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The food delivery platform's co-founder, Mohit Gupta (1), left last week, which also prompted the start of layoffs for cost-cutting purposes, and Zomato's shares have fallen by almost 5% on Monday as a result. According to Jefferies (2), the food tech industry will continue to face difficult times as it balances growth and margin.
According to the release, it also doesn't seem like Zomato is looking for a replacement for Mohit Gupta, as Deepinder Goyal (3) currently runs the company, which should alleviate any concerns about leadership, said the brokerage.
Gupta joined Zomato four and a half years ago and was promoted from CEO of its meal delivery company to co-founder in 2020. He is not the first top executive to leave the company; the head of New Initiatives, Rahul Ganjoo (4), and Intercity Legends Siddharth Jhawar (5) left recently.
Rakesh Ranjan is the CEO of Hyperpure, Albinder Dhindsa (6) is in charge of Blinkit, and founder and CEO Goyal personally oversees the food delivery industry. Zomato's management needs to strike a balance between growth and profitability, even though Jefferies does not foresee a significant disruption or change in the company's strategy. This is because its checks reveal sluggish restaurant industry trends.
The brokerage has given the food delivery platform's stock a buy call with a target price of Rs 100, meaning it anticipates a 49% increase from Friday's closing price, even if it expects the stock to remain range-bound in the upcoming months. After Zomato released its financial results for the July-September quarter last week, multiple brokerages praised it for acting quickly to cut losses and produce strong growth for Blinkit.
Citi said that Zomato had put profitability ahead of growing gross order value (A&P spending probably fell by 100 bps or more) (7). The brokerage believes that the overall 30 percent growth rate in gross order value in FY23 should still be attainable given the solid monthly transacting user base and the additional 5 percent every quarter.
Zomato has also started firing staff due to cost-cutting measures and increased profitability as the macroeconomic environment becomes more difficult. In addition to the nearly 100 employees who have already been let go, the company wants to reduce its workforce by 3%. The staff affected by the move includes product technology, catalog, and marketing team members; however, supply chain personnel are unaffected.
Zomato shares slipped over 4.31%
Zomato shares declined, dropping more than 4.31% to Rs 64.25 on the BSE as the firm opened lower at Rs 66.30 compared to its previous finish of Rs 67.15.
The online meal delivery company's shares dropped when it announced that co-founder Mohit Gupta had left the organization. At the time, the stock was trading above the 20-day, 50-day, and 100-day moving averages but below the 5-day and 200-day moving averages.
The news that the corporation had laid off 3% of its personnel to reduce costs and increase profits has negatively impacted the stock sentiment. Its shares dropped 4.31 percent to Rs. 64.25 on BS, while it opened lower at Rs. 66.30 compared to its previous finish of Rs. 67.15.
However, since the start of this year, the stock has dropped 52.56 percent and lost 57.84 percent of its value, bringing the company's market valuation to Rs. 54,944 crores on the BSE. A total of 31.18 lakh shares were exchanged, resulting in a turnover of Rs 20.33 crore on the BSE (8).
On November 25, 2021, the stock reached a 52-week high of Rs 161.25, and on July 27, 2022, it reached a 52-week low of Rs 40.55. Additionally, Zomato stated that it would end its food delivery services in the United Arab Emirates (9). The company said it would like to update the exchange and stop providing services to Talabat in the UAE as of November 24, 2022.
Layoff continues
Zomato disclosed on Saturday that it would eliminate about 3% of its workforce to reduce costs and increase profits. The announcement, as previously mentioned, was made following the Friday resignation of Mohit Gupta, a co-founder.
The food company later on Saturday confirmed that it would fire 3% of its workforce overall, adding that its firings are based on normal performance. The spokesperson for Zomato stated that there had been no more to it than the regular, performance-based turnover of less than 3 percent of our workforce.
Approximately 3,800 people worked for this Gurugram-based company before this churn. It is reported that 520 people, or 13 percent of its workforce, were let go in May 2020 due to the business slowdown that followed the coronavirus pandemic. The layoffs followed the recent departures of three top-level company executives within a short period.
"MG (Mohit Gupta): You have been a brother and a friend to him over the last few years and have done a tremendous job here that brought them back from the edge of extermination, scaled the business to new heights offering profitability, and above all mentored him over the years to become capable of running such a large and complex company," Deepinder Goyal, founder, and chief executive, said in a note, according to a regulatory filing.
What's next for Zomato?
The stock reacted negatively to the announcement that firm co-founder Mohit Gupta was leaving, losing roughly 11% over seven trading days. The attitude surrounding the stock of the meal delivery service has soured with rumors of a 3% layoff and the likelihood of 3800 staff losing their jobs.
Nilesh Jain, a technical analyst, advised selling this stock when it was rising since the structure of the chart at the moment does not show a clear movement trend. Suppose the stock goes below Rs 63 on a closing basis. In that case, a further downside will also be available up to Rs 58, according to Jain, vice president of commodity and currency research at IIFL Securities (10).
The investor had advised selling the holdings when the price fell between Rs. company's. 75. The company's net loss decreased from Rs 430 crore recorded a year ago to Rs 251 crore in the quarter that ended on September 20.
