Zomato Q3 Results: From Top-Level Exits To New Offerings — Key Takeaways

Zomato Ltd.'s losses widened sequentially in the third quarter, as the company's quick commerce acquisition, Blinkit, continued to bleed, while the core offering of food delivery neared adjusted Ebitda profitability.

Here's where the company stands on other metrics:

• Demand.

• Path to profitability for each of its businesses (Zomato, Hyperpure, Feeding India and Blinkit).

• Customer acquisition.

• New offerings.

• Top-level exits.

Zomato's Chief Financial Officer Akshant Goyal said the demand environment remains "challenging", but the company is "seeing green shoots of demand coming back in the recent weeks, which makes us believe that the worst may be behind us".

Chief Executive Officer Deepinder Goyal said there had been an "industry-wide slowdown" in the food delivery business since late October across the country, but more so in the top eight cities.

He attributed it to the boom in dining out and travel for the premium-end consumer, while a macro slowdown hit the mid-market segment.

"We believe that the long-term opportunity remains large and exciting," he added.

The company's adjusted revenue for food delivery fell 1% sequentially, while gross order value grew only 0.7%.

In calendar year 2022, Zomato added 2.30 crore new customers, a slight dip from 2021's 2.36 crore figure.

"These are customers who placed at least one order on Zomato in the year. Even in the last quarter of CY22, while the overall demand was soft, the pace of new customer addition was strong," it said.

However, it added that the number of power customers, which it defines as those who order more than 50 times a year, are increasing.

"Power customers grew by ~50% YoY to 27 lakh compared to 18 lakh in CY21. The number of customers ordering more than 100 times a year (~2 orders every week) increased by ~70% YoY."

Zomato had earlier guided for reaching adjusted Ebitda break-even (ex-quick commerce) by the second quarter of 2023-24. It stuck to its target in this quarter.

"The current slowdown in demand was unexpected, which is impacting the growth in food delivery profits. But despite that, we think we are in a good position to meet our profitability goal."

It said the business is already break-even ex-quick commerce in January 2023 and there is a "good chance" of getting to adjusted Ebitda break-even (ex-quick commerce) in the current quarter.

Last year, investors had been far more focused on profitability, Deepinder said.

"As a company, we have been constantly re-evaluating and optimizing investments across the board, including taking a hard look at resource allocation across functions, shutting down non-performing markets, reassessing our headcount, among others."

In January, Zomato made an exit from 225 smaller cities, which contributed 0.3% of its gross order value in the December quarter.

"Performance of these cities was not very encouraging in the past few quarters, and we did not feel the payback period on our investments in these cities was acceptable."

For Hyperpure, which is a B2B business of supplying ingredients and kitchen supplies to restaurants, Zomato said it is choosing growth over profitability currently.

It added that Hyperpure is a multi-city business, with each city at a different stage on the profitability curve. "Our oldest city Bangalore (4+ years old) is already close to being profitable and hence, the newer cities are the largest contributor to losses in this business."

Zomato said the dining out business is starting to take off, but still doesn't contribute meaningfully to the overall size of the business.

Its quick commerce acquisition, Blinkit, posted an adjusted Ebitda loss of Rs 227 crore, down from Rs 259 crore in the previous quarter.

"We are an early-stage business, so any macro slowdown doesn't have a visible large scale impact on our growth metrics. Blinkit is also less impacted vis-à-vis the food delivery business as our typical purchase basket tends to be more skewed towards essential/non-discretionary spends," Albinder Dhindsa, chief executive officer at Blinkit said.

Blinkit's average order value also dipped from Rs 568 to Rs 553 sequentially.

"The slight downward pressure on AOVs might be a result of the slowdown where customers are preferring to buy smaller packs instead of larger ones."

Dhindsa said Blinkit can be profitable even at 20% lower AOVs. "Our job here is to cater to customer needs and shape behaviour where needed to make this a profitable business."

Zomato said it is launching a few initiatives to revive growth in its food delivery business.

"We launched a brand-new membership program, Zomato Gold, in late January... We expect this program to drive loyalty and higher frequency of ordering going forward."

The company claims over 9 lakh members have joined the program, which enables customers to access more restaurants and offers during peak times on both delivery and dining out.

It said the short-term negative impact of Zomato Gold, due to free delivery benefit, will be offset by improvements in other revenue, and fixed and variable cost drivers. "In the long term, we believe we will be able to make the Zomato Gold program itself profitable."

BQ Prime has reported earlier that Zomato is rebranding its 'Instant' service to Zomato Everyday. The new offering will focus on "home-style cooked meals at affordable prices".

"We believe that this is a large opportunity in a market like India and is relatively untapped currently. We plan to launch this soon in the next few weeks," it said.

The company has seen several top-level exits since it has gone public and witnessed its stock value plummet.

As many as four co-founders have quit. While Pankaj Chaddah left in 2018, Mohit Gupta, Gunjan Patidar and Gaurav Gupta left after the company went public.

Recently, Rahul Ganjoo, the head of new initiatives, exited the company, while Siddharth Jhawar, vice president and head of Zomato's intercity legends service, also left the restaurant search and food delivery firm.

Zomato is now left with two co-founders—Deepinder Goyal and Head of People Development Akriti Chopra.

Goyal addressed the issue in the earnings and said that he might not hire for Patidar's role of chief technology officer and head of food delivery. "We don’t have the need to fill these two spots; being in 'continuous lookout for great talent' is an attack tactic, not a defence tactic," he said.