Zomato Boosts Platform Fee by 25% Amidst Suspension of Intercity Legends Service

• ByStartupStory     |    April 22, 2024

Zomato has announced a significant hike in its platform fee by 25%, now pegged at Rs 5 per order. This decision comes amidst the suspension of its inter-city food delivery service, Intercity Legends, signaling a strategic pivot towards enhancing core operations and optimizing resources.

This incremental increase in platform fee marks the latest step in Zomato’s journey towards sustainable profitability. Previously, the company introduced a Rs 2 platform fee, gradually escalating to Rs 4, and temporarily peaking at Rs 9 in December. Analysts foresee this adjustment as a strategic measure to partially offset the impact of GST on delivery charges, underlining Zomato’s commitment to maintaining a robust bottom line.

With Zomato processing approximately 85-90 crore orders annually, even a nominal increase of Re 1 in convenience fee across all regions could potentially yield a positive impact of Rs 85-90 crore on EBITDA, translating to a substantial 5% boost. However, it’s noteworthy that this fee hike is currently effective only in select cities.

Simultaneously, Zomato has pressed pause on its Intercity Legends service, a move aimed at streamlining operations and optimizing resources. While customers may momentarily miss the convenience of ordering from top restaurants in different cities, Zomato assures them of forthcoming enhancements, urging patience and promising to resume services shortly.

The financial landscape reflects positively on Zomato’s strategic maneuvers, with its stock price witnessing a surge propelled by burgeoning profitability in core operations and the exponential growth of its quick commerce arm, Blinkit. In the December quarter, Zomato’s food delivery segment recorded a remarkable 30% year-on-year increase in adjusted revenue, amounting to Rs 2,025 crore on a consolidated basis. Blinkit, on the other hand, reported a doubling of revenue, soaring to Rs 644 crore during the same period.

Bolstered by these robust financial performances, Zomato reported a consolidated net profit of Rs 138 crore, a significant turnaround from the net loss of Rs 347 crore in the previous year. Revenue also witnessed a substantial upsurge, climbing to Rs 3,288 crore from Rs 1,948 crore year-on-year.

The exuberant valuations bestowed upon Zomato by investors seem well-justified, with Goldman Sachs Group Inc. expressing optimism regarding the profit forecasts for Blinkit. Analysts foresee a gradual easing of skepticism surrounding the profitability of this business model as more promising results are unveiled. ICICI Securities Ltd. further reinforces this sentiment, attributing the rich valuations to Zomato’s projected revenue and profit surge, echoing the bullish sentiments witnessed globally towards tech stocks.

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