Zomato Share Price Continues to Soar Following Platform Fee Hike

Zomato stock price went up on 3-Jan-24, this positive trend came after the company decided to increase its mandatory platform fee for food delivery services, starting from 1-Jan-24. Analysts have responded positively to this move, expecting it to contribute to improved financial performance for Zomato.

Platform Fee Adjustment Details

Zomato raised its platform fee from ₹3 to ₹4 per order in key markets, a move met with favorable responses from analysts. They anticipate this adjustment not only to boost Zomato's EBITDA but also to contribute to the company's overall financial success.

This platform fee increase follows Zomato's introduction of a convenience fee of ₹2 per order in August 2023, subsequently raised to ₹3 by the end of the same month. Aiming to enhance margins and achieve profitability. The recent increase to ₹4 on January 1 is seen as part of the company's strategy to boost profitability, along with other measures such as ad revenue and higher restaurant commissions.

CLSA’s view Zomato's 33% increase in platform fees as a strategic move to counterbalance the impact of GST on delivery charges. The brokerage holds a 'buy' recommendation for Zomato with a target price of ₹168 per share. As of 1.55 pm, Zomato shares were trading 0.27% higher at ₹129.05 on the National Stock Exchange.

Operational Impact

Zomato processes 85-90 crore orders annually and anticipates a positive impact on EBITDA with each ₹1 increase in the convenience fee. However, this hike applies to only 33% of the cities, resulting in a 2% positive impact on EBITDA. This fee adjustment coincided with a surge in order volumes for Zomato on New Year's Eve.

The platform fee applies to all customers, including those enrolled in Zomato Gold. Akshant Goyal, Zomato's CFO, emphasized that the fee adjustment is a small step to ensure long-term viability while maintaining affordability for customers.

Stock Performance

Zomato's stock has done well in the past six months, going up by more than 64%, which is better than the Nifty 50 benchmark. The company has been making good money, and being profitable for the last two quarters. One reason for this success is the fees they charge on their platform, and this also applies to their quick-commerce branch called Blinkit. Financial experts at CLSA are optimistic about Zomato's future because they believe the company is making smart decisions and has the potential for more growth.

Final Words

Zomato's stock has been doing well lately, going up by more than 23% in the last three months and giving investors a solid return of over 120% in the past year. This suggests that people who invest in the stock market are optimistic about Zomato's plans and future potential.