Zomato earnings release remains opaque, lacks substance and describes only selective aspects of the business: Jefferies

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The Zomato third quarter earnings release remains opaque, lacks substance, and describes only selective aspects of the business, foreign brokerage, Jefferies said in a report.

“Lack of management call leaves a lot to the imagination and our inexperience with the Internet sector does not help either,” Jefferies added.

“We continue to believe that management should face tough investor questions through an earnings call rather than providing abstract details on the business,” Jefferies added.

The past two quarters signal how unpredictable this business (& probably Internet sector) is likely to be, but we remain confident on the structural India growth story, it said.

After a strong 2Q, an underwhelming GOV (+1.7 per cent QoQ) in 3Q will raise questions on India opportunity, Jefferies said.

Adjusted revenues were flat QoQ to Rs14.2bn in 3Q, which was 9 per cent below estimates, albeit on a strong 2Q base. While net revenues (ex-delivery charges) grew 9 per cent QoQ, customer delivery charges fell 22 per cent QoQ which was a drag. This was driven by Rs7.5/order reduction in delivery charges – management attributed this to its strategy of lowering discounts as well as foray into 180 new cities, where they introduced a temporary free delivery.

After a positive surprise in MTUs and GOV resulting in sharp upgrades in 2Q, we now cut the FY22-26 GMV by 4-9 per cent to reflect the muted performance in 3Q. While 2Q nudged us to build a faster topline at the cost of profitability, we now trim growth, but raise profitability, the report said.

Monthly active users (MTU) saw a marginal decline QoQ for the first time in five quarters. Active delivery partners saw a marginal decline QoQ for the first time in five quarters.

Weak GOV growth was due to reduction in delivery charges and post-covid reopening resulting in a shift towards dining out, per management, the report said.

MTU saw a marginal decline QoQ for the first time in five quarters to 15.3m. 2Q base was stiff though, with 26 per cent QoQ growth.

Hyperpure saw a strong 40 per cent QoQ growth in 3Q to Rs 1.6 billion. Dining-out business also saw a revival but again, release provides no details, which is a surprise in the context of a shift towards dine-out.

Zomato has $1.7 billion of cash which they intend to invest in Core food business and Quick commerce. The company has raised the upper bounds of potential investments in quick commerce to $400 million over the next two years, Jefferies said.

(Sanjeev Sharma can be reached at Sanjeev.s@ians.in)

20220211-222003

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