Takeaways from Zomato hitting profitability

Jianggan Li is the founder and CEO of Momentum Works, a venture outfit headquartered in Singapore.

On August 4, Zomato, a leading India-based food delivery platform, announced its results from the first quarter of 2024, which means from April to June this year.

For the first time, Zomato registered a group-level profit of 20 million rupees (US$240,000), thanks to a deferred tax of 150 million rupees (US$1.8 million). Its share price shot up as much as 20% during the two trading days after the results were announced.

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In contrast, Uber also reported net income for the first time last week, but its share price fell 6% following the news due to investor fears about missing revenue targets and rising competition in ride-hailing.

So what does Zomato hitting profitability mean for the company’s future? I have some takeaways.

1. These are legit profits

I’ve seen some online mocking (mostly on Twitter/X) of Zomato’s “profitability” as it was achieved partly due to the deferred tax and is in itself meager.

However, if you look at Zomato’s earnings over the past eight quarters, margins have consistently improved and helped spur these profits.

2. Recipe for success

Profitability of a food delivery platform is attainable through volume, density, and operational efficiency, as Momentum Works argued in a report last year. The top platforms relentlessly focus on operations to squeeze out efficiency.

Grab is keying in on operations in Southeast Asia and Zomato is doing the same in India, and both are showing steady and consistent margin improvements.

3. Lessons from the East

Previously, the only large-scale food delivery platforms that have been profitable over multiple periods were Meituan in China and Woowa Brothers in South Korea. While both are in highly urban, affluent, and highly pressured East Asia, their paths to profitability slightly differ.

Meituan has built a huge volume of orders on very thin margins, and it earns additional profits from that vast customer base through other services that have lower frequency and higher margin use cases (i.e., advertising, hotel booking, etc.).

Meanwhile, Woowa taps into a market that was already highly organized with restaurant chains comfortable paying for advertising and conversions.

Zomato’s customer base is currently at 17.5 million monthly transacting users, a fraction of the Indian population of more than 1.4 billion. In comparison, Grab operates in Southeast Asia, which has less than half the population of India, yet it has 33.3 million monthly transacting users.

4. Still piecing data together

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