Zomato's stock fell over six percent on Tuesday following the release of its March quarter results. Despite four brokerages maintaining a 'buy' rating on the company, several others have lowered their target price. The company's revenue and net profit for the quarter have seen significant growth, but EBITDA and EBITDA margin fell short of expectations. However, experts suggest investing in the company with a 'buy on dips' strategy.
Zomato's Stock Plummets Amidst Mixed Financial Results
Background
Zomato, India's leading online food delivery platform, has seen its stock price fluctuate significantly in recent months. After a strong performance in 2021, the company's shares have faced headwinds in 2022 due to concerns over its profitability and intense competition.
Recent Share Price Decline
On Tuesday, May 10, 2022, Zomato's stock fell over 6% after the release of its March quarter financial results. This decline came despite four brokerages maintaining a "buy" rating on the company. However, several other brokerages have lowered their target price for Zomato's stock.
Financial Results
Zomato's revenue and net profit for the March quarter saw significant growth. Revenue increased by 75% year-over-year to ₹1,948 crores, while net profit surged by 148% to ₹193 crores.
However, the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and EBITDA margin fell short of expectations. EBITDA decreased by 17% to ₹284 crores, while the EBITDA margin narrowed from 8.2% to 6.1%.
Analyst Commentary
Analysts attributed the decline in Zomato's EBITDA and EBITDA margin to higher input costs, especially for delivery and packaging. They also cited increased marketing expenses as a contributing factor.
Despite the mixed financial results, experts suggest investors consider a "buy on dips" strategy for Zomato. They argue that the company's long-term growth potential remains intact, driven by the rising popularity of online food delivery in India.
Top 5 FAQs
Why did Zomato's stock price fall on May 10, 2022?
It declined due to concerns over the company's profitability and lower-than-expected EBITDA margin.
What were Zomato's key financial metrics for the March quarter?
Revenue: ₹1,948 crores (75% growth YoY) Net profit: ₹193 crores (148% growth YoY) EBITDA: ₹284 crores (17% decrease YoY)
Why did Zomato's EBITDA margin decline?
It was primarily due to higher input costs and increased marketing expenses.
What is a "buy on dips" strategy?
It involves buying a stock at a lower price point after a decline, with the expectation that it will rebound over time.
Is Zomato a good investment in the long term?
Analysts believe that Zomato has strong growth potential, but investors should consider its profitability concerns and competitive landscape before making a decision.
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