Mumbai: Picture this: you eagerly await the daily notification from your go-to food delivery app, its tempting offers making it hard to resist ordering your next meal. But imagine the silence when those notifications cease because the company behind them is grappling with shrinking profits.
In a crucial board meeting on 22 October 2024, Zomato revealed a blend of progress and setbacks in its unaudited second-quarter FY25 results. Revenue soared to Rs 4,799 crores, a leap from Rs 2,848 crores in the same period last year, yet the quest for profitability remains distant. The food giant's net profit slid to Rs 176 crores, falling from Rs 253 crores in the previous quarter, casting doubts on its ability to sustain momentum in the face of rising costs.
Zomato's latest financial results reveal a company grappling with the dual realities of scaling up while managing costs. The revenue from operations jumped by 68.5 per cent year-on-year, driven primarily by strong performance in the quick commerce and B2B segments. The company's quick commerce revenue, which encompasses ultra-fast deliveries, grew to Rs 1,156 crores, an impressive 129 per cent increase compared to last year. Similarly, Hyperpure, its farm-to-fork supplies business, witnessed a near doubling of revenue to Rs 1,473 crores. Despite these gains, the rise in delivery charges and other associated expenses limited overall profitability gains.
The company's other major cost heads include advertising expenses and employee benefits, which escalated to Rs 421 crores and Rs 590 crores respectively for the quarter. Depreciation and finance costs also showed marked increases, contributing to a 60 per cent hike in total operating expenses year-on-year, reaching Rs 4,783 crores. The intensified spending has put pressure on margins, resulting in a modest profit before tax of Rs 237 crores, unchanged from the previous quarter. However, a sharp fall from the Rs 253 crores profit reported in the June quarter dampened the outlook.
Notably, Zomato is strategically positioning itself for future growth through several investments and initiatives. The company approved a plan to raise Rs 8,500 crores through a qualified institutional placement, aimed at bolstering liquidity and fueling future expansion. The funds are expected to be directed toward scaling quick commerce operations and enhancing technological capabilities, which are essential in an increasingly competitive market.
In a bold move towards diversification, Zomato acquired Orbgen Technologies Pvt Ltd and Wasteland Entertainment Pvt Ltd for a combined sum of Rs 2,014 crores. These acquisitions add movie ticketing and event management services under Zomato's ‘Going Out’ segment, potentially unlocking new revenue streams beyond the food delivery space. Despite this, some analysts question whether Zomato is overextending itself by venturing into sectors outside its core business.
The company also disclosed its acquisition of a minor stake in Byond Nxt Smart Home Pvt Limited, a nascent startup focused on innovative kitchen appliances, for a nominal Rs 6,000. This move aligns with Zomato's strategic interest in supporting technologies that complement its broader food ecosystem.
Amid the financial results, a cloud of uncertainty looms as Zomato continues to deal with tax issues. The company faces ongoing litigation regarding Goods and Services Tax (GST) on delivery charges, with demands from the West Bengal GST authorities totaling Rs 19 crores. Zomato maintains that it has a "strong case on merits" based on legal counsel. The outcome of these proceedings could significantly impact the company's bottom line in the coming quarters.
Market analysts have offered a mixed response to Zomato's results, acknowledging the company's ambitious growth while also raising concerns about profitability. With basic earnings per share at Rs 0.20, down from Rs 0.29 in the previous quarter, the company's share price reflected investor caution. The board's decision to proceed with a large fundraising initiative signals both confidence in future growth prospects and the need to shore up finances amid rising costs.
Zomato CEO Deepinder Goyal, while addressing stakeholders, emphasised the need to balance short-term profitability with long-term growth investments. "We are committed to growing responsibly while expanding our product and service offerings. Our investments today will drive the future value we can deliver to our shareholders," Goyal said.
The results underline the challenges of navigating a fiercely competitive market, especially with rivals aggressively expanding their service portfolios. The quick commerce sector, while promising, remains a low-margin, high-investment business, demanding substantial capital to secure market share. Zomato's ability to execute efficiently in this space will be crucial in sustaining investor confidence.
Overall, Zomato’s latest results reflect a company still searching for a sustainable balance between growth and profitability. With significant revenue gains tempered by rising expenses, Zomato faces a critical period where strategic investments must yield not only market expansion but also tangible returns to justify ongoing capital outlay. The pressure to improve margins persists, especially as the company ventures into new business areas where success is not guaranteed. As the company rolls out its capital-raising efforts, the coming quarters will determine whether its growth trajectory can align more closely with investor expectations.
