Introduction:
Zomato is a popular online platform that primarily operates as a restaurant aggregator and food delivery service. It allows users to search for restaurants, browse menus, and place orders for delivery or takeaway. Originally founded in India, Zomato has expanded globally, offering services in several countries. Besides food delivery, it also provides restaurant reviews, ratings, and information on dining experiences.
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Is it reasonable to expect Zomato to grow its revenue by 70-75%?
Zomato, the popular food delivery and restaurant finder app, has been growing rapidly. But is it realistic to expect its revenue to increase by 70-75%?
To answer this, we look at Zomato’s past performance and the current market conditions. Over the years, Zomato has shown strong growth, benefiting from increased online food ordering and dining out trends. This growth has been driven by expanding its services, improving technology, and entering new markets.
As per this analysis,
Historical Performance:
- 5-Year CAGR: Zomato’s 5-year CAGR of ~56% demonstrates the company’s strong growth trajectory. Maintaining this momentum justifies aiming for a 70-75% growth rate.
- 3-Year CAGR: The 3-year CAGR of ~82% reflects continued robust growth, though slightly lower than the 3-year average. The higher target aligns with the company’s long-term performance.
Industry Growth Projections:
- Online Food Delivery: The industry is expected to grow by over 30%. Zomato’s strong market presence and ability to capitalize on this growth can drive higher-than-average growth rates.
- Online Grocery: With a projected growth rate of 20%, Zomato’s entry into this segment offers additional revenue streams that can support higher overall growth.
Peer Comparison:
Peer Revenue Growth:
The industry average of 45% revenue growth among peers sets a solid benchmark. Given Zomato’s market strategies and competitive edge, it is reasonable to expect it to outperform peers and achieve 70-75% growth.
Global Market Trends:
Global Online Food Delivery:
A 10% growth rate globally might seem modest, but Zomato’s strong local market presence and potential for international expansion provide opportunities for significantly higher growth.
Global Online Grocery:
Equity Research Insights:
Median Estimate:
Equity research reports suggest a median growth estimate of 44%. While this is conservative, Zomato’s strategic initiatives, market penetration, and expansion plans can realistically push growth to 70-75%.
Technological and Market Advances:
Online Payments:
The rapid increase in online payments and Fintech innovations enhances customer experience and order frequency, driving higher revenue growth.
Key Analysis:
- Growth in Credit Card Usage: There’s a significant increase expected in credit card transactions, rising from 2.2 billion in FY21-22 to an expected 11.9 billion in FY27-28.
- Steady Debit Card Usage: Debit card transactions are expected to grow at a much slower rate, starting at 3.9 billion in FY21-22 and reaching 4.0 billion by FY27-28.
- Shift in Preference: Over the years, more people are expected to prefer using credit cards over debit cards for transactions.
Key Analysis from the chart:
- UPI stands out as the most successful payment instrument with both high adoption and high growth.
- Debit cards and ATMs are very common but are not growing much, suggesting they have reached maturity in their usage.
- Credit cards are seeing a significant increase in usage, despite their current lower adoption rate compared to other instruments.
- BBPS has room for improvement in both adoption and growth.
- Instruments like NACH and NETC are steadily growing and are fairly well-adopted.
This chart highlights the dynamic landscape of payment instruments in India, with UPI leading the way in both adoption and growth, while traditional instruments like debit cards and ATMs remain stable but stagnant.
Key Analysis from chart:
- Steady Growth: The internet penetration rate in India has been steadily increasing from 13.5% in 2014 to an expected 52.4% in 2024.
- Significant Jumps: Notable increases are seen between 2016 and 2017 (7.5% jump) and between 2019 and 2020 (9.7% jump).
- Recent Trends: From 2020 onwards, the growth rate is more moderate but continues to rise steadily, reflecting increased internet accessibility and adoption across the country.
Implications:
- Digital Transformation: The rising internet penetration indicates a significant digital transformation in India, with more people gaining access to the internet.
- Economic Impact: Higher internet penetration is likely to boost e-commerce, digital payments, and online services, contributing to economic growth.
- Socio-Cultural Changes: Increased internet access can lead to changes in communication, education, and entertainment, influencing societal norms and behaviors.
Overall, the chart reflects a positive trend in internet penetration, suggesting that more than half of India’s population will have internet access by 2024.
Key Analysis from the chart:
Online payment services like PayPal, Google Pay, and Klarna are the most popular, with 64% of respondents using them. Cash on delivery and debit cards are tied for second most popular at 57%. This is followed by credit cards at 46%. The other methods are used less frequently, with direct debit at 23%, cash in advance at 20%, prepaid cards or vouchers at 19%, payment by invoice at 12%, and 3% stating they have not made any online payments. Finally, 2% of respondents use a payment method that is not listed.
Overall, the chart shows that there is a wide range of payment methods available online, and people use a variety of them. The most popular methods are online payment services, cash on delivery, debit cards, and credit cards.
Management Guidance-
Revenue Growth:
In its latest financial report, Zomato has projected a significant increase in revenue. For the fiscal year 2024, Zomato is aiming for a year-on-year revenue growth rate of around 50% to 60%. This projection is based on their aggressive expansion plans and increasing market penetration.
Market Share:
Zomato’s management has indicated that they expect to capture a larger market share in both existing and new markets, which could translate into substantial revenue gains. They aim to increase their market share by 5% to 10% over the next year.
New Ventures:
Zomato’s new ventures, such as Hyperpure, are expected to contribute an additional 10% to 15% to their overall revenue in the next fiscal year.
International Expansion: Revenue from international operations is expected to grow by 20% to 25% as they enter new markets and strengthen their presence in existing ones.
Market Dynamics and Competitive Edge:
Market Leadership:
As a market leader, Zomato is well-positioned to leverage its brand recognition and operational efficiencies to achieve higher growth.
Innovation:
Continuous innovation in delivery logistics, customer service, and user experience can drive higher engagement and revenue growth.
In conclusion, Zomato’s ambitious target of 70-75% revenue growth is underpinned by several favorable factors. Historical performance indicators, robust industry growth projections, and promising global market trends support the feasibility of this goal. Additionally, technological advances, such as increased online payments and rising internet penetration, further bolster Zomato’s growth potential.
While equity research offers more conservative estimates, Zomato’s strategic initiatives and market positioning provide a solid foundation for exceeding these expectations. The company’s ongoing innovation and expansion into new ventures and international markets are critical components that will likely drive substantial revenue increases.
As Zomato continues to capture a larger market share and capitalize on industry trends, it is well-equipped to achieve its aggressive growth targets. The combination of strong historical performance, industry dynamics, and strategic foresight suggests that Zomato’s projected revenue growth is not just aspirational but attainable. The journey ahead for Zomato is poised with opportunities, making it a fascinating entity to watch in the evolving landscape of online food delivery and beyond.
Thank you for reading
Source that I use:
Screener, Go India Stock, Annual Report, Equity Research Report, Statista, Tijori Finance.
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