As the Q1 loss narrows, Zomato shares are up over 18%; should you buy, sell, or hold?

Zomato Shares Rise: Zomato's stock rose more than 18% on Tuesday after the online meal delivery service announced that its consolidated net loss shrunk in the June quarter. As opposed to a loss of Rs 361 crore in Q1FY22, the food technology player reported a consolidated loss of Rs 186 crore for the quarter ended June 30, 2022. The quarter's revenue increased 68% year over year to Rs 1,414 crore.

The adjusted Ebitda loss for Zomato's fiscal quarter from April to June decreased from Rs 170 crore to Rs 150 crore. "Now that the Zomato-Blinkit merger has been approved, Zomato, Blinkit, and Hyperpure are the three firms listed in the order of company size/impact. Along with these three, there is Feeding India. According to Deepinder Goyal, founder, emphasized and CEO of Zomato, "We are now at a point of life where we are graduating from running (more or less) a single firm to running numerous enormous companies.

What Should Investors Do?

"In our most recent note, we emphasized management's emphasis on the road to profitability. Results from 1QFY23 indicate that we may have overestimated the urgency because adj. Ebitda's loss reached a low of 1.5 billion with break-even at food delivery. It is encouraging to see this amid Ebitda'souble-digit QoQ growth in GOV, according to international stockbroker Jefferies.

Kotak Institutional Equities has decreased its loss projections for FY2023–25 in light of Zomato's results. The brokerage now values the stock at Rs. 80 instead of Rs. 79 as its fair value.

"Food ordering adjusted revenue growth at 14.8% QoQ and adjusted EBITDA break-even sooner than expected in Q1 strengthened confidence in Zomato's core business. The continued growth of Hyperpure (up 40% QoQ) contributed to overall revenue expansion. Although we admire Zomato's core business, given the increased competitiveness, unclear profitability roadmap, more complex operations, and smaller TAM, we are nonetheless wary of its hasty push into commerce, according to brokerage Ambit. Zomato stock has a Buy rating and a 103-centmonetizationbreak even per share target price.

According to Ambit's note, indications of cash conservation and the absence of new minority investments give us confidence that our cash reserves (USD 1.4 billion in 1Q) would be adequate until the entire business turns EBITDA positive.

With an 80 rupee target price, Morgan Stanley has maintained an overweight rating on the company.

A healthy increase in MTUs is credited with the results' good quality beat, and Morgan Stanley also notes stable to growing AOVs and improved monetization. In terms of food delivery, the company is breaking even, and it stated that consistent and steady performance throughout the upcoming quarters will be essential for re-rating.

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