Rise in volume key growth driver for Zomato: Morgan Stanley

The rise in the volume of orders has been a key driver of growth for Zomato which said its revenue for the first half of the financial year 2019-20 saw a massive three-fold jump - from $63 million in the same period in 2018-2019 to $205 million this time, according to a new report from Morgan Stanley Research.

Zomato received average monthly 36 million online orders in the first half of financial year 2019-20 with an annualised gross merchandise value (GMV)of $1.65 billion - 3.2 times the run rate in the first half of 2018-2019, said the report on Thursday.

But the company`s average order value has been moderating - from $4.6 in the first half of 2018-2019 to $3.8 in the first half of 2019-2020 -- owing to expansion in low-tier cities.

Zomato is now present in over 500 cities across the country.

Order volumes have doubled in the top 15 cities in the last year, while the remaining cities are contributing 35 per cent of order volumes, said the report.

The classified business too has been growing, with total restaurant listings higher globally and especially in India.

As per the report released by the company, its monthly burn rate in September 2019 was 40 per cent lower than the rate in March 2019, driven by cost optimization initiatives.

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"The business`s contribution margin is positive across the country. If the current trends were to continue, our loss estimate of $180 million from Zomato for F22 could come down," Morgan Stanley Research said.

Incremental revenues from initiatives such as Gold (loyalty programme), Food@Work (tech-enabled corporate cafeterias), and Hyperpure (fresh and clean ingredients for restaurant partners) - to name a few - could also increase the addressable market and drive growth, said the report.

Over the long term, profitability will be a function of better take rates and lower delivery costs --based on improvement in delivery efficiency per partner and earnings per hour for a delivery partner, it added.