Loss or break-even? Zomato blinks months after claiming break-even of food delivery biz

In today's shareholder letter on September quarter performance, the company revised its Adjusted Ebitda for the food business in the June quarter from zero (implying break even) to a loss of Rs 113 crore

When Zomato shared its result for the first quarter in August, it played up the number zero. It had claimed that the food delivery segment had broken even in terms of 'Adjusted Ebitda'.

Adjusted Ebitda is a metric that many tech companies use even as each one of them defines it differently. Typically, costs that are not considered operational for the business such as employee stock option expenses are kept out of it.

However, even that leeway was not enough for Zomato's food delivery segment.

In today's shareholder letter on September quarter performance, the company revised its Adjusted Ebitda for the food business in the June quarter from zero (implying break even) to a loss of Rs 113 crore.

"Please note that in the past, we have reported "Unallocated Costs" as a separate cost head not attributable to any of the business segments. These costs included server and tech infrastructure costs, corporate salary costs and other corporate overheads," the company said today.

"Based on feedback received from a number of shareholders, from Q2FY23 onwards we have allocated these costs to different business segments (basis logical assumptions) and have also reflected this change in the numbers for the past 4 quarters. As a result of this exercise, ~86% of the unallocated costs in Q2FY23 have been allocated to the food delivery segment," it added.

Interestingly, Zomato has again claimed to break even in food delivery in the September quarter as it recorded an Adjusted Ebitda of Rs 2 crore for the segment.

Food business sputtering?

The company said that the gross order value of its food business rose 3 percent in Q2 compared to the previous quarter. This was on expected lines as the September quarter saw a softening of demand across the retail sector and the e-commerce segment due to a spike in inflation.

But, the bigger problem seems to be that the growth of its food delivery business has slowed as it has become bigger – quarterly sales have grown only 22 percent from Rs 5,410 crore in Q2 of FY21 to Rs 6,631 crore in Q2 of FY22.

In contrast to this, quarterly sales grew 158 percent from Q2 of FY21 to Q2 of FY22.

However, there might also be a bright spot. Marketing cost has come down 23 percent year-on-year to Rs 300 crore in Q2 and delivery expenses have dropped 28 percent to Rs 283 crore.

Given that the company's revenue has grown 62 percent over this period, it would seem that the operating leverage and scale effects that investors have been longing to see are finally kicking in.

Zomato's net loss for the quarter narrowed to Rs 250.8 crore against Rs 434.9 crore registered in the same quarter last year. Meanwhile, revenue from operations zoomed 62.20 percent to Rs 1,661.3 crore.