Zomato’s latest financial results for the December quarter (Q3FY25) have raised concerns among investors and analysts, leading to a significant cut in earnings estimates and share price targets. The company’s muted performance, particularly in its core food delivery (FD) segment, has drawn attention to broader challenges in the sector. Despite some growth metrics showing improvement, the overall outlook remains cautious as analysts revise their projections for the upcoming years.

Zomato Q3 performance results

The food delivery segment, a key revenue driver for Zomato, reported lackluster growth during Q3FY25. Analysts at Nomura highlighted that this is not the first instance of underwhelming performance in the segment. For example, in Q3FY23, the gross order value (GOV) growth had slowed to just 0.7% quarter-on-quarter (QoQ) due to a macroeconomic slowdown. However, analysts remain optimistic about the company’s medium-term profitability potential, forecasting an adjusted EBITDA margin of 5.3% in FY26, compared to the earlier guidance of 4-5%.

Projected Growth: Nomura expects the food delivery segment to achieve 17-20% year-on-year (YoY) growth in GOV for FY25F-26, with a contribution margin of 8-9%. This marks an improvement from the 6.9% contribution margin recorded in FY24. Notably, Q3FY25 saw the food delivery’s contribution margin rise to 8.5%, up from 7.6% in Q2FY25, while the adjusted EBITDA margin as a percentage of GOV improved by 80 basis points (bps) QoQ to 4.3%. Zomato reported a 57% YoY decline in net profit to ₹59 crore for the October-December quarter, marking a 66.5% sequential drop. Revenue, however, surged 64% YoY and 12.6% QoQ to ₹5,405 crore, reflecting operational growth despite challenges.

Adjusted EBITDA: Grew 128% YoY to ₹285 crore but fell 14% QoQ. Food Delivery Revenue: Increased 17% YoY and 3% QoQ to ₹2,413 crore. Gross Order Value (GOV): Rose 16.8% YoY and 2.3% QoQ to ₹9,913 crore. The management acknowledged a broad-based slowdown in demand that began in the second half of November. Despite this, they remain confident about a recovery and expect over 20% annual GOV growth in the long term.

Zomato’s share price took a significant hit following the Q3FY25 earnings report. On Tuesday, the stock plummeted 12.78% during intraday trading, reaching a low of ₹210.15 on the BSE. Over two days, the stock has declined by 15.5%, reflecting investor concerns. By contrast, the broader market showed stability, with the BSE Sensex index inching up by 0.06% around the same time.

Blinkit: A Mixed Bag of Growth and Challenges

Zomato’s quick commerce subsidiary, Blinkit, showed promising growth metrics in Q3FY25 but also faced profitability challenges. Revenue Growth: Increased 21% QoQ to ₹1,399 crore. Segmental GOV: Rose 27% QoQ to ₹7,798 crore. Average Order Value (AOV): Improved to ₹707 from ₹660 in Q2FY25. Dark Stores Expansion: Increased from 791 to 1,007 QoQ.

Despite these achievements, Blinkit’s contribution margin fell by 80 bps QoQ to 3%, while its adjusted EBITDA margin as a percentage of GOV declined by 120 bps QoQ to -1.3%. The decline was attributed to accelerated dark store additions and increased marketing expenses.

Zomato’s management has advanced its target of reaching 2,000 dark stores from December 2026 to December 2025, citing enhanced capabilities and heightened competition. While this aggressive expansion may impact short-term profitability, analysts believe it could pave the way for long-term gains as the new stores mature.

Nuvama Institutional Equities commented: “Blinkit dark store additions are outpacing expectations, driving faster growth. However, the associated costs will compress profitability in the short term, but eventually, these costs will bunch up profitability in future quarters.” On the other hand, Motilal Oswal Financial Services highlighted the potential challenges. The company might need to add around 4,000 stores between FY25 and FY30, significantly increasing capital expenditure and fixed costs. Analysts estimate that Blinkit’s fixed costs could grow at a compound annual growth rate (CAGR) of 25% during this period.

Zomato’s Q3FY25 performance underscores the challenges of operating in a competitive and evolving market. While the food delivery segment’s growth remains muted, the company’s focus on profitability and Blinkit’s aggressive expansion offer hope for future gains. However, the road ahead is fraught with hurdles, including heightened competition, increased costs, and the need for flawless execution. Investors will be keenly watching the company’s progress in achieving its long-term growth and profitability targets.