Zomato tanks over 10% on weaker numbers, drags Swiggy along, too

Shares of online food delivery and quick-commerce platform operator Zomato tanked by over 10% on Tuesday after its consolidated net profit in the December quarter dropped 57% from a year ago. Swiggy shares also declined 8% with Zomato's disappointing earnings rubbing off on its smaller rival.

Zomato has attributed the weaker numbers to the increased investments in accelerated new dark-store openings and customer acquisition efforts in the quick commerce (QC) business. Swiggy has not reported its October-December results yet.

"Zomato has been trying to scale up its quick-commerce business along with its competition by front-loading capex, as all of them have raised capital recently. This has raised its operational expenses and will impact its profits for the next two quarters, and there will be short-term pain in the stock," said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

Khemka said such worries have also rubbed off on Swiggy's shares. "Swiggy's path to profitability will also be extended further because unlike Zomato it isn't profitable in its food delivery business yet."

Brokerage Macquarie has retained its 'underperform' and its price target of ₹130 on Zomato citing a limited margin of safety for the shares.

"We see rising competition in Q-Com (quick commerce) denting consensus forecasts," said Macquarie's analysts.

In 2024, Zomato shares surged as much as 145 percent to a record high of INR 304.50 on December 5. Since then, the stock has slid nearly 30 percent.

"While the company's expansion, particularly in quick commerce, positions it for future growth, achieving a balance between growth and profitability remains crucial. This will remain a challenge with neck-to-neck competition and rising costs leading to paper thin margins and extreme operational prowess," said Dharan Shah, founder of Tradonomy.com, a Mumbai-based investment research advisor.

A JM Financial's note said that while near term uncertainties in Blinkit's profitability trend may lead to pressures in the stock, they strongly suggest long-term investors use the opportunity to build "sizable" positions. They have a 'buy' rating and set a price target of INR 280, indicating a 30 percent upside from Tuesday's close.

Motilal Oswal too maintained its 'Buy' rating on Zomato but slashed the price target from INR 330 to INR 270. They remain neutral on Swiggy.