February 10, 2024
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Zomato Q3 profit at Rs 138 crore beats Street estimates
Zomato Ltd on Thursday said its consolidated net profit stood at Rs 138 crore for the December quarter compared with a profit of Rs 36 crore in the September and a loss of Rs 367 crore in the year-ago quarter. The profit figure was higher than Street estimate of Rs 50-70 crore. The bottom line beat sent the stock climbing 3.17 per cent to Rs 145.05 on BSE, in an otherwise weak trading session. The scrip eventually closed at Rs 144, up 2.42 per cent.
Sales, GOV guidance
The consolidated adjusted revenue was up 53 per cent YoY (12 per cent QoQ) at Rs Rs 3,609 crore. The Zomato CEO Deepinder Goyal said his company continued to grow meaningfully above its stated expectation of 40 per cent-plus YoY. He expected the topline to continue growing at 50 per cent-plus YoY.
“GOV growth is now back up to 25 per cent-plus YoY. At this point, we expect GOV to continue growing at 20 per cent-plus YoY, and perhaps accelerate further if we see more than expected market share gains and revival in macro consumer demand. Annualised Adjusted Ebitda profit is now Rs 1,000-plus crore. We expect both margin expansion and GOV growth to drive further improvement in absolute profits,” he said.
Platform fee
Goyal said it is too early to predict how the platform fee will shape up. Much like the Gold program, Goyal said Zomato is still testing the waters on what works and makes sense here from a long term perspective.
“We will continue to tactically use levers like these to optimise both growth and margin expansion. Most importantly, as we do this, we will also continue to ensure the viability and well-being of each of our stakeholders – our customers, restaurant partners and delivery partners,” he said.
Blinkit update
In the case of Blinkit, GOV growth stood at 103 per cent YoY (28 per cent QoQ) continued unabated. Losses continue to decline and Zomato said it is on track to meet our guidance of adjusted Ebitda break-even on or before Q1FY25. GOV for Blinkit was up grew 28 per cent QoQ (103 epr cent YoY) largely driven by the robust uptick in demand that we witnessed due to the multiple festivals and occasions in the quarter.
Zomato said it ensured consistently high service levels through minimal stock-outs and adequate delivery partner availability during periods of peak demand. While most of the GOV growth was order volume-led, part of it was also driven by an increase in average order value, which continued to benefit from a higher mix of high ASP (average selling price) categories such as electronics, festive needs, home décor, among others.
“We also added 40 net new stores this quarter, taking the total store count to 451 as at the end of the quarter. Despite the increase in store count, our average GOV per day, per store grew 17% QoQ reflecting healthy same store sales growth,” Goyal said.
Contribution margin
The aggregate contribution margin in the business is a weighted average of contribution profits from scaled stores and the cost to break-even on new stores. In Q3FY24, close to 70 per cent of Zomato stores were contribution positive and 20 per cent of them were operating at a 5 per cent plus contribution margin resulting in a growing pool of Contribution profit, which is creating room for investing in new stores while also continuing to improve the aggregate contribution margin.
Demand environment
The demand environment was muted in the December quarter and that was true even for the broader restaurant industry. Food delivery GOV growth was lower than Zomato’s own expectations but still higher than some of the other players in the restaurant industry space. “One of the things driving the growth of our food delivery business is the fact that our platform is still underserved from a supply standpoint. The monthly active restaurant base on our platform has grown by 20 per cent-plus YoY in Q3FY24. This growth is driven both by new restaurants opening-up and our coverage of existing restaurants increasing,” Goyal said.
Zomato Gold
Zomato Gold is being used tactically to acquire (and re-acquire) customers and hence the pricing of the membership program is much lower than what Zomato would want it to be. Customers have more than one option and Zomato said it has to remain competitive on pricing. Zomato said it is also seeing a lot of customers switching platforms at the time of membership renewal depending on who is offering the lowest price. While there is no debate on the need for a loyalty program, it is yet to get to sustainable pricing.
“Margins have continued to expand due to incremental improvements in other aspects of the business, as has been the case over the last four quarters since the launch of the Gold program. Many of these improvements have been a result of years of relentless work put in by the team, which is starting to pay off now. One example is the work we’ve done around improving ad-monetisation, which is leading to consistent QoQ increase in ad revenue per order over the last several quarters. Introduction of a platform fee for all customers (including Gold members) in July 2023 has also helped in margin improvement,” it said.
Other key details
Zomato said it continued to build on the momentum in the first two quarters of FY24. Gross order value (GOV) for the quarter across B2C businesses grew 47 per cent YoY (13 per cent QoQ) to Rs 12,886 crore. On an annualised basis, Zomato crossed Rs 50,000 crore of GOV in our B2C businesses. Food delivery GOV grew 27 per cent YoY (6.3 per cent QoQ), quick commerce GOV grew 103 per cent YoY (28 per cent QoQ) and Going-out GOV grew 154 per cent YoY (26 per cent QoQ). On the profitability front, consolidated adjusted Ebitda was positive for the third consecutive quarter at Rs 125 crore and improved by R s390 crore as compared to the same quarter last year.
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