Think about how Zomato has become essential to our daily lives – from weekend brunches to weeknight dinners. But did you know that this Indian food delivery giant is also making waves on a global scale? Zomato’s stock performance has been impressive, leaving investors wondering if it’s a sign of things to come or a temporary surge. Market analysts seem confident in Zomato’s continued growth despite the challenges faced by other delivery companies worldwide. Let’s find out the reasons behind this impressive surge.
Riding the Food Delivery Wave
The food delivery industry has experienced a boom in recent years, fueled by the increasing popularity of online ordering and its growing convenience. Zomato, a pioneer in this space, has capitalized on this trend, significantly expanding its reach and market share.
Zomato’s stock price skyrocketed by 165% in the first six months of 2021. This growth significantly outpaced its global counterparts, solidifying its position as a leader in the food delivery market. After 15 years, Zomato achieved profitability in FY24 Q1, marking a significant milestone.
Despite an initial dip after its 2021 listing, erasing over half of investors’ wealth, Zomato has rebounded impressively. Its shares surged over 250% last year, signaling a remarkable turnaround for the food delivery giant.
Top 3 Reasons Behind Zomato’s Surge
- Market Expansion: Zomato has been aggressively expanding its reach across India, adding new cities and partnering with more restaurants. This growth strategy has attracted investors who believe in the company’s potential to capture a larger share of the Indian food delivery market.
- Shifting Consumer Behavior: The COVID-19 pandemic significantly altered consumer behavior, dramatically increasing online food ordering. This trend has benefited companies like Zomato, which is well-positioned to cater to the increased demand for home deliveries.
- Investor Optimism: The overall bullish sentiment in the Indian stock market has also contributed to Zomato’s stock surge. Investors are increasingly optimistic about the Indian economy’s growth potential, and Zomato, as a leading player in a growing industry, is seen as a beneficiary of this optimism.
Zomato and its Global Counterparts
Zomato’s shares are trading at a rich valuation, with Kotak Institutional Equities reporting a staggering 94.3 times its one-year forward earnings. However, projections indicate a potential moderation, with the brokerage foreseeing a P/E ratio of 47.2x by 2026. Compared to its delivery counterparts, Zomato’s valuations appear very high. Swiggy, Zomato’s closest rival, was valued at $12.7 billion by Invesco on April 12, holding approximately a 2% stake, whereas Zomato’s market capitalization is roughly $19.89 billion.
According to recent estimates, compared to Meituan’s 75 million MAU (Monthly Active Users), Zomato has approximately 35 million MAU. Meituan generated about $10.20 billion in total revenue for Q4 2023, whereas Zomato’s revenue for the same quarter stood at approximately Rs 3,288 crore, equivalent to around $390 million.
Zomato vs Other Delivery Companies(Revenue, profit as per last quarter)
| Delivery Companies | Market Cap (In Million Dollars) | TTM PE (In Million Dollars) | Revenue(In Million Dollars) | Profit (In Million Dollars) |
| Zomato | 19,888 | 141.49 | 394 | 16.53 |
| Deliveroo | 2638 | – | 627 | 32 |
| DoorDash | 53,692 | -94.7 | 8600 | 156 |
| Meituan | 78,950 | 40.98 | 1020 | 300 |
| Uber | 1,52,790 | 85.35 | 9936 | 1429 |
Potential Roadblocks Ahead
While Zomato’s recent performance is impressive, there are potential roadblocks that could hinder its future growth:
- Intense Competition: The food delivery market in India is fiercely competitive, with significant players like Swiggy and Uber Eats vying for market share. This competition could put pressure on Zomato’s margins and profitability.
- Profitability Concerns: Despite its impressive growth, Zomato is yet to turn a profit. Investors may become wary if the company reports losses, especially if the growth rate slows.
- Valuation Concerns: Zomato’s stock price currently trades at a significant premium, raising concerns about its valuation. If investor sentiment changes, the stock price could experience a substantial correction.
What does the Future Hold?
While the company’s prospects seem promising, the current valuation might be stretched, making it susceptible to fluctuations. Analysts believe that Zomato’s long-term success will depend on its ability to achieve profitability, navigate the competitive landscape, and justify its current valuation.
Conclusion
Zomato’s recent stock performance has been remarkable in the stock market. However, investors need to be cautious about the potential risks of the company’s future growth. While the food delivery industry presents exciting opportunities, competition, profitability concerns, and a high valuation pose significant challenges for Zomato.
Only time will tell if Zomato can continue its upward growth or if its stock price is due for a correction. Regardless, it’s an interesting company to watch in the ever-evolving food delivery landscape.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.