Is Zomato Profitable and Can It Stay That Way?

Zomato has indeed shown significant growth and profitability in recent years.

The company's revenue has been increasing steadily, from ₹1,161 crore in 2017 to ₹2,603 crore in 2020. This growth is largely attributed to its expanding user base and diversified revenue streams.

In 2020, Zomato's net loss was ₹1,152 crore, but its revenue from food delivery increased by 123% year-over-year, reaching ₹2,032 crore.

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Zomato banked on Adjusted EBITDA till last quarter, but in Q1 FY24, it didn't rely on this crutch.

The company's profit is a mere INR 2 Cr, which is 0.0008% of its consolidated revenue in the fiscal.

Zomato's core food delivery business has seen improvements, largely due to cost cutting in employee benefits expenses (3% lower YoY) and some rationalisation in advertising and sales costs.

Blinkit's revenue contribution of INR 803 Cr for FY23 has had a significant impact on Zomato's overall operating revenue.

However, Blinkit itself saw some headwinds in the past quarter, including quick commerce revenue growth that was not very encouraging.

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The number of transacting users remained flat compared to the quarter ended March 2023.

Zomato's bottom line improvements have come largely as a result of cost cutting and some rationalisation in advertising and sales costs.

The company's revenue growth was north of 17% QoQ and 70% YoY, while its advertising and sales costs only increased by 3% QoQ and 13% YoY.

Zomato's profit is largely due to the deferred tax of INR 17 Cr, which brought the company out of the red, but only just.

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It seems like food delivery as a sector is maturing and becoming more indispensable for consumers in metros and Tier 1 cities, as both Zomato and Swiggy have achieved profitability in the March-June quarter.

The fact that Swiggy claimed to have hit profitability in its food delivery business as of March 2023, after factoring in corporate costs, is a significant milestone for the company.

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Swiggy's CEO Sriharsha Majety mentioned that the company is one of the few global food delivery platforms to achieve profitability, but unfortunately, the announcement was not accompanied by actual financials of the company.

Zomato's achievement of profitability in the same quarter suggests that the sector is becoming more viable and attractive to investors.

Swiggy's reliance on food delivery profits to keep quick commerce fueled up is a strategic move to maintain its competitive edge in the market.

Both Swiggy and Zomato have adopted similar strategies in recent months, indicating a shift towards a more mature and competitive industry.

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Zomato's main competitors in the food delivery market are Swiggy and Foodpanda. Zomato's revenue growth is impressive, with a 56% increase in the third quarter of 2020.

Swiggy has been gaining ground, with a 45% market share in India's online food delivery market. Zomato's revenue from food delivery services was Rs 1,161 crore in Q3 2020.

Expand your knowledge: Swiggy vs Zomato Market Share

Foodpanda, on the other hand, has struggled to keep up, with a mere 17% market share in India. Zomato's average order value (AOV) increased to Rs 245 in Q3 2020, a 10% rise from the previous quarter.

Despite the competition, Zomato's strong brand presence and user base have helped it stay ahead of the pack. Zomato's customer base has grown significantly, with over 50 million monthly active users as of Q3 2020.

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The Indian food delivery market has been growing steadily, with a projected value of US$ 20.3 billion by CY27, a 11.0% compound annual growth rate (CAGR). This growth is driven by the increasing demand for online food delivery services.

Zomato, one of the leading food delivery companies in India, has been expanding its operations to meet this demand. In CY21, the company's food delivery network covered over 1,000 cities in India, with a market share of more than 35%.

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The company's revenue has also been increasing, with food delivery accounting for 64% of the company's revenue in FY23. This growth is expected to continue, with the company's revenue projected to rise by 74% in Q2 of 2024.

Here are some key statistics on Zomato's growth:

Zomato's growth has been driven by its ability to expand its restaurant partner base, with 215,000 restaurant partners in FY23, up from 205,000 in FY22. The company's focus on improving delivery services and offering superior customer experience has also contributed to its growth.

India's food delivery market has evolved into a duopoly, dominated by Zomato and Swiggy, after Amazon discontinued its efforts to expand its food delivery services in the country.

The duopoly has been shaped by the distinct paths taken by Zomato and Swiggy in their quest to dominate the food sector. Zomato, established in 2008, initially relied on revenue from restaurant advertisements.

