Is Zomato finally turning investable?
Food delivery giant Zomato was undoubtedly one of the biggest losers of 2022 as the company lost 58% of its value in 2022 itself!!
Zomato was one of the best picks for 2022. The stock, which belonged to a new-age tech company, had registered over 30% gains in 4 months and, despite correcting sharply, still had its IPO investors’ portfolio in the green.
However, 2022 was an abysmal year for the company as the stock began declining as soon as the year started! Zomato was one of the new-age tech stocks which had never reported any profits but enjoyed sky-high valuations. The stocks had listed at massive listing gains and were the favorites of mutual funds & analysts. However, when valuation watchdogs cried foul and investors began turning away from these stocks, they fell very fast, very soon.
Moreover, the Fed had hiked its interest rates in January as the same resulted in a massive tech stock sell-off. The same was seen in the Indian markets as the IT services and new-age tech stocks witnessed severe selling pressure. Zomato’s stock fell below the Rs 100 mark and lost 35.3% of its value in a month!!!
In February, it felt like the stock was out of its lousy time as buyers began picking it once again. However, the company’s Q3FY22 results snuffed out all hopes for recovery. Revenue from operations reported a growth of only 9%, customer delivery charges declined 22% and net losses saw a multi-fold growth to Rs 347 crores!!
Combined with Russia’s assault on Ukraine, Zomato lost 17.5% in the month of February 2022. March and April appeared stagnant for the stock as it was range-bound. However, the stock lost strength once again in April when the Competition Commission of India began a probe into the company’s pricing policies, triggering a selling pressure that lasted over a month, dropping the share by 36% and through 3 support levels!
The next few months saw some optimism as buying pressure picked up in May and June. However, July proved to be the worst month for two main reasons:
- Firstly, the acquisition of loss-making q-commerce startup Blinkit for a consideration of Rs 4,447 crores.
- Secondly, the end of the lock-in period of 613 crore pre-IPO shares.
As such, the stock of Zomato touched a lifetime low of Rs 40.60 per share, declined 23% in 2 days, and lost Rs 10,000 crores from its market cap!!
The company went through several adverse situations as the share was visibly in a downtrend. The company had to discontinue its UAE food delivery services and witnessed the exit of several top-level executives during the year.
What is the outlook for Zomato?
Fundamentally, the company recently published its Q3FY23 results. In said results, the company reported a 75.2% growth in its revenues while its total expenses surged 51.3%, resulting in an over 400% YoY surge in net losses.
However, Adjusted EBITDA losses had declined 2.5% YoY during the quarter despite the acquisition of a loss-making q-commerce business. Customer base and GOV are steadily improving as several dark stores operated by the business are turning profitable as the company is planning to expand its network of dark stores.
Technically, the stock is trading above its 5 and 20-day averages but below its 50,100 and 200-day moving averages. Moreover, the RSI of the stock is over 50, meaning that the stock is neither overbought nor oversold.
The stock had been in a downtrend ever since mid-November (as shown above). However, the stock had recently challenged its support at Rs 46.85 and faced rejection. Moreover, the trend line (indicated by the black line), which showed that the stock was in a downtrend since it was making lower highs and lower lows consistently, was breached recently as the stock made a higher high and traded above the trend line.
Adding on to that, the stock broke through its resistance at Rs 52.55 per share quite recently. It briefly fell below the same on Friday but faced buying pressure below the level as it closed at Rs 53.30 on Friday.
The stock could retest the trend line in the coming weeks and if it faces rejection from the line once again, the stock could move to challenge its immediate resistance at Rs 57.90 per share.