Zomato Expands Lead Over Swiggy, Has 57% Market Share In Food Delivery: Goldman Sachs

SUMMARY

On the basis of Prosus’ disclosure of Swiggy’s 2023 financial performance, Goldman Sachs estimated that Zomato gained about 200 basis point market share in the food delivery segment

Analysts at the brokerage said that no player likely has over 20% share in the quick commerce segment, but Zomato’s scale is likely about 50% larger than its nearest competitor

JM Financial also said that while Swiggy’s numbers were impressive on an absolute basis, the startup lagged Zomato in terms of growth as well as profitability

After Prosus published IPO-bound Swiggy’s 2023 operating performance, Goldman Sachs, in a research note on Tuesday (June 25), estimated that the company’s biggest competitor Zomato now likely holds a 56-57% market share in the food delivery market.

In its 2024 annual report, Prosus said that Swiggy saw a 26% year-on-year (YoY) increase in gross order value (GOV) in 2023. The foodtech decacorn’s core food-delivery business GOV grew by “double digits”, it said.

Swiggy saw a 17% YoY GOV growth in the food delivery segment in the first half of 2023. Assuming the growth at mid-point of 10% to 20% for 2023, analysts at Goldman Sachs said this would translate to a 14% YoY growth in Swiggy’s GOV in the second half of the year and 4% growth compared to the first half of the year.

On the contrary, Zomato’s food delivery GOV grew over 22% YoY in the financial year 2023-24 (FY24). If compared between H1 and H2 of the calendar year 2023, Zomato’s food delivery GOV growth was over 18%, as reported by the company in its last financial performance announcement.

“In food delivery, we calculate Zomato’s market share now at 56-57%, a circa 200 bp (basis point) expansion versus the previous period,” said Goldman Sachs. “At a 31% FY24-27 GOV CAGR, Zomato is the fastest growing food delivery company within our global coverage and also one with the highest margin profile.”

Earlier, Zomato’s share in the Indian food delivery market was pegged at around 54%.

The brokerage also noted that if Swiggy’s total GOV growth of 26% YoY in 2023 is compared with 34% GOV growth for Zomato over the same period, it suggests that the growth for Swiggy stood at 22% YoY in the second half of the year, which is meaningfully lower than 42% YoY growth reported by Zomato.

As per Goldman Sachs’ calculation, Zomato’s total GOV in 2023 was about 30-35% higher compared to that of Swiggy’s.

Meanwhile, the brokerage said that for online grocery, it expects competition to be a consistent feature of the market, given the size of the industry, with no player likely having more than 20% market share. However, Zomato’s scale is likely about 50% larger than its nearest competitor, the brokerage said.

Goldman Sachs also said that while Swiggy’s adjusted EBITDA loss has narrowed in recent periods, it remains meaningfully higher than Zomato, which turned profitable starting in 2023.

“We believe Zomato being ahead of its peers on profitability will continue to provide it with the opportunity to further gain market share or improve profitability, or deliver on a mix of both,” the brokerage added.

In fact, not only Goldman Sachs but several other Indian brokerages have also turned more bullish on Zomato after Swiggy’s 2023 performance report.

For instance, JM Financial said that while on an absolute basis, Swiggy’s numbers were impressive, on a relative basis it lagged Zomato in terms of growth as well as profitability.

“In fact, our channel checks suggest the growth differential was attributable to Zomato outperforming Swiggy in each of the three comparable B2C businesses in CY23,” said the brokerage.

While Swiggy confidentially filed its pre-DRHP with the SEBI earlier this year, the brokerage believes that a successful public listing of the company largely hinges on the management’s ability to demonstrate a clear path to adjusted EBITDA break-even at a consolidated level and arrest market share losses in both food delivery and quick commerce businesses.

“While it’s amply clear from recent Prosus disclosures that profitability improvement remains a key focus area for Swiggy management in the run-up to its public listing, we expect investors to also keenly monitor Swiggy’s ability to stem the decline in its market share across its food delivery as well as quick commerce business,” said JM Financial analysts.

Several other brokerages, including Kotak Institutional Equities, Emkay, and CLSA, have also reiterated their ‘buy’ rating on Zomato, with most of them highlighting that the company’s growth is faster than Swiggy’s.

Shares of Zomato rose almost 3% during the early trading hours on the BSE on Tuesday to touch INR 204.65, a level last seen around the middle of May. The stock ended the session 2% higher at INR 202.85.