Zomato’s Blinkit expansion and Swiggy’s Instamart diversification results in profit decline in Q3 results
The Q3 FY25 performance of Zomato and Swiggy has significantly impacted their stocks. Both companies face operational challenges and opportunities as they navigate the competitive food delivery and quick commerce markets. Let’s explore a detailed breakdown of their post-Q3 performance.
Zomato Q3 Performance
Zomato posted a 57% year-on-year decline in net profit at ₹59 crore. This translates to a 66.5% sequential fall, which has reflected the cost of aggressive investments and operational expenses. Zomato’s operating revenue rose by 64% year-on-year to ₹5,405 crore. However, sequential growth lagged market estimates, causing investor jitters.
Swiggy Q3 Results
Swiggy’s Q3 results for the period ending December 2024 show a mixed financial performance compared to previous quarters. Swiggy reported a total income from operations of ₹2,146 crore for Q3 FY2024. This is an increase from ₹1,952.89 crore in Q2 FY2024. Total expenses for the quarter were ₹2,789 crore, up from ₹2,601 crore in the previous quarter.
The company recorded a loss before tax of ₹490.88 crore, slightly improved from a loss of ₹497.46 crore in Q2 FY2024. However, it is a larger loss in comparison to ₹590.76 crore in Q3 FY2023. The net loss for the quarter was also ₹490.88 crore, consistent with the loss before tax figure.
Quick Commerce Sector Performance
Gross Order Value in food delivery went up by 16.8% year over year. While growth was positive, it missed the estimates by 1.8% and reflected subdued demand in the segment. Contribution margins improved to 8.5%, with some operational efficiency gains.
Market Reaction
Following the Q3 results, both company’s shares faced market volatility:
On January 21, 2025, shares fell by as much as 10%, influenced by poor performance from Zomato. This decline brought Swiggy’s stock price down to around ₹439.8, nearing its IPO price of ₹390.
Overall, while Swiggy showed income growth compared to previous quarters, it continues to face challenges with increasing losses and competitive pressures from rivals like Zomato. Swiggy’s basic earnings per share (EPS) stood at -₹2.20, compared to -₹2.25 in the previous quarter and -₹2.70 in the same quarter last year.
Following Zomato’s Q3 report, its shares dropped over 30% since December, with a sharp 17% decline over three consecutive sessions post-results. On January 22, Zomato’s stock settled at ₹203.80 on the BSE.
Aggressive expansion by Blinkit, Zomato’s quick commerce platform, led to increased costs. The store count on the platform increased to 1,007 and is expected to double by December 2025. However, Blinkit’s EBITDA losses increased to ₹103 crore, which further dented Zomato’s profitability.
Brokerages like Nomura revised Zomato’s price target downward from ₹320 to ₹290, citing concerns over profitability. Analysts remain cautious about the quick commerce segment’s cost-heavy nature and its impact on the broader food delivery sector.
Key Challenges for Zomato and Swiggy
Increased Operational Costs
Zomato’s total expenses surged to ₹5,533 crore, up 63.5% year-on-year, driven by delivery and advertising costs. Similarly, Swiggy’s cost base remains high, affecting its profitability metrics.
Employee Costs
Both companies faced rising employee costs due to competitive hiring and retention efforts. These costs are expected to remain elevated in the near term, further pressuring margins.
Quick Commerce Competition
Intense competition from players like Zepto has increased market pressures. Swiggy’s Instamart and Zomato’s Blinkit are locked in a battle for market share. Thus, leading to aggressive pricing and promotional strategies.
Comparative Performance
Profitability
Zomato outperformed Swiggy in profitability, reporting a Q2 FY25 profit of ₹176 crore compared to Swiggy’s net loss of ₹626 crore. However, Zomato’s Q3 profit decline raised concerns about its ability to sustain this advantage.
Revenue and Growth
Zomato recorded ₹5,405 crore in revenue, surpassing Swiggy’s ₹3,601 crore. However, Swiggy’s GOV growth of 30% year-on-year was higher than Zomato’s 16.8%, showing stronger demand for Swiggy’s offerings.
Operational Metrics
In its food delivery business, Zomato delivered an adjusted EBITDA of ₹341 crore, more than double the ₹112 crore delivered by Swiggy, which indicates better cost management.
Strategic Initiatives
Zomato’s Focus Areas
- Blinkit expansion for further consolidation in quick commerce.
- Further investment in technology to reduce delivery times and enhance the user experience.
- Improvement in contribution margins to negate operational inefficiencies.
Swiggy Strategy
- Diversification into a super app model by including grocery, meat delivery, and Instamart.
- Leveraging its existing delivery infrastructure to optimize costs and expand its quick commerce offerings.
Conclusion
Zomato and Swiggy are navigating a challenging landscape marked by rising costs, competitive pressures, and evolving consumer demand. Zomato’s quick commerce expansion, while promising, has strained profitability, causing ripple effects across the sector. Swiggy’s diversification strategy shows potential but comes with scalability challenges.
Investor sentiment remains cautious as both companies strive to balance growth with profitability. The coming quarters will be critical for Zomato and Swiggy to address these challenges. The companies will need to capitalize on opportunities in the fast-evolving food delivery and quick commerce markets.
