Zomato Shares Surge by 50% in 2024: Will Zomato Continue to Deliver for Investors?

Zomato's share performance, Morgan Stanley's analysis and forecasts, and the broader market sentiment regarding Zomato's future outlook.

Zomato Shares Performance and Future Outlook

Recent Performance:

Zomato shares have experienced a losing streak over the past few trading sessions due to profit booking after delivering strong Q4 results. Despite recent losses, Zomato shares have gained over 50% in 2024 so far.

Morgan Stanley's Outlook:

• Morgan Stanley believes Zomato's stock could rise further and has increased its price target by 31%.

Key Factors for Optimism:

• Leadership in food delivery.

• Favorable market structure.

• Strong execution in the growing quick commerce sector.

• Robust balance sheet.

Valuation and Growth:

• Despite high stock valuation, Morgan Stanley sees Zomato's strong growth outlook and solid execution justifying premium valuations.

• The brokerage has reduced its FY25 adjusted EBITDA forecast by 5%, anticipating higher investments in quick commerce.

• Increased FY26 estimate by 13.4% and introduced forecasts for FY27.

Target Multiple and Valuation:

• Morgan Stanley has lifted its target multiple to 44 times on FY27 from 39 times.

• Rolled valuation forward by three months to June 2025.

Overall price target rise of 31%:

• 18% adjusted EBITDA increase.

• 4.5% rolling valuation forward.

• 12% higher multiples.

• Offset by 2% dilution.

Investment and Profit Impact:

• Near-term investments may impact Zomato's FY25 profits.

• Company is positioned to deliver strong margins in the medium term.

• Zomato expects its quick commerce business to approach break-even within the next few quarters.

• These near-term investments are expected to accelerate growth, offering medium-term competitive advantages and enhancing market position.

Revised Estimates:

• Morgan Stanley has revised FY25-FY27 gross order value (GOV) estimates for quick commerce upward by 33-37%.

• Reflects Zomato's aggressive store expansion plans.

• FY27 adjusted EBITDA margin forecast for quick commerce business set at 3.5%, compared to Zomato's projection of 4-5%.

Consolidated Projections:

• Morgan Stanley estimates a consolidated FY27 GOV of $11 billion for Zomato's food delivery and quick commerce segments.

• Adjusted EBITDA margins of 5.1%.

Broader Market Sentiment:

• Not just Morgan Stanley, but several other brokerages have shared positive views on Zomato following strong Q4 results.