Indian food delivery platform Zomato on Friday posted its second consecutive quarterly profit, driven by an uptick in food orders on the platform and increased demand for its quick commerce business Blinkit.
For the fiscal second quarter that ended September 30, 2023, Zomato posted a profit of Rs 36 crore ($4.3 million), versus a loss of Rs. 251 crore in the corresponding period last year and Rs2 crore in the previous quarter.
Revenue from operations in the period rose 71% to Rs2,848 crore from Rs1,661 crore, a year ago. The company attributed the rise in revenue to growth in its biggest segment—food delivery.
Zomato’s profitability comes amid changing investor expectations from ‘growth over profitability’ metrics to ‘profitability at all costs’, forcing Indian startups to hunker down and slash expenses, lay off employees, and diversify revenue streams to fight the prolonged funding winter.
Adjusted revenue in the food delivery segment rose to Rs. 1,925 crore in the quarter, versus Rs1,581 crore a year ago. This marks the second consecutive quarter of growth in adjusted revenue for the segment, following a decline in the preceding quarters.
Even as Zomato earned more money per order in the quarter, the company’s total expenses continued to rise. Total expenses rose to Rs 3,039 crore in the period from Rs 2,092 crore a year ago, in part due to a rise in delivery charges. The delivery charges rose to Rs 919 crore in the quarter from Rs 590 crore, a year ago.
With the rising use of smartphones and attractive discounts on offer, food delivery platforms have become increasingly popular in India. Currently, the segment, which is expected to breach the $10-billion GMV mark by 2025, is dominated by two players—Swiggy and Zomato.
To gain a bigger share of the market, both Swiggy and Zomato have been experimenting in areas including grocery delivery, competing with players such as Zepto, and Dunzo.
To attract more consumers, the company also launched its Gold programme for users to get savings on food delivery and in-restaurant dining. The company said the increase in monthly ordering frequency was largely a result of the growing adoption of its Gold programme as Gold members tend to order more frequently compared to non-members.
The Gold programme has scaled to 3.8 million members within three quarters since its launch, and these members now account for about 40% of the company’s food delivery gross order value (GOV), Zomato claimed.
However, Akshant Goyal, CFO of Zomato also said that a Gold order is less profitable than a non-Gold order due to the impact of programme benefits. The delivery charges paid by the customer are almost negligible and the subscription fees collected from the members cover only a small part of the incremental costs.
Blinkit, which Zomato acquired in 2022, turned contribution margin positive for the first time for the entire Q2. The contribution margin ( as a percentage of GOV) has improved to 1.3% in Q2 FY2024 from -7.3% in Q2 FY2023.
From a potential profit pool perspective, we think quick commerce is a larger opportunity than food delivery, Deepinder Goyal, founder of Zomato said in a letter to shareholders.
The gross order value on Blinkit rose to Rs. 2,760 crore in the quarter from Rs. 1,482 crore a year ago, and the number of orders rose from 26.1 million to 45.5 million in the quarter, after falling sequentially to 36.8 million from 39.2 million in the previous quarters. Analysts did not cheer Zomato’s acquisition of grocery delivery startup Blinkit last year saying it would delay the former’s path to profitability due to cash burn.
Blinkit’s GOV growth was largely driven by same-store sales growth and festivals driving much stronger growth for the segments as compared to food delivery.
With major festivals like Navratri, Dussehra, Diwali etc. lined up in the December quarter, we expect another high growth quarter from Blinkit, Akshant said.
While Zomato’s shares debuted at a 53% premium to their IPO price last year, the scrip has lost about 30% of its value from an all-time peak of Rs 169.10 in November 2021 and is trading about 50% above the issue price of Rs 76 per share. On Friday, the company’s stock closed up 9.6% at Rs. 117.90 per share.
