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

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Zomato Shares Surge by 50% in 2024: Will Zomato Continue to Deliver for Investors?
15 May 2024
3 min read

News Synopsis

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.

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