Green shoots are back: Zomato strikes gold in Q2

One swallow doesn’t make a summer. But two?

Defying naysayers and cynics, Zomato posted its second consecutive quarterly profit, cheering the markets and cementing its legacy as the underdog that always comes out on top.    

Now, the results were a surprise to most people, especially with reports indicating that the previous quarter’s profits may have been a blip rather than the beginning of a long-term trend. But the company’s Founder and CEO Deepinder Goyal has always been confident of winning. 

“I was not supposed to make it, but I did,” Deepinder had poignantly once told me in a chat not too long ago. “So whatever problems I face now, it’s all better than what it once was.” 

Zomato and Deepinder continue to win despite the odds, and the positive effects of the latest quarterly numbers are likely to be felt well beyond the foodtech sector. 

But first, let’s run through the highlights: 

1. Zomato recorded a Rs 36 crore profit in Q2 as against a Rs 251 crore loss in the same quarter the previous year. 
2. Revenue from operations rose 71.5% year-on-year to Rs 2,848 crore.
3. Soon after the announcement, Zomato’s stock rose nearly 10% and its market cap breached Rs 1 lakh crore. 

Let’s dive a little deeper and you will find that: 

1. Blinkit turned contribution positive for the first time. 
2. The Gold programme has scaled to 3.8 million members within just three quarters of its launch. 

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Deepinder Goyal: The Kid Who Shouldn't Have Made It, But Did

What does it mean for Zomato 

When Zomato bought Blinkit last year, there was a lot of ink spilt on how the two would co-exist. There were some who said that Blinkit would weigh down Zomato’s balance sheet and, for a few quarters, it looked like they were right. But, as the latest numbers show, the synergies seem to be kicking in, with Blinkit performing much better than expected.  

Blinkit’s gross order value (GOV) rose ~29% quarter-on-quarter to Rs 2,760 crore in Q2. There’s the base effect that played a small role in the growth but there is also a strategy shift at play. Blinkit is trying to increase same-store sales and ensure customer stickiness. The quick commerce platform has opened new stores to meet the surge in demand. In fact, in Q2, it added 28 new stores taking the overall store count to 411. 

The second sticking point was Zomato’s popular programme: Gold. When it was originally launched, the platform came under fire from restaurants. Now, Gold seems to have found its product-market fit. 

Of the Rs 7,980 crore GOV of the food delivery business, Gold contributes 40%. It is another factor that drives higher order frequency, considering the discount for Gold members. Even the platform fee introduced in Q2 didn’t dent the numbers. Net-net, the recovery is on track. Those who were once bearish on these businesses are beginning to come around. 

What it means for startups 

Startups in the country face a perception bias, be it amongst the analyst community or the stock market participants. Consumer tech companies such as Zomato and Nykaa have often been subject to unfair criticism purely based on their daily stock performance. The Q2 numbers, however, will help break the preconceived notions. 

Apart from Zomato, Nykaa reported a 50% rise in Q2 profit. These are numbers to be celebrated, not just as public shareholders but as a sign of maturing businesses in the startup community. 

It’s also important to remember that home-grown startups like Zomato and Nykaa are more than their valuations. They denote sustained value creation through long-term, viable business models. They symbolise maturity and profitability and pave the way for many more entrepreneurs to stay put and find their product-market fit in a crowded market like India. 

What it means for the economy 

It’s looking like the winter blues are finally over. Zomato proved it, so did Nykaa. Listed startups have found their niche and are keen to double down on what they are good at. 

When entrepreneurs succeed, so does the economy. And this is especially true in times like these where fears of a slowdown have pushed the world to an edge. Globally, there are concerns of lower consumer spending, rising unemployment and an increase in inflation. India, however, is a clear outlier. Indians are shopping online, ordering in, eating out, and lending a hand to boost our consumption story. 

Zomato’s results prove the theory about India’s green shoots. These green shoots are here to stay because companies like Zomato are fighting hard to progress inch by inch, day by day. As Deepinder says, “If you survive, you win.”