According to stock market experts, Zomato is facing cash flow problem as its operational revenue is quite high. They said that Zomato's business model is much depended on the volume, which is not visible for its peer as well. In fact, Zomato peers across world are facing the same problem and such tech stocks like Google, Netflix, Amazon, Nykaa, etc. are facing heavy sell-off these days. They said that Zomato shares are expected to remain on the sticky wicket and there can be more downside if it breaks its current support level of ₹50 apiece.
Pointing towards the reasons for Zomato share price tumble, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "Zomato is facing severe cash flow problem as its operational cost is running quite high and the company is unable to bring it down below its cash inflows. So, Zomato has been making losses, which is not going down well among the investors. Apart from this, if you look at the business model of the company, they have limited options of increasing the price and meet the operational revenue outgo. So, the company is expected to remain a loss-making company and hence Zomato shares are expected to move further downwards." He said that Zomato is not an exception among its peers. Its peers like Google, Netflix, Amazon, Nykaa, etc. are also facing the same issue.
Echoing with Avinash Gorakshkar's views, Santosh Meena, Head of Research, Swastika Investmart Ltd said, "The current scenario of rate hikes has severely impacted tech stocks; investors have realized that the profitability and cash flows are more important than just revenue growth & their sky-high valuations aren’t sustainable. Similarly in India, Zomato dipped to a record low, losing 65% from its lifetime high. The company is still a loss-making one, and it is expected to break even in terms of operating profitability by FY24, the company was demanding an FY21 P/S multiple of 29.9x during its IPO which was high compared to its global peers, hence, a reality check has led to such severe correction."
Expecting more downside in Zomato share price, Sumeet Bagadia, Head of Research at Choice Broking said, "Zomato share price is currently in the range of ₹40 to ₹75 apiece levels. On chart pattern, the stock has witnessed channel breakdown that signals further weakness in the stock. It has immediate support at RS 50 and on breakage of this ₹50 support, the stock may further go down up to ₹40 per share levels."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
