Shares of Indian food delivery group Zomato fall on slowing revenue growth

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Shares of food delivery company Zomato fell more than 8% on Friday after the delivery group reported stable quarterly revenue growth amid mounting pressure on unprofitable technology start-ups in the India to generate returns.

Zomato is among a handful of newly listed Indian tech stocks that have fallen from post-listing highs as investors fear the companies have been overvalued. The SoftBank-backed Paytm share price has fallen 57% since its record listing in November at 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. “Valuations are very high and there is no way they will become profitable in the near future.”

Shares of Zomato pared losses later in the day but were still down more than 5% at Rs89, having lost around half of their November high. Shares of insurance aggregator PolicyBazaar, which is also backed by SoftBank, fell more than 8% to 775 rupees on Friday, while shares of online beauty market Nykaa fell more than 46% since its IPO in November.

Zomato’s operating revenue reached 11.1 billion rupees ($147 million) for the quarter ending in December, up 10.2 billion rupees ($135 million) from the previous quarter. But customer delivery charges fell, leaving adjusted revenue at the same level as the second quarter, which ended in September.

The result disappointed investors, who bore Zomato’s losses as it promised to increase revenue and market share.

Zomato said in earnings Thursday that it has started operations in about 180 new cities, where it is offering free deliveries to attract consumers. But he said the ‘post-Covid reopening’ had impacted business, with some customers ordering from outside.

Zomato, which went public in July and never reported a profit, said it trimmed its quarterly net losses but that was thanks to cash from the sale of sports business Fitso.

With $1.7 billion in cash on its balance sheet, Zomato said it will continue to invest in restaurant ordering and delivery as well as online grocery deliveries. Zomato said it invested about $225 million in grocery delivery companies over 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 $10 billion valuation. In the grocery business, Zomato faces deep-pocketed rivals Amazon and Indian tycoon Mukesh Ambani’s Reliance empire.

“Competition is even more massive than food delivery,” Meena said, adding that with razor-thin margins, “grocery overall is a very tough category.”

While Jefferies and Goldman Sachs lowered their target prices for Zomato, both retained a Buy rating.

“We view the slowdown in growth as non-structural and believe Zomato remains well positioned,” Goldman Sachs said in a note.

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