Why Zomato Share Price is Rising

In this editorial... we explain why shares of food delivery company - Zomato - have witnessed a massive rally and what lies ahead.

But first, a little backstory...

If you remember, Zomato share price experienced a rocky start in the stock market following its initial public offering (IPO). Initially, the stock price of Zomato fell, leading to significant criticism from investors who were concerned about the company's profitability and growth prospects.

The skepticism was rooted in the company's high valuation at the time of its IPO and the broader challenges faced by tech and startup companies in the market.

However, over time, Zomato's stock has witnessed a remarkable turnaround. Several tailwinds have contributed to this positive shift in sentiment.

Zomato share price since listing

One of the key factors has been the company's continued growth in its core food delivery business, along with its expansion into new verticals such as grocery and nutraceuticals.

Additionally, Zomato's efforts to improve its operational efficiency and reduce losses have been well-received by the market.

At present, shares of the company are trading at record high, and the sentiment looks super bullish.

Let's find out why Zomato's stock price is on a tear in recent months and what lies ahead.

Why Zomato Share is Rising

#1 IPL Impact

The current optimism in the stock is fuelled by IPL 2024 season. Zomato is a big beneficiary of this ongoing cricket tournament.

Cricket matches, especially during the IPL season, tend to bring people together for viewing parties, leading to an increase in group food orders.

This spike in demand can significantly boost Zomato's order volumes and revenue during match days.

Even after the IPL 2024, we have another big global event - T20 Cricket World Cup - starting June 2024.

Both these events have fuelled a positive sentiment for Zomato shares.

#2 Hike in Delivery Charges

Apart from the IPL impact, one other reason why Zomato shares are moving up is because the e-commerce arm of Zomato - Blinkit recently hiked its delivery charges by Rs 11-35 in certain areas in the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR).

Market experts project this move is likely to boost Zomato's topline and profitability.

Blinkit CEO recently said -

• We hit our all time high orders, OPM (orders per minute), and almost every other metric on the board! Thank you for choosing us for your Holi needs.

Consumers purchased Gulal, water balloons, T-shirts, detergents, sweets, among other things this Holi, which led to Blinkit's all-time high orders.

What Next for Zomato?

Note that the Indian share markets recently saw a small correction as the market regulator voiced valuation concerns, while mutual funds' stress test added to the negative sentiment.

While majority of stocks fell 15-10% during this correction, stocks of new-age companies like Zomato and Nykaa bucked the trend.

This comes even as Zomato faced backlash following the announcement of the launch of a new delivery fleet, 'Pure Veg Fleet'. It also announced the launch of a new mode on its app, called 'Pure Veg Mode', for customers with 100% vegetarian dietary preference.

India's online food delivery market is projected to reach a staggering US$ 16 billion (bn) by 2025, making Zomato a frontrunner in a sector brimming with future potential.

Zomato recently achieved its first-ever quarterly profit, demonstrating progress towards profitability and bolstering investor confidence. Furthermore, the company's enhanced disclosures have been viewed positively by investors.

Starting Q2-FY24, Zomato has started charging a nominal platform fee (Rs 2-5) for each order that will help it to stabilise its economics even further.

The platform company's foray into hyperlocal delivery (Zomato Instant, Blinkit) and loyalty programs (Zomato Gold) offer promising new revenue streams and have been well-received by the market.

Zomato's share price is also going up because of rumors that the Open Network for Digital Commerce (ONDC) has changed its reward system to lessen reliance on discounts.

All these factors indicate that the sentiment around Zomato is positive, more so after the company posted improving numbers in Q2 and Q3, following its maiden profitable quarter in Q1FY24.

In the third quarter, Zomato's earnings beat estimates on the back of robust growth in food delivery and hyperpure businesses. Net profit jumped nearly 4x sequentially to Rs 1.4 bn.

Going forward, Zomato plans to focus on expanding footprint in larger cities for Blinkit.

The company said in its concall that it has no plans for dividend payouts or buybacks as it's focusing on building businesses and cash accumulation.

In conclusion... the fundamentals of the company have been improving... so it's not all bad for the stock.

Zomato has a sizeable market share with the top two players (Zomato and Swiggy) dominating the segment. Though Amazon and others have planned to enter this space, it will take some time before they reach the higher level and compete with Zomato and Swiggy.

How Zomato Share Price has Performed Recently

In the past 5 days, Zomato share price is up 16%.

In 2024 so far, Zomato share price has rallied 48%.

Zomato has a 52-week high of Rs 189 touched today and a 52-week low of Rs 49 touched on 28 March 2023.

In the past one year, Zomato share price has zoomed 267%!

About Zomato

Zomato was incorporated in the year 2010. The company, during its initial stages, started off as a restaurant finder.

Following in the footsteps of its competitor, Swiggy, the company formally launched its food delivery service in India in the year 2015.

By 2020, Zomato expanded its food delivery business to over 500 cities, facing stiff competition from both Swiggy and Uber Eats.

However, during the same year, the company acquired Uber Eats to consolidate its position in the food delivery space.

For more details, check out Zomato company fact sheet and quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...