerce store network, where quarterly losses increased by Rs 95 crore QoQ," said the firm in a stock exchange filing.

Zomato aims to get to 2,000 Blinkit stores by December 2025, said CEO Deepinder Goyal.

"The losses in our quick commerce business this quarter are largely on account of pulling forward the growth investments in the business that we would have otherwise made in a staggered manner over the next few quarters. As of now, it seems like we will get to our target of 2,000 stores by Dec 2025, much earlier than our previous guidance of December 2026," said Goyal.

At the time of market closing, Zomato's shares on BSE closed 7.27% lower at Rs 221 apiece.

2) 'Growth slowdown': The Gross Order Value (GOV) growth in food delivery business was only 2% higher on a sequential basis. "Our 20%+ YoY GOV growth guidance for the food delivery business is more longer-term. There will be periods of higher and lower growth along the way. Currently we are going through a broad-based slowdown in demand which started during the second half of November. Notwithstanding the current slowdown, we are positive about a recovery soon and remain confident of the long term outlook of 20%+ yearly GOV growth in the business given the strong fundamentals," said Rakesh Ranjan, CEO - Food Delivery Business at Zomato.

Regarding the District app, Zomato said: "While the core business continues to be profitable, the quarterly loss in Q3FY25 was largely driven by the investment in the new District app (team, marketing, tech costs). Most of the investments from here on will be focused on getting customers to transition to the new app and grow selection on our platform. We are likely to operate in losses for the next year or so but we don’t expect them to be meaningful in the overall context of Zomato."

3) Rise in employee cost: Zomato said employee cost is likely to "remain elevated in the near term".

"The increase in ESOP charge (21% QoQ) and cash employee benefit expense (15% QoQ) was driven by two things – (a) increase in headcount in line with growth across businesses, especially quickcommerce and going-out (first full quarter post acquisition), and (b) higher cost of retaining and acquiring talent in our quick commerce business currently driven by the heightened competitive intensity. We expect this war for talent to continue for the next few quarters. Hence the total employee cost (ESOP + cash) is likely to remain elevated in the near term. We had mentioned in our Q1FY25 letter that total employee cost is likely to come down to 6-8% of Adjusted
Revenue by FY26," said Akshant Goyal, Chief Financial Officer, Zomato.

Zomato Q3

Zomato reported a 57% fall in third-quarter profit as its margins continued to face pressure from increased spending on opening more centres to fulfil orders at its Blinkit quick commerce platform.

Its consolidated net profit fell to Rs 59 crore in the quarter ended Dec. 31, from Rs 138 crore a year ago.

Revenue in the food delivery business increased nearly 22% in the quarter, while revenue from Blinkit, its quick commerce arm, surged more than two-fold.