Shares in food delivery company Zomato tumbled more than eight per cent on Friday after the delivery group reported flat quarterly revenue growth, as pressure grows on India’s unprofitable tech start-ups to deliver returns.
Zomato is among a clutch of newly listed Indian tech stocks that have crashed off their post-listing peaks as investors fret that the businesses have been overvalued. SoftBank-backed Paytm’s share price has fallen 57 per cent since its record-setting listing in November to Rs924 ($12.27).
“After Paytm, there was this general distress in the market about the valuation of tech stocks,” said Satish Meena, an independent technology analyst. “The valuations are very high, and there’s no way they can become profitable in the near future.”
Zomato shares pared losses later in the day, but were still down more than five per cent at Rs89, having lost about half of their high in November. Shares of insurance aggregator PolicyBazaar, which is also backed by SoftBank, fell more than eight per cent to as much as Rs775 on Friday, while online beauty marketplace Nykaa’s stock is down more than 46 per cent since its initial public offering in November.
Zomato’s revenue from operations edged up to Rs11.1bn ($147mn) for the quarter ending in December, up Rs10.2bn ($135mn) from the previous quarter. But customer delivery charges fell, leaving adjusted revenue the same as the second quarter, which ended in September.
That result disappointed investors, who stomached Zomato’s losses while it promised to increase revenues and market share.
Zomato reported in its results on Thursday that it had started operations in about 180 new cities, where it offered free deliveries to attract consumers. But it said that the “post-Covid reopening” had impacted business, with some customers shifting from ordering in to eating out.
Zomato, which listed in July and has never reported a profit, said it pared quarterly net losses, but this was thanks to cash from its sale of sports business Fitso.
With $1.7bn in cash on its balance sheet, Zomato said it would continue investing in restaurant ordering and delivery as well as online grocery deliveries. Zomato said it had spent about $225mn investing in grocery delivery companies in the past year.
In food delivery, Zomato’s biggest rivalry is with Swiggy, which is backed by SoftBank’s Vision Fund and remains private at an estimated valuation of $10bn. In the groceries sector, Zomato is pitted against deep-pocketed rivals Amazon and Indian tycoon Mukesh Ambani’s Reliance empire.
“The competition is even more massive than food delivery,” Meena said, adding that with razor-thin margins, “grocery globally is a very difficult category”.
While Jefferies and Goldman Sachs have lowered their target prices for Zomato, both retained a buy rating.
“We see the growth slowdown as not being structural and believe Zomato remains well-positioned,” said Goldman Sachs in a note.
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