The stock market isn’t kind to companies juggling rapid expansion and profitability—a reality Zomato felt sharply as its stock shed 15% of its value in less than a day. The culprit? Its high-growth but high-cost quick commerce arm, Blinkit, which is proving to be both a strength and a strain.
Aviral Bhatnagar, Founder and Managing Partner of AJVC, summed it up succinctly:
“Q-commerce has started to get extremely fierce and is showing in the profit margins for Blinkit. High-growth companies swing both ways on profit growth/miss.”
The sentiment reflects the market’s harsh response to Blinkit’s accelerated expansion and shrinking margins.
Blinkit’s Double-Edged Growth
Blinkit’s growth metrics are impressive on paper. The quick commerce platform reported a 27.2% QoQ surge in gross order value (GOV) for Q3FY25, with an annualized run rate of ₹31,000 crore. It also crossed the milestone of 1,000 stores, adding 216 new locations in the last quarter alone. Ambitiously, Blinkit now targets 2,000 stores by December 2025, a year ahead of schedule.
But rapid expansion comes at a price. EBITDA margins plummeted from -0.1% in Q2 to -1.3% in Q3, driven by higher customer acquisition costs and accelerated store rollouts. Analysts at Nuvama noted the trade-off, suggesting that while expansion may hurt short-term profitability, maturing stores could “bunch up” profits in future quarters. The question remains: Will investors wait that long?
Core Food Delivery Business Slows
While Blinkit grapples with its rapid growth strategy, Zomato’s core food delivery segment isn’t offering much relief. With GOV growth at just 2.3% QoQ, the company acknowledged weaker demand since November. Contribution margins, however, showed steady improvement, offering a silver lining in an otherwise cloudy quarter.
Hyperpure and Diversification
Not all news was grim. Zomato’s B2B venture, Hyperpure, is scaling effectively, nearing EBITDA breakeven. This segment has quietly emerged as a stabilizing force, underscoring Zomato’s ability to look beyond its core food delivery business.
In a surprising pivot, Zomato has entered the entertainment space with an app targeting event and movie ticketing. Taking aim at BookMyShow’s 60% market share, this move signals Zomato’s ambition to create a broader ecosystem. While it’s too early to predict success, the initiative demonstrates the company’s willingness to innovate and diversify its offerings.
Market’s Harsh Reality
Global brokerage firms have responded to these developments with caution. Macquarie slashed its target price to ₹130, warning that rising competition in q-commerce and increasing digital marketing costs could further squeeze margins. For all its long-term potential, Zomato now faces a critical challenge: how to balance aggressive growth with the market’s unforgiving demand for profitability.
Zomato’s Tightrope Walk
The sharp sell-off in Zomato’s stock is a reminder that ambition in the business world comes with its own set of risks. Blinkit’s expansion showcases Zomato’s bold vision for q-commerce dominance, but the cost of this growth is becoming increasingly apparent. As the company ventures into new territories like entertainment and builds on its B2B success, the path forward is clear: profitability needs to catch up with innovation. Until then, investors will be watching closely—and not always patiently.
