Zomato Shares Trade Higher on Focus Shift to Growth, Home-cooked Meals Pilot
The shift in focus towards growth by Zomato has led analysts to predict a potential increase of up to 50 percent in the company’s stock price. As of February 24, the food tech platform’s shares were trading higher on the BSE, with a 1.46 percent increase from the previous day’s closing price, currently at Rs 55.15 at 02:23 pm.
Morgan Stanley, a brokerage firm, has said that Zomato’s pilot of home-cooked meals in Haryana’s Gurugram, at an affordable price, will expand the company’s total addressable market and contribution profit pool. However, the firm’s profit per order may be diluted as a result of this experiment. The brokerage firm also mentioned that the pilot could be discontinued if it fails. With an overweight rating on the stock and a target price of Rs 82 per share, Morgan Stanley believes that this experiment will result in significant value for Zomato.
Citi, a global brokerage firm, noted that Zomato is focusing on its Gold loyalty program, and such programs serve as strong medium-term value engines. They believe that this focus on loyalty will lead to a decline in churn and an increase in frequency, resulting in the program being an engine of value in the future.
The brokerage firm has a buy rating on the stock and a target price of Rs 76 per share. They also mentioned that the third gross order value (GOV) resulted in a 50 basis point negative impact sequentially on the contribution margins ex-ante in the October to December quarter.
Zomato’s rival, Swiggy, has also added features and extended terms for existing members. Additionally, Zomato announced earlier this week the launch of “Zomato Everyday,” a home-style meal offering. This offering is a remodelled version of its 10-minute food delivery service, which was suspended in January, less than a year after its launch as a pilot in Gurugram. According to CEO Deepinder Goyal’s shareholder letter, Zomato is working on remodelling its Instant service to focus on offering customers home-style cooked meals at affordable prices, to be called “Zomato Everyday.” The latest offering will see the company’s food partners collaborate with home chefs who will design meals starting from Rs 89, delivered “within minutes.”
While Goyal believes that there is a large opportunity for a service like this in India’s market, Swiggy’s 2019 launch of a separate app for home-style meals, called “Swiggy Daily,” failed to take off as planned and was shut down within a year in 2020, owing to weak demand. Another app that shut down in the space was Holachef.
Incorporated in 2010, Zomato Limited is one of the leading online Food Service platforms in terms of the value of food sold. Its offerings include food delivery, dining-out services, Loyalty programs, and others.
As of December 31, 2020, Zomato has established a strong footprint across 23 countries with 131,233 active food delivery restaurants, 161,637 active delivery partners, and an average monthly food order of 10.7 million customers.
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