Zomato shares surged to a one-and-a-half-year high on Friday after the Indian food delivery company turned in an ahead-of-schedule quarterly profit in a sign it was on the path to sustained earnings growth.
After posting net losses in each of the eight quarters since it went public in late 2021, Zomato reported a net profit of 20 million rupees (about $242,000) for the first quarter, although that was only due to a deferred tax gain of 170 million rupees.
Still, the company hitting the profit milestone one quarter ahead of its own schedule and saying it would remain profitable powered the stock 13.7% higher to 98.4 rupees, its highest since February last year.
“This puts to rest all the concerns around Zomato’s ability to make ‘respectable’ profits,” brokerage Jefferies said in a note.
“The results also give more credibility to the management and its execution prowess, which is particularly positive for Blinkit, which most investors ascribe zero (or negative) value.”
Most analysts highlighted a rebound on all operating metrics, including the total value of food ordered on the Zomato app and margins in its Blinkit grocery delivery businesses.
Some also pulled forward their target for Zomato’s profitability.
Ambit Capital predicted Zomato to post a profit next fiscal year, a year earlier than what it had previously forecast.
While Zomato’s adjusted EBITDA has been positive for a couple of quarters, Motilal Oswal expects positive EBITDA, without adjustments, by the last quarter of this fiscal year.
Still, some analysts view Blinkit as the weak link.
“We remain less convinced on substantial value accretion from Blinkit, with food ordering optimism already reflected in expectations,” said Ambit Capital.
Zomato shares hit a record low soon after it bought Blinkit in June last year on concerns about the deal.
Despite Friday’s surge, the stock is still well below its record high of 169 rupees in November 2021, four months after its debut.
While analysts on average recommend buying the stock, their median price target suggests the stock will be at 90 rupees in 12 months, according to Refinitiv data.
The stock was last up 10.5% on the day at 95.25 rupees.
Reuters