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Zomato, the prominent food delivery company, released its financial results for the December quarter (Q3FY25), revealing a mixed bag of performance. While the company experienced a significant increase in revenue, its net profit took a considerable hit. The reported consolidated net profit plummeted by 57% year-on-year (YoY), settling at Rs 59 crore compared to Rs 138 crore in the same period of the previous fiscal year. This sharp decline in profitability stands in contrast to the robust 64% YoY growth in revenue from operations, which reached Rs 5,405 crore, up from Rs 3,288 crore in Q3FY24. This disparity highlights the challenges Zomato faces in balancing aggressive expansion with sustainable profitability. The market reacted negatively to the announcement, with Zomato shares experiencing a significant drop of over 7% on the NSE, closing the day at Rs 230.70. The sequential performance also paints a concerning picture. Profit after tax (PAT) declined by 66% quarter-on-quarter (QoQ) from Rs 176 crore in Q2FY25, indicating a downward trend in profitability. Revenue growth, while positive at 13% QoQ (reaching Rs 5,405 crore from Rs 4,799 crore), failed to offset the significant drop in profitability.
A closer examination of Zomato's key performance indicators reveals further nuances. The gross order value (GOV) of its business-to-consumer (B2C) operations saw a substantial YoY increase of 57%, reaching Rs 20,206 crore. However, the QoQ growth was a more modest 14%. This indicates a potential slowdown in demand, a point acknowledged by Zomato itself in its letter to shareholders. The company attributed this slowdown to a broad-based dip in demand that began in the second half of November. While Zomato maintains a long-term positive outlook, projecting a 20%+ YoY GOV growth for its food delivery business, the current slowdown raises concerns about the immediate future. Excluding the impact of the Paytm entertainment ticketing business acquisition, the GOV growth was 52% YoY and 12% QoQ, reflecting the underlying trends more accurately. The performance of different segments within Zomato's business also varied. Food delivery GOV grew at a more moderate 17% YoY, while its quick commerce segment experienced a remarkable 120% YoY surge. This disparity underscores the differing growth trajectories of Zomato's various business units, and the challenges inherent in managing such diversified operations.
Zomato's profitability, while showing signs of improvement in certain areas, remains a key concern. Consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) saw a significant 128% YoY increase, largely fueled by improvements in the food delivery adjusted EBITDA margin, which rose to 4.3% from 3% a year earlier. However, on a QoQ basis, consolidated adjusted EBITDA declined by 14%, or Rs 45 crore, despite the positive trend in food delivery margins. This decline is primarily attributed to accelerated investments in expanding Zomato's quick commerce store network. The losses in quick commerce increased by a substantial Rs 95 crore QoQ, a figure that highlights the significant capital expenditure Zomato is undertaking to gain market share in this rapidly growing segment. Founder and CEO Deepinder Goyal explained this as a strategic decision to frontload investments, accelerating the rollout of its quick commerce stores, aiming to reach a target of 2,000 stores by December 2025 – considerably ahead of the previous December 2026 target. This aggressive expansion strategy, while potentially yielding long-term benefits, represents a considerable financial commitment with immediate consequences for profitability.
The increased competition in the food delivery and quick commerce sectors also plays a significant role in Zomato's financial performance. The company acknowledged heightened competition as a factor contributing to a temporary pause in margin expansion. Despite this competitive pressure, Zomato reported no significant attrition of its core customers in its quick commerce business (Blinkit), indicating customer loyalty and continued market acceptance. Zomato's aggressive expansion in quick commerce, evidenced by the addition of 368 net new stores in the last two quarters and 1.3 million square feet of warehousing space, reflects a determined pursuit of growth in this lucrative market. However, this expansion comes at a cost, and the current financial results showcase the trade-off between aggressive growth and short-term profitability. While Zomato projects long-term positive growth, its immediate challenges center around managing this balance, navigating intensified competition, and demonstrating the sustainability of its quick commerce expansion strategy. The overall picture is one of a company aggressively pursuing growth in a rapidly evolving market, but one that is grappling with substantial challenges related to managing costs, maintaining profitability, and outcompeting rivals.
Source: Zomato Q3 Results: Cons PAT falls 57% YoY to Rs 59 crore, revenue surges 64%