Zomato share price nears record high, up over 60% YTD; here’s what is driving the stock

Zomato share price gained nearly 3% in early trade on Tuesday as brokerages maintained their bullish view on the stock after its rival Swiggy’s performance improved in 2023, showing increased traction in the food delivery and quick commerce sector. Zomato shares gained as much as 2.91% to ₹204.65 apiece on the BSE, nearing its record high level of ₹207.30.

Prosus, the largest shareholder in Swiggy, reported that in FY24, Swiggy’s overall gross order value (GOV) (food delivery + quick-commerce) grew by 26% YoY (for Jan-Dec 2023). This lagged Zomato’s corresponding growth of 31% during the same period.

Swiggy’s overall revenue growth of 24% YoY was also lower than Zomato’s adjusted revenue growth of 35% YoY. Swiggy’s adjusted EBITDA improved to (negative) -$261 million in January - December 2023 from -$531 million in January - December 2022. Meanwhile, Zomato reported a positive EBITDA of $5 million during FY24, brokerage firm CLSA noted. 

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According to Goldman Sachs, the FY24 results from Prosus suggest Zomato has expanded market share across both food delivery and quick commerce segments, with overall GOV scale of Zomato more than 30% larger than that of Swiggy’s.

In food delivery, it calculates Zomato’s market share now at 56-57%, a 200 bps expansion versus the previous period, while in quick commerce, Zomato's scale is likely 50% larger than its nearest competitor.

“We believe Zomato being ahead of its peers on profitability will continue to provide it with the opportunity to further gain market share or improve profitability, or deliver on a mix of both,” Goldman Sachs said.

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Emkay Global Financial Services believes Zomato’s higher growth has been aided by the superior performance of its Quick Commerce. 

After turning EBITDA positive in March 2023, Swiggy’s food delivery profitability improved on account of operating leverage with additional revenue streams, whereas overall losses narrowed to $261 million in 2023 from $531 million in CY22.

“Swiggy’s performance reflects the continued traction of Food Delivery and rise of Quick Commerce,” said Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services.

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Prosus highlighted that Swiggy's quick commerce GOV has grown much ahead of the e-commerce industry, led by geographical penetration and saw SKU expansion. Similarly, for Zomato, Blinkit has shown sharp improvement across metrics over the last few quarters, with the overall industry now finding favorable traction.

Steady improvement in operational performance and the planned IPO of Swiggy are likely to keep investor interest high in the space. The company’s upcoming IPO is now a key milestone, with valuation being the main monitorable, Mehta added.

Zomato share price has rallied over 10% in the last one month, while the stock has jumped more than 63% year-to-date (YTD). Zomato shares have delivered multibagger returns of over 172% in one year.

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What should investors do?

Emkay Global has a ‘Buy’ call on Zomato shares with a target price of ₹230 per share.

Foreign brokerage CLSA also maintained a ‘Buy’ rating and Zomato share price target of ₹248 apiece.

UBS iterated its ‘Buy’ call on Zomato stock with a target price of ₹250 per share.

At 9:50 am, Zomato shares were trading 1.58% higher at ₹202.00 apiece on the BSE. 

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