Explained: In Zomato crash, symptoms of new-age stock shocks, return of eating-out as Covid retreats

Shares of Zomato Ltd fell to an all-time low on Tuesday, hitting Rs 75.75 apiece on the BSE, and taking the stock below its IPO issue price of Rs 76. Why did it fall? What is likely to happen to the stock now?

Written by Pranav Mukul , Edited by Explained Desk
New Delhi | Updated: February 16, 2022 02:54 PM IST

3 min read

The logo of food delivery company Zomato is seen on its app on a mobile phone displayed in front of its company website in this illustration picture. (Reuters)

Shares of Zomato Ltd fell to an all-time low on Tuesday (February 15), hitting Rs 75.75 apiece on the BSE, and taking the stock below its IPO issue price of Rs 76.

Following the Rs 9,375-crore IPO, Zomato’s stock listed on the exchanges for public trading on July 23 last year, and surged 65.8 per cent on its debut day.

So what happened to Zomato’s stock on Tuesday?

At Rs 75.75, Zomato’s share was down 8 per cent from its issue price. The stock had been falling for four consecutive trading sessions, wiping 20 per cent of its value during this period.

Since the beginning of this year, the stock is now down 45 per cent, and has fallen 55 per cent from its all-time high of Rs 169.10 on the BSE. After touching the all-time low on Tuesday, the scrip, however, rose to close trading at Rs 82.75.

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Why did the Zomato stock fall?

Analysts point to macro-economic factors and global volatility behind the recent sell-off in new age businesses such as Zomato. Its peers in the sectors such as Paytm, Nykaa and Policybazaar have also witnessed major sell-offs over the past few months.

Specifically in the case of Zomato, worse-than-expected December-quarter earnings have also played a role in the recent fall in the share price. Despite a narrowing of its quarterly losses to Rs 63 crore, Zomato reported only 1.7 per cent sequential growth in its gross order value (GOV) to Rs 5,500 crore.

In the previous quarters, the GOV had grown sequentially by 19 per cent and 37 per cent in the September and June quarters respectively.

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What is likely to happen to the stock now?

Prashanth Tapse, Vice President (Research), Mehta Equities Ltd said: “Recently listed new-age businesses saw a lot of selling pressure, which was largely driven by macro factors and global volatility followed by weaker GOV seen in Zomato’s December earnings, which was below market expectations.”

Also, the fact that people have begun to eat out again as the Covid curve flattens, could have had a role to play. “The markets are also witnessing some sort of shift towards dining-out habits due to the lowering of Covid restrictions. Considering the smoky earning outlook for Q4 earnings, we have a neutral outlook for the short term,” Tapse said.

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