What is driving Zomato’s bull run? Blinkit’s growth and strong Q1 earnings propel shares

Three years ago, on July 17, Harsh Goenka, chairman of RPG Enterprises, humorously mocked the IPO frenzy surrounding Zomato on social media. His post underscored the skepticism many investors felt about Zomato’s potential. 

Fast forward to today, Zomato has more than doubled its market cap, reaching nearly $30 billion. 

This remarkable growth story is driven by robust Q1 earnings and the impressive performance of its quick-commerce segment, Blinkit.

A stellar IPO and surging market cap

Zomato, India’s leading food delivery platform, made its stock market debut with an IPO that was subscribed 38.25 times. 

Despite initial skepticism, the stock listed at a premium of over 50%, giving it a market cap of approximately $12 billion. 

Over the past three years, Zomato’s market cap has soared, more than doubling. In the past year alone, the share price surged over 209%. 

On Friday, Zomato’s shares rose by 19% to an all-time high, with its market value touching nearly $30 billion, buoyed by better-than-expected Q1 results.

Strong Q1 earnings boost confidence

Zomato’s Q1 earnings report revealed a significant increase in net profit, jumping from Rs 20 million in the April-June quarter of 2023 to Rs 2.53 billion for the same period in 2024. 

The gross order value (GOV) across its B2C businesses, including food delivery, quick commerce, and going-out, grew by 53% year-on-year to Rs 15,455 crore. 

While food delivery saw a 27% increase in GOV, Blinkit’s GOV skyrocketed by 130%, and the going-out segment grew by 106%.

Zomato’s aggressive expansion plans include increasing the number of Blinkit stores from the current 639 to 1,000 by March 2025 and further to 2,000 by 2026. 

These ambitious targets are set while maintaining profitability, highlighting the company’s growth strategy.

Brokerages raise target prices

The strong Q1 results led several brokerage firms, including Goldman Sachs, Jefferies, and Bank of America Securities, to raise their target prices for Zomato’s stock. 

Jefferies and Bank of America set their target price at Rs 275, while Goldman Sachs set it at Rs 280. 

Goldman Sachs highlighted Zomato as one of the fastest-growing internet companies, expecting a 38% revenue CAGR from FY24 to FY27, with margins at the higher end of global food peers.

Blinkit: The game-changer

Zomato acquired Blinkit, a struggling 10-minute grocery delivery startup, for $568 million in an all-stock deal in 2022. 

Initially, this acquisition was met with skepticism, causing Zomato’s share price to fall by 20%. 

However, Blinkit has turned out to be a significant growth driver. 

The latest earnings data show increased contributions from Blinkit and Zomato’s grocery supply subsidiary, Hyperpure, leading to the strong Q1 results.

Goldman Sachs has noted that Blinkit’s implied valuation now exceeds Zomato’s core food delivery business, reaching $13 billion, nearly half of Zomato’s market cap. 

This valuation is a six-fold increase from the previous year, driven by higher-than-expected GOV estimates.

Future of quick commerce in India

The COVID-19 pandemic accelerated the growth of the quick-commerce (Q-commerce) industry, as lockdowns and safety concerns kept people indoors. 

The adoption of work-from-home models further fueled this trend, particularly among urban millennials and Gen-Z consumers. 

According to a report by the Indian Institute of Management (IIM), Ahmedabad, the Q-commerce segment is projected to grow at a CAGR of 27.9% between FY22 and FY27.

Goldman Sachs estimates that Q-commerce platforms, currently active in fewer than 30 cities, have the potential to expand to 40-50 cities, representing a total addressable market (TAM) of approximately $150 billion for grocery and non-grocery items by 2023. 

They believe the quick-commerce segment can capture around 70% of India’s online grocery market within 2-3 years, striking a balance between pricing and delivery times.

Zomato’s remarkable growth trajectory is powered by its strategic acquisition of Blinkit and robust Q1 earnings. 

As the quick-commerce sector continues to expand, Zomato is well-positioned to capitalize on this trend, driving further growth and investor confidence. With ambitious expansion plans and a focus on profitability, Zomato’s bull run appears poised to continue.

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