For Zomato, chasing too much growth in q-commerce may be causing indigestion

Food delivery GOV came in at ₹9,913 crore in Q3, up 2.3% sequentially, which also means growth rate halved from 4.6% seen in Q2. Here, the argument of higher base does not merit consideration, as the absolute increase in GOV also nearly halved to ₹223 crore from ₹426 crore in Q2. 

The management blamed broad-based demand slowdown for lower growth. Though the Q3 adjusted Ebitda margin of the business (as a percentage of GOV) rose to 4.3% from 3.5% in Q2 and is well on course to the targeted margin of 5%, the street would be more worried about the slowing growth. Thus, Zomato’s long-term goal of clocking 20% year-on-year growth in the food delivery business could be perceived as difficult if Q3 is not an aberration.

Also Read: Zomato’s losing steam and the Blinkit drag

On the other hand, its quick commerce venture Blinkit suffered from lower take rates in Q3. The sequential GOV growth rate was 27.2% to ₹7,798 crore compared to 24.6% growth in Q2. The increase was attributed to a higher store count and an uptick in sales of electronics, which typically carry higher value, as well as an increase in general merchandise sales due to the festival season. However, the sales of high value items resulted in lower percentage take rates, which ultimately dragged down the overall percentage take rate. Accordingly, take rates (adjusted revenue to GOV) came off by 90 basis points sequentially to 18.8%.

Remember that Blinkit had almost achieved adjusted Ebitda breakeven in Q1, but now the loss at this level has surpassed just above ₹100 crore. This is largely owing to the opening of new stores leading to initial warehousing and marketing costs. 

Note that the store addition was higher at 216 in Q3 versus 152 in Q2, which means higher costs of accelerated rollout of stores was a drag on Ebitda. The management has decided to advance the timeline for reaching the milestone of 2,000 dark stores from December 2026 to December 2025. Consequently, the losses are only going to increase for at least a couple of quarters, notwithstanding the fact that the breakeven time for a typical dark store has come down from about six months in FY23 to three months in FY25.

That’s not all. There is further bad news in terms of profitability for FY26, especially if one looks at the real Ebitda and not the adjusted one. The adjusted Ebitda excludes Esop cost, which may be non-cash costs, but are real as they increase the number of equity shares and dilute shareholders’ returns. 

Also Read: Undeterred by 57% profit decline, Zomato to accelerate Blinkit expansion

Total employee cost, including Esop for FY25, is likely to be at 12% of adjusted revenue, which the management had guided would drop to 6-8% of adjusted revenue by FY26 at the time of declaring Q1FY25 results. However, the target has now been postponed to FY27.

During the post-earnings call, Zomato management stated that Q3FY25 was the most challenging in terms of competition in quick commerce in the past two years. The quarter’s results are a definite negative from a short-term investment perspective and would be used by the Street to correct expensive valuation, with Bloomberg consensus price-to-earnings multiple for FY27 earnings estimates at 57x. Thus, it’s hardly surprising that Zomato’s shares fell more than 10% on Tuesday.

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