Zomato Gets ‘Underperform’ Rating From Macquarie On Flat User Growth

Macquarie has set a target price for Zomato at Rs 55 apiece, an implied downside of 20% from the current levels.

<div class="paragraphs"><p>A Zomato delivery executive. (Photo: Ravi Sharma/Unsplash)</p></div>
A Zomato delivery executive. (Photo: Ravi Sharma/Unsplash)

Shares of Zomato Ltd. gained the most in nearly a week even as Macquarie initiated coverage with an ‘underperform’ rating citing a lack of any momentum in user additions.

To meet consensus estimates on users, the online food ordering platform needs to see at least 70 lakh new monthly transacting users each year for the next 10 years, the research house—the first to predict the downfall in Paytm’s stock ahead of its listing—said in its June 13 report.

“Our key concern is that even in this ‘early growth phase’ momentum has stalled with monthly transacting users essentially flat over the past three quarters. Key app engagement metrics such as downloads and monthly and daily active users also show a similarly soft picture.”

The research firm expects Zomato to maintain its dominant position in India’s “potentially large food delivery market”, but sees “limited evidence” of a “significant growth ramp” towards the 10 crore monthly user figure.

Macquarie has set a target price for Zomato at Rs 55 apiece, an implied downside of 20% from the current levels. The stock is trading below its initial public offering price of Rs 76, down 59% from its all-time high since listing in July last year.

Zomato, along with other new-age companies such as Paytm and Nykaa, was impacted amid a global market rout that intensified selling in new-age and tech stocks.

Macquarie listed a few risks to its bearish call on Zomato:

  • Stronger penetration led by higher incomes.

  • Higher order frequency/average order values, along with much stronger user engagement.

  • Upside from quick commerce (Blinkit acquisition).

  • Faster scale up of adjacent food businesses (Hyperpure, Dining Out, Pro), beyond forecast 23% five-year CAGR.

Shares of Zomato gained as much as 4.8% to Rs 70.75 in early trade on Tuesday. Of the 19 analysts tracking the company, 16 maintain a ‘buy’ and one suggests a ‘hold’, and two recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 33.9%.