Zomato Share Price: This LargeCap Stock Plunges 18% In 3 Days, Should You Buy?

The shares of the largest food delivery online company, Zomato, in the opening hours of trading on Wednesday, January 22, took a significant hit, marking a 5% decline on the Bombay Stock Exchange (BSE). The shares, which initiated the day at ₹207.40, down from the previous closing of ₹214.65, witnessed a slump, touching ₹203.80. This downturn signifies an 18% drop over the last three sessions, indicating a continued downward trend for the company's stock.

The recent performance of Zomato's stock is notably linked to the company's financial outcomes for the December quarter (Q3). On January 20, the firm, led by Deepinder Goyal, announced a stark 57.3% reduction in its net profit for Q3FY25, recording just ₹59 crore, a significant fall from ₹138 crore in the same quarter the previous year. This decline was even more pronounced from the second quarter of FY25, where the company had reported a profit of ₹176 crore.

Despite the discouraging quarterly report, financial experts maintain a positive outlook regarding Zomato's long-term potential. The expansion efforts of Blinkit, Zomato's quick-commerce service, are seen as temporary setbacks that will ultimately contribute to the company's growth and market leadership. JM Financial, a brokerage firm, has recommended buying the stock with a target price of ₹280. They highlighted Blinkit's rapid expansion, having surpassed 1,000 stores, and its ambitious goal to reach 2,000 stores by December 2025, ahead of its initial December 2026 target.

JM Financial commented, "While this strategy could aggravate Blinkit's absolute losses as well as capex in the near term, it should help it sustain GOV growth of more than 100 per cent year-on-year in FY25 and FY26, and thus maintain market leadership." They further suggested that Blinkit's profitability might see a significant improvement once the pace of store expansion decreases in the latter half of FY26. Despite current market pressures, JM Financial advises long-term investors to seize this opportunity to acquire substantial positions in the stock.

Revenue Growth Amidst Falling Profit

While Zomato reported a decline in profitability, the company's revenue from operations witnessed a substantial increase of 64.4%, reaching ₹5,405 crore in Q3, up from ₹3,288 crore in the corresponding quarter of the previous year. Moreover, the gross order value (GOV) of its B2C business, encompassing quick commerce, food delivery, and going-out services, escalated by 57% to ₹20,206 crore during the reviewed quarter.

The downturn in Zomato's profit margin was largely attributed to the rapid expansion of stores to support the growing demand for its quick-commerce service, Blinkit. Despite this, the company achieved a notable rise in its EBITDA, which soared to ₹162 crore from ₹51 crore in the same quarter last year. However, Blinkit itself reported an EBITDA loss of ₹30 crore, a downturn from a positive EBITDA of ₹48 crore in the year-ago period, reflecting the financial challenges posed by swift expansion.

In summary, Zomato's stock has faced a challenging period, with significant losses over three consecutive trading sessions. Despite the setback in net profit and concerns surrounding Blinkit's current financial performance, the company's overall revenue growth and the optimistic outlook from market analysts suggest potential for recovery. As Zomato continues to invest in expansion, particularly through Blinkit, the focus remains on balancing short-term challenges with long-term growth prospects.