Will Zomato Gold relaunch bring some cheer for its stock price? Brokerage sees strong upside potential
1 min read 25 Jan 2023, 08:44 AM ISTZomato has relaunched its loyalty program ‘Zomato Gold’ on an invite only basis
PremiumZomato has relaunched its loyalty program ‘Zomato Gold’ on an invite only basis. This comes against the backdrop of tapering GOV growth, driven by slower addition in monthly transacting users and lowering of ordering frequency. While this move could potentially assuage growth concerns, an integrated loyalty program offering for Zomato and Blinkit could be a better proposition, in brokerage Edelweiss' opinion.
“While recent results have demonstrated Zomato’s market share win over Swiggy, re-introducing the loyalty program was the need of the hour in order to further boost the growth engine. Consistent balancing of high growth and profitability would be crucial to keep investors enthused," said the brokerage while reiterating its ‘BUY’ on Zomato shares with a DCF-based target price of ₹85.
Zomato Gold has been re-launched with an attractive inaugural price of ₹149 for three months. Key offerings include free delivery on orders above ₹199, discounts for dining in and VIP access during rush hours. Edelweiss believes Gold, in its current form, would appeal to users as it is relatively cheaper and has similar value proposition, except quick commerce.
“While slowing growth concerns have loomed over in the recent past, profitability has become equally, or infact more crucial. The food delivery business turned adjusted EBITDA positive in Q2FY23. Zomato has navigated through a myriad of challenges and the overall strong performance amidst all the headwinds gives us the confidence in Zomato’s ability to execute," the brokerage said.
It believes that Zomato has a long runway for growth given that food delivery given food delivery segment remains underpenetrated. Moreover, quick-commerce provides additional fast growing revenue stream.
“Re-launch would bring back the lost membership revenue stream – a key lever to propel growth in the food delivery business. We believe that Zomato should have integrated Blinkit within the loyalty program; an integrated offering could have provided cross-selling opportunities. Gold in its current form has conditions such as minimum order value and maximum distance, which we believe comes at better profitability versus the last offering," it added.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
