Why did Zomato rally so sharply on 11 August despite the weak results?

Zomato may have disappointed on the bottom line but it surely flattered the street on the top line and that is what the markets were flattered about. Let us look at the profits first. Zomato’s net loss increased more than 3-fold to Rs.356 crore in the Jun-21 quarter. However, the stock was still up by 9% on 11 August and the answer to that question lay in the top line or the revenues for the month.

For the Jun-21 quarter, Zomato revenues were up more than 3 fold from Rs.266 crore in the Jun-20 quarter to Rs.844 crore in the Jun-21 quarter. That is something that really flattered the street. The rise in revenues were largely on the back of a sharp spike in gross order value or GOV. In addition, the analysts had underestimated the revenues of Zomato, with the actual number being nearly 37% higher than the consensus analyst estimates.

In addition, most brokerages, including Jefferies, remain very positive on Zomato and are pegging the fair value of the stock closer to Rs.175. That leaves good room for upside. The losses widening in this quarter was largely on account of the expensing of stock options to Deepinder Goyal, which is a one-time cost. Overall, the markets were taken in more by the top line than the worries over the losses expanding.