A Year To Remember: How Zomato Made A Roaring Comeback After 2022 Bloodbath

“If a business does well, the stock eventually follows.” –  Warren Buffet. There is no better case study for this quote in recent times than foodtech giant zomato’s journey on the bourses in 2023.

While 2023 has turned out to be a remarkable year for new-age tech startup stocks, Zomato has shone the brightest so far this year. Not to mention, players like Paytm, RateGain, Delhivery, and PB Fintech, too, have witnessed their fair share of rallies after the bloodbath of 2022.

The share price of the foodtech major has more than doubled so far this year. The stock, which was trading in the INR 50-60 range in the first month of 2023, is on course to end the year at above INR 120.

The biggest reason behind its noteworthy performance has been the improvement in Zomato’s financials and the startup finally turning profitable. 

Amid the global economic slowdown, the year 2022 was all about investors questioning Zomato’s various business decisions, the biggest among them being its acquisition of Blinkit. However, to investors’ delight, Zomato figured out the sweet spot and its path in 2023.

The company did this by doing new experiments to increase its revenue and making hard decisions to bring down its expenses. From introducing a platform fee to exiting over 200 Indian cities and several nations, 2023 remained an eventful year for the Deepinder Goyal-led company. 

With that said, let’s take a closer look at Zomato’s noteworthy 2023 journey.

How The Zomato Stock Price Doubled In 2023

While the subdued trend continued in Zomato’s stock during the first few months, the company reporting its first-ever adjusted EBITDA profitability in the fourth quarter of FY23 began a sharp reversal in its fortunes. 

Zomato’s share price jumped 6% in a month following the announcement of its adjusted EBITDA profitability, helping its market capitalisation cross the $7-Bn mark from about $6 Bn at the end of 2022.

Around the same time, it emerged that the government-backed Open Network for Digital Commerce (ONDC) forayed into the food delivery segment. This led to a strong buzz that the network would pose a threat to Zomato. However, investor sentiment had turned positive on the stock by then as the company was chasing profitability aggressively. Therefore, ONDC’s foray into the food delivery space did not have any major impact on the company’s share price.

Amid this, Zomato experiments continued unabated. From piloting B2B logistics services to rolling out its in-house Unified Payments Interface (UPI) service for peer-to-peer (P2P) and merchant transactions, Zomato was on a spree of new announcements. 

Here is a quick look at the company’s new pilots and major launches in 2023:

• The return of the Zomato Gold loyalty programme had a major impact on the company’s overall performance throughout the year.
• The introduction of a platform fee of INR 2-INR 5 on food orders further helped Zomato improve its margins and strengthen investor confidence.
• The company forayed into the logistics space and launched a quick parcel delivery service for merchants with a new app – Xtreme.
• Zomato joined hands with the Indian Railway Catering and Tourism Corporation (IRCTC) for the supply and delivery of pre-ordered meals under a pilot.

Meanwhile, the surge in Zomato’s share prices continued, with the stock soon crossing its IPO price band of INR 72-INR 76 at the beginning of June, for the first time in over 12 months.

Amid its business experiments, the company reporting two consecutive profitable quarters in Q1 and Q2 FY24 proved to be the ultimate game changer. It further boosted the stock price, helping Zomato surpass its listing price of INR 115 at the beginning of November.

Notably, Zomato also undertook multiple restructuring measures to achieve and sustain this growth. Some of these measures are as follows: 

• It exited 225 Indian cities.
• Paused onboarding new customers for Zomato UPI.
• Stopped business in multiple countries, including Indonesia, Jordan, Czech Republic, and Slovakia. 

Zomato’s quick commerce business Blinkit, whose profitability was one of the major concerns for investors, also turned contribution positive for the first time in Q2 FY24. Zomato sees Blinkit achieving adjusted EBITDA breakeven by Q1 FY25, while Dalal Street believes that Zomato is well on track to achieve this target.

As a result of these positive changes, shares of Zomato ended the last trading session (December 22) at INR 128.45 with a market capitalisation of over $13 Bn.

A Shift In Shareholding Pattern

The sharp surge in share prices of Zomato also meant that alternate investment funds, banks, insurance companies, and foreign portfolio investors (FPIs) have started increasing their stakes in the company. 

As per Zomato’s shareholding data for the quarter ended September 2023, as many as 28 mutual funds held a 10.56% stake (almost 91 Cr shares) in the company. A year ago, 20 mutual funds held a mere 4.57% stake in the company.

Meanwhile, many marquee investors sold their stakes in Zomato to book profits. As a result, foreign direct investments (FDI) in Zomato, which comprised the shareholding of Antfin, Alipay, Macritchie Investments, and others, fell to 17.08% in the quarter ending September 2023 from a massive 32.41% in the year-ago period.

Taking advantage of the rally, Alipay exited Zomato with INR 3,336.7 Cr in November. 

Before that Tiger Global also exited Zomato by selling shares worth INR 1,123 Cr via block deals. Recently, SoftBank followed suit and exited the foodtech giant in an INR 1,127 Cr block deal. 

Following Alipay’s exit, the FDI stakeholding in the company is expected to further fall by over 3%. 

The stakes sold by these investors were lapped up by the likes of Axis Mutual Fund, Edelweiss Mutual Fund, Invesco Mutual Fund, and several others.

On the other hand, FPIs, including Canada Pension Plan Investment Board, BNP Paribas Arbitrage, and Kuwait Investment Authority Fund, increased their cumulative stake in Zomato to 37.64% by the end of the September quarter of 2023 from 25.46% a year ago.

Currently, foreign institutional investors hold the largest stake in Zomato at 54.72%. 

Will Zomato’s Bull Run Continue In 2024, Too?

Zomato looks well set on the technical charts to improve its performance on the bourses. Fundamentally, too, the company is expected to improve its profitability, which would further increase its share price.

Out of the 27 analysts covering the stock currently, 23, including Jefferies, Bernstein, Emkay Research, ICICI Securities, and JM Financial, have a ‘buy’ or above rating on Zomato. The stock’s average price target is set at INR 129.7.

Bernstein said in its latest research note that the Zomato flywheel is not just turning but accelerating into a dominant platform across food delivery and commerce.

Even in comparison to its global food delivery peers, Zomato leads the way, along with DoorDash, which has gained 82% year to date (YTD), the brokerage noted.

Despite the sharp rise in the stock YTD, most brokerages expect it to continue to deliver big returns going ahead. 

“We remain positive about the long-term growth opportunity for Zomato,” said Motilal Oswal, adding that competition is not expected to intensify further despite the entry of ONDC in the food and grocery delivery space.

Speaking to Inc42, Kush Ghodasara, CMT and an independent market expert, termed Zomato a “multi-bagger stock”. 

“If anyone wants to buy a new-age IT stock, Zomato is my favourite pick given its other ventures such as Blinkit and Hyperpure (B2B business) are also doing well now. Besides, Zomato has launched a new courier service, which is also expected to be a game-changer,” he said.

Ghodasara sees the stock rallying to about INR 225 in the next six months.

While most brokerages have revised up their gross merchandise value and revenue estimates on Zomato for the coming quarters, it now remains to be seen if the stock can deliver on it. The year 2024 would be about Zomato showing the market if it can sustain and increase its net profit. If this happens, then, as Buffett says, the stock would follow the results. 

[Edited by Vinaykumar Rai]