Zomato’s Gold program boosts Q2 results, narrows profitability gap

Zomato, the popular food delivery service, has reported consecutive profitable quarters, with a profit of Rs. 36 crore in Q2 FY24, continuing the positive trend from Q1 FY24. This success is attributed to a 13% quarter-on-quarter (QoQ) expansion in gross order value (GOV) and a 17.9% sequential revenue rise to Rs. 2,848 crore, as reported by CEO Deepinder Goyal on Friday.

The food delivery segment’s GOV increased by 9% QoQ, recovering from previous demand slumps. This recovery is credited to the wider adoption of the Gold program among its 38 lakh members. Despite leading to margin reduction compared to non-Gold orders, the Gold program has been instrumental in driving growth for Zomato.

Launched in January, Zomato’s Gold program has seen rapid growth with these members contributing about 40% or INR 3,192 Cr to the food delivery GOV of INR 7,980 Cr for Q2 ending September 2023. While Gold orders generate less profit due to increased costs from benefits like free delivery and priority service, and longer average delivery distances, these costs are minimally offset by subscription fees from Gold members.

To manage this profitability gap with non-Gold orders, Zomato has implemented a compulsory platform fee on all transactions from Q2 FY24 for financial stability. CFO Akshant Goyal expects the margin disparity between Gold and non-Gold orders to narrow due to pricing efficiencies and program cost improvements.

Despite the new fee, Zomato’s stock closed 8.32% higher at Rs. 116.50 per share on NSE on Friday, indicating investor confidence in the firm’s robust growth across all sectors.

InvestingPro Insights

Zomato, known by its ticker ZOMT, has been performing well in the Hotels, Restaurants & Leisure industry, as evidenced by its impressive gross profit margins and strong return over the last three months, according to InvestingPro data. Notably, Zomato holds more cash than debt on its balance sheet, a healthy indicator of its financial stability. However, it’s worth noting that it has been trading at a high revenue valuation multiple.

InvestingPro Tips suggest that Zomato has been a prominent player in its industry and has yielded a high return over the last year. This aligns with the company’s reported consecutive profitable quarters. While the company wasn’t profitable over the last twelve months, analysts predict the company will be profitable this year, which could explain the large price uptick over the last six months.

For more insights and over 10 additional tips, consider exploring the InvestingPro platform.

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