Zomato’s stock took a significant hit on Tuesday, dropping more than 9% after the company’s latest quarterly results revealed a sharp decline in profits. The poor performance has raised questions about the stock’s near-term prospects and whether it’s time for investors to buy the dip or sell their holdings.
Weak Q3 Earnings and Declining Profit
Zomato’s net profit for the December quarter plummeted by 57.2%, falling to ₹59 crore compared to ₹138 crore in the same period last year. The company cited increased expenses due to its rapid expansion efforts to support its quick-commerce service, Blinkit, as a key factor behind the declining margins.
The company’s total revenue for Q3 amounted to ₹5,405 crore, showing an increase from ₹3,288 crore during the same period last year. However, this revenue growth was not enough to offset the rising costs, as total expenses surged to ₹5,533 crore, up from ₹3,383 crore in the previous fiscal year.
Bearish Technical Outlook
Following the release of these weak earnings, Zomato’s stock dropped below its 200-day simple moving average (SMA) on the daily chart, signaling a bearish trend. The formation of a strong bearish candlestick further fueled concerns about the stock’s near-term outlook.
Additionally, Zomato has broken down from a ‘Double Top’ pattern, which often suggests a potential for more downside in the near future. The stock’s immediate support is seen around the ₹200 level, which could act as a floor if the stock continues to decline.
Key Resistance Levels and Potential Recovery
For investors looking for signs of recovery, Zomato would need to break decisively above the resistance levels in the range of ₹245 to ₹250. A breakout above these levels could signal that the bearish sentiment is reversing, providing some bullish optimism among traders and investors.
However, until Zomato can surpass this resistance zone, the stock’s outlook remains cautious. A continued decline could push the price lower, particularly if the broader market sentiment remains weak or if the company’s challenges persist.
Impact of Demand Slowdown
The decline in Zomato’s Q3 results also coincided with a slowdown in demand within the food delivery sector. Despite a 2% increase in food delivery revenue quarter-on-quarter and a 17% rise year-on-year, Zomato acknowledged that the demand slowdown had impacted its growth. This trend of slowing demand poses a risk to Zomato’s future performance, particularly given its high operational costs related to Blinkit and other expansion initiatives.
Is It Time to Buy or Sell?
For investors, the big question is whether this dip presents a buying opportunity or if it’s time to cut losses and sell. Those with a longer-term view might consider holding onto their shares, as the company’s revenue growth continues to show promise, albeit with the challenges posed by rising costs and demand slowdown. However, in the short term, caution is advised as the technical signals point toward further declines unless the stock can overcome the ₹245-₹250 resistance.
Zomato’s Q3 earnings results have highlighted the pressure the company is facing amid its aggressive expansion and the overall slowdown in demand. While the stock’s recent price decline has been sharp, its future trajectory will depend on how it manages its costs and whether it can recover from the technical breakdown it is currently experiencing.
