Zomato Share: Zomato Stock Plunges Amidst Downgrade and Quick Commerce Competition Concerns
Zomato Share: (NSE: ZOMATO) experienced a significant drop following a downgrade from global brokerage firm Jefferies. The downgrade, citing concerns over intensifying competition in the rapidly growing quick commerce market, has raised questions about the company’s future profitability.
Jefferies’ Concerns:
Jefferies downgraded Zomato to a “hold” rating, slashing its price target by 18% to ₹275. This decision stems from anxieties surrounding the increasingly competitive landscape of quick commerce, where Zomato’s Blinkit faces stiff competition from players like Swiggy’s Instamart, Zepto, and Amazon. The brokerage firm cautioned that aggressive discounting strategies by both existing and new entrants could negatively impact Zomato’s medium-term profitability.
The brokerage also significantly reduced its financial forecasts for Zomato. Blinkit’s EBITDA forecast for FY26-27 was sharply reduced, and its target multiple was halved to 6x. Overall, Jefferies cut Zomato’s EBITDA estimates by 12% for FY26 and 15% for FY25. Profitability estimates were also lowered, with EPS projections slashed by 20% for FY26 and 21% for FY27.
Market Reaction and Stock Performance:
The market reacted swiftly to the downgrade, with Zomato’s shares plunging 5% in early trading on January 7th. This decline contributes to a nearly 16% loss in the stock’s value over the past month.
Morgan Stanley’s Contrasting View:
In contrast to Jefferies’ cautious outlook, Morgan Stanley reiterated its “overweight” rating on Zomato, maintaining a significantly higher price target of ₹335. Morgan Stanley views Zomato as its top pick within India’s internet sector, expressing confidence in the company’s focus on profitability and improving growth visibility. They project a 33% revenue CAGR over FY25-27, even with the intensifying competition. The firm highlighted Zomato’s strong track record of profitability and consistent growth in monthly active users.
Quick Commerce Landscape Heats Up:
The quick commerce sector in India is witnessing intense competition, with several players vying for market share. Blinkit, Zomato’s quick commerce arm, faces challenges from established players like Instamart and Zepto, as well as the entry of global giants like Amazon. This competitive pressure is forcing companies to invest heavily in discounts and promotions, potentially impacting profitability.
Investment Implications:
The contrasting views from Jefferies and Morgan Stanley highlight the uncertainties surrounding Zomato’s future. While Jefferies expresses concerns about profitability in the face of rising competition, Morgan Stanley remains optimistic about the company’s growth prospects. Investors should carefully consider both perspectives before making any investment decisions.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult with a financial advisor before making any investment decisions.
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