What should investors do after Zomato Q1 numbers FY22

Zomato

If you are one of those investors in the Zomato IPO or in the secondary markets, you are likely to disappointed by the Q1 results. Zomato reported over 3-fold rise in net losses at Rs.356 crore for the Jun-21 quarter compared to Rs.99 crore net loss in the Jun-20 quarter and Rs.153 crore in Mar-21 quarter. Incidentally, the losses were triggered by expensing of 36.8 crore ESOPs granted to founder, Deepinder Goyal.

But what would have perhaps astounded investors is the fact that the Zomato stock is sharply up on 11th August notwithstanding higher losses and overall weak markets. In this dichotomy, lies the real story of Zomato.

What impressed the markets was the solid top-line growth. Total revenues of Zomato grew 22% on a sequential basis (despite COVID 2.0) to Rs.844 crore. The Indian food delivery business clocked gross order value of Rs.4,540 crore in the quarter, so clearly, Zomato takes a big chunk of that market. What really got impacted by COVID 2.0 was the dine-out market which was dysfunctional due to restrictions.

The moral of the story is quite clear. Investors who have invested in Zomato, either in the IPO or the secondary markets, never expected a turnaround to profit. The prospectus was quite clear that losses and cyclical pressures would continue for some more time. What the investors were really betting on, is rapid growth in revenues and market share and Zomato has delivered on both counts. 

That explains why the stock is rallying despite wider losses and in the midst of weak markets. Of course, it is always advisable that you should consult your financial advisor to ensure that the stock fits into your long term portfolio goals.

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