home Uncategorized Why Investors Are Concerned About Zomato’s QCommerce Business Tapanjana Rudra

Why Investors Are Concerned About Zomato’s QCommerce Business Tapanjana Rudra

Several investors are still sceptical about Zomato’s entry into the quick-commerce space with the acquisition of Blinkit, but are convinced about the growth potential of its food delivery business, international brokerage Jefferies said in a research note.

“Skepticism is high on quick commerce, given no proof of concept yet in any large market in the world,” Jefferies noted.

While there are still some questions around Zomato’s core food tech business’ pace of growth, cultural aspects, availability of labour and women workforce participation, there are no questions about its growth opportunity, Jefferies analysts said in the note.

The research note was based on Zomato founder Deepinder Goyal and CFO Akshant Goyal’s meeting with the investors in the United States.

As per the research note, while expressing their doubts about Zomato’s quick commerce business, the investors raised questions like ‘why someone wants grocery delivery in 10-min?’  Moreover, they noted that in the event of success, there are also concerns around competition from Amazon, Flipkart and Reliance Retail.

However, Zomato continues to be bullish on the opportunity in the quick commerce segment. In fact, the startup sees Blinkit as a large driver of growth and profitability going forward, the brokerage said. 

Zomato told its investors that several dark stores are at break-even and more are expected to do so over the next year. In July, the overall contribution loss stood at 10% of GOV (Gross Order Value), with adjusted EBIDTA loss at INR 90 Cr (19% of GOV), Zomato said.

Blinkit’s margin upside might come from a better mix of beauty and personal care products, pharmaceuticals along with ad revenues, the startup told the investors.

After the meeting, Jefferies hasn’t tweaked the rating or price target (PT) for Zomato. The brokerage firm has a ‘buy’ rating on Zomato with a PT of INR 100.

“With only 15 Mn monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability,” the brokerage said. 

Zomato’s acquisition of Blinkit for INR 4,447 Cr in June this year had raised a lot of eyebrows, with many questioning its path to profitability. Investors were also not too enthused with the deal and Zomato shares tanked sharply following the acquisition announcement. 

However, Zomato has maintained that it will achieve overall business adjusted EBITDA breakeven between the last quarter of the current fiscal year and Q2 FY24.

“Investors have been positively surprised with the accelerated path to profitability recently. We get a sense that investors still are not fully convinced on the breakeven guidance by Mar-Sep’23,” Jefferies said. The startup meeting its target could be a “positive surprise”, it added.

While Zomato did not share exact details about the customer acquisition costs (CACs), both Blinkit and Zomato rely on lower CACs, and word of mouth plays an important role in Blinkit, the brokerage noted.

Besides, Jefferies believes that Zomato also has the option to expand into other adjacent categories such as grocery and more.

In fact, Zomato recently started grocery delivery via Blinkit on its main app in Delhi-NCR as a part of a pilot test. The service might expand to other cities based on the response Zomato receives.

Meanwhile, the company is also focusing a lot more on its B2B vertical Hyperpure. At its first AGM since going public, Zomato last month said that Hyperpure could emerge as big as or even bigger than its food delivery business.

The post Why Investors Are Concerned About Zomato’s QCommerce Business appeared first on Inc42 Media.

Several investors are still sceptical about Zomato’s entry into the quick-commerce space with the acquisition of Blinkit, but are convinced… News, B2B-B2CInc42 Media

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