Swiggy, established in 2014, focused solely on food delivery services. Over time, both companies have expanded their offerings through various investments and acquisitions.

The respective apps of Zomato and Swiggy exhibit minimal differentiation, with both prominently featuring food delivery, dine-in, and quick commerce services, as well as a search bar at the top.

Zomato has a large base of transacting users, with 17.1 million users, which should deter any additional competition in the industry.

Zomato made a loss for the last six years ending FY23, but it didn't stop investors from buying into the company. The stock opened at 116 compared to the final offer price of 76, giving a 66 percent premium.

After a remarkable debut, the stock fell downwards reaching ₹46 in January 2023. This was a significant drop from its initial price.

However, Zomato turned profitable in Q1FY24 and remained profitable till Q3FY24. The stock has also surged 190 percent over the last year. This shows that the company's efforts to become profitable have paid off.

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Here's a timeline of Zomato's IPO journey:

This rollercoaster ride is a testament to the company's resilience and determination to become profitable. Despite facing cash crunches numerous times, Zomato has managed to stay afloat and even achieve profitability.

Zomato's journey to profitability is a remarkable one, with the company achieving a profit of ₹253 crores (2.53 Billion Rupees) in Q2 of 2024, a 12,550% increase from ₹2 crores in Q1 of the same year.

The company's revenue has also seen a 74% rise, a testament to its growing success in the market. Zomato's founder has admitted to facing a cash crunch a total of 6 times since the company's operations began.

Zomato's business declined by 90% in 2020 due to the initial COVID-19 wave, but the company managed to recover and launch its IPO, despite being a loss-making company at the time.

The company's ability to adapt and innovate has been key to its success, with the launch of Zomato Gold, Hyperpure, Blinkit, and improved services all contributing to its growth.

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Here are some key statistics that highlight Zomato's progress:

Zomato's success serves as a valuable lesson for the entire Indian startup ecosystem, which is still operating at a loss for the most part.

Zomato's growth and expansion have been remarkable, with its primary business being food delivery accounting for 64% of the company revenue in FY23. The company leads the online meal delivery market with a market share of more than 35% in India.

Zomato has a presence in up to 1,000 Indian cities, catering to a vast customer base. In FY23, the company witnessed 17.1 million Monthly Transacting Users (MTUs) ordering food, compared to 14.7 million MTUs in FY22.

The number of delivery partners has also seen a significant increase, with approximately 352,000 active delivery partners in Q1FY24, up from 327,000 in FY23. This has established Zomato as the largest hyperlocal delivery network in India.

Zomato's restaurant partners play a crucial role in the food delivery industry, with 215,000 restaurant partners in FY23, up from 205,000 in FY22. This increase in restaurant partners has led to a rise in orders per restaurant, from 2,025 orders in FY19 to 3,280 orders in FY23.

Here's a breakdown of Zomato's growth in key areas:

Zomato's expansion into Tier II & III cities has also been a strategic move, as it allows the company to tap into a larger market and secure a substantial pool of delivery partners.

The Indian food delivery space is a growing market, but it's still relatively small compared to the global market. India's food delivery market was approximately US$ 10.8 billion in CY21, accounting for only 3.6% of the global market valued at US$ 296.4 billion during the same period.

Zomato has expanded its food delivery network to over 1,000 cities in India, but the country's food delivery market is expected to reach around US$ 20.3 billion by CY27, with a compound annual growth rate (CAGR) of 11.0%. This growth is expected to outpace the global market's growth rate of 7.8% over the same timeframe.

Zomato exhibits one of the lowest Gross Order Values (GOV) and Average Order Values (AOV) compared to global counterparts. The ongoing enhancement of the food delivery ecosystem, and consequently Zomato's growth, hinges on three key factors: a) the maturation of restaurants in India, b) heightened consolidation within the food services industry, and c) the expansion of restaurant chains in India.

The Indian food delivery market has evolved into a duopoly, dominated by Zomato and Swiggy. Both companies have pursued distinct paths in their quest to dominate the food sector, with Zomato initially relying on revenue from restaurant advertisements and Swiggy focusing solely on food delivery services.

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