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Will Zomato Gold relaunch bring some cheer for its stock price? Brokerage sees strong upside potential

Zomato has relaunched its ‘Zomato Gold’ loyalty program on an invite-only basis. This comes against the backdrop of declining GOV growth, driven by a slower addition of monthly transaction users and a reduction in order frequency. While this move could potentially allay growth concerns, an integrated loyalty program for Zomato and Blinkit could be a better proposition, according to brokerage Edelweiss.

“While recent results have shown Zomato gaining market share from Swiggy, the reintroduction of the loyalty program was the need of the hour to further drive the growth engine. Consistent balance between high growth and profitability would be key to keeping investors excited,” the brokerage said as it reiterated its ‘BUY’ on Zomato stock with a DCF-based target price of 85.

Zomato Gold has been relaunched with an attractive inaugural price of 149 for three months. The main offers include free delivery on the above orders 199, discounts for dine in and VIP access during peak hours. Edelweiss believes gold, in its current form, would appeal to users because it is relatively cheaper and has a similar value proposition other than fast trading.

“While concerns about slowing growth have surfaced in the recent past, profitability has become just as important, if not more so. Meal delivery turned positive adjusted EBITDA in Q2FY23. Zomato has navigated through a myriad of challenges and the overall strong performance amid all the headwinds gives us confidence in Zomato’s ability to execute,” the brokerage said.

It believes that Zomato has a long road to growth as the food delivery segment remains under-penetrated. Moreover, quick-commerce provides an extra fast-growing income stream.

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“Relaunch would bring back the lost revenue stream from members – an important lever to drive growth in food delivery. We think Zomato should have integrated Blinkit into the loyalty program; an integrated offering could have provided cross-selling opportunities. Gold in its current form has conditions such as minimum order value and maximum distance, which we believe provides better profitability than the previous offering,” it added.

The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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