Zomato Shares Take Major Drop Amid Flipkart's Quick Commerce Comeback

Zomato shares dived on Monday, hitting a low of ₹149 on the NSE amid buzz about Flipkart’s impending re-entry into the quick commerce (QC) space within the next 6-8 weeks.

What Happened: Zomato, which runs its QC service through Blinkit, saw a flurry of activity with over 2 crore shares traded, reaching a transaction value of ₹324 crore around noon.

Morgan Stanley, a US-based brokerage, interpreted Flipkart’s move as an affirmation of the QC model’s success, predicting an increase in its market relevance. They maintain an ‘overweight’ stance on Zomato with a price target of ₹180, foreseeing Blinkit’s EBITDA breaking even by Q1FY25.

JM Financial views these developments as a strategic recalibration for e-commerce giants, prompted by the QC sector’s expansion beyond daily essentials. This could lead to increased M&A activities to avoid lagging behind, as seen with Meesho in the value e-commerce niche. Despite the competition, Blinkit holds a 46% QC market share and a strong financial position (net cash of ₹12,000 as of December 2023), positioning it well to withstand the impact. This has led JM Financial to recommend a ‘Buy’.

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Why it matters: Flipkart’s foray into QC is noted as a potential game-changer, although JM Financial cautions that the success of such a venture depends heavily on execution. Flipkart’s previous endeavours in QC and recent cost-cutting measures suggest a cautious approach. Nevertheless, the QC market is large enough to accommodate multiple players.

Zomato’s Q3 earnings exceeded expectations, with net profit soaring nearly 4x to ₹138 crore, against an anticipated ₹36 crore and a significant improvement from a ₹347 crore loss the previous year. Revenue from operations also saw a 69% year-on-year increase to ₹3,288 crore, driven by strong performances in food delivery and hyperpure segments.

Price Action: Zomato shares were trading 3.16% lower at ₹154.95 at market close on Monday.  

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