Silence is golden. But for Zomato Ltd, it is proving to be a hazard. The absence of an earnings call after its last three quarterly results has been a matter of concern for the analyst and investor community.

In their December quarter (Q3FY22) earnings review report, analysts from Jefferies India wrote, “Lack of management call leaves a lot to the imagination and our inexperience with the internet sector does not help either.” Recall that at the time of announcing Q1 results, Zomato had said it will do an earnings/analyst call once a year, at the end of each fiscal.

Jefferies’ analysts added, “(Q3) earnings release remains opaque, lacks substance, and describes only selective aspects of the business.”

With growth moderating, Zomato’s Q3 results were not encouraging. Gross order value (GOV) rose a mere 1.7% sequentially to 5,500 crore in Q3. Note that on a quarter-on-quarter basis, GOV had increased 19% and 37% in Q2 and Q1, respectively, to 5,410 crore and 4,540 crore.

Zomato attributed the weak sequential GOV growth in Q3 to the decline in delivery charges and reopening post-covid, leading to a shift towards dining out. Customer delivery charges per order fell 7.5 sequentially. The company re-distributed its growth investments more in favour of discounts on customer delivery charges vis-a-vis food coupons. Zomato said it was seeing a higher return on investment with discounted delivery charges as compared to coupons. Hence, discounts per order saw a decline of 5 vis-à-vis Q2.

Average monthly transacting users fell for the first time in five quarters in Q3 to 15.3 million. Although, it must be noted that Q2 had a high base with 26% sequential growth to 15.5 million.

Overall, Zomato’s adjusted revenues were flattish in Q3 at 1,420 crore. Ebitda (earnings before interest, tax, depreciation and amortisation) loss stood at 489 crore, down from 535.8 crore seen in Q2. Contribution margin (as a percentage of GOV) for its food delivery business was flattish at 1.1% in Q3 compared to 1.2% in Q2.

On the positive side, the Hyperpure business, which is Zomato’s supplies platform for restaurants, did well with sequential revenue growth of 40% to 160 crore.

Even so, investors are seemingly displeased with Zomato’s Q3 performance. In Friday’s opening deals, the stock fell by around 6% on the National Stock Exchange. Shares have declined over 45% from highs seen on 16 November, although they are about 17% higher than the initial public offering (IPO) issue price of 76 per share.

Jefferies has retained its Buy rating on the stock with a revised price target of 120 apiece, as it cut the target multiples for delivery business reflecting the de-rating in global peers and weak Q3 trends. “We continue to believe that management should face tough investor questions through an earnings call rather than providing abstract details on the business,” analysts said in a report on 10 February.

In general, the analyst and investor community views the post earnings calls as a good practice. Note that recently listed new-age companies such as One 97 Communications Ltd (Paytm’s parent), FSN E-Commerce Ventures Ltd (Nykaa’s parent) and PB Fintech Ltd have all held investor calls after declaring quarterly results.

Meanwhile, Zomato plans to channelise its cash balance into investing in quick commerce platforms apart from growing its core business. It has raised the upper bound of potential investment in quick commerce to $400 million over the next two years. However, it remains to be seen how beneficial such investments prove given that the company is already running in losses.

In general, heightened competition remains a looming threat for the sector. In keeping with the global correction of tech stocks and the weak results, many analysts have understandably cut their target price for Zomato.

In a report on 11 February, analysts at JM Financial Institutional Securities Ltd said, “Given the rising global interest rates we use a higher WACC of 12% (versus 11% earlier) to discount this valuation back to Mar’23, to derive our revised target price of Rs155 (versus Rs180 earlier).” WACC stands for weighted average cost of capital.

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