Whalesbook
The Valuation Reset
Market observers note that valuations for food delivery and quick-commerce players like Zomato and Swiggy have dropped significantly. This presents a buying opportunity for medium-term investors, as many of the immediate competitive worries seem to be already reflected in current stock prices. Zomato's stock has fallen about 32%, while Swiggy's estimated value has decreased by nearly 50% from its peak. Despite this, analysts remain hopeful, but with caution, pointing to a good balance of potential gains and risks. The food delivery segment is seen as a stable two-player market, with solid underlying business strengths supporting their valuations. These are often reflected in high multiples, such as Zomato's food segment trading at about 53 times expected earnings before interest, taxes, depreciation, and amortization.
Structural Hurdles in Quick Commerce
The idea that 'risks are already priced in' might miss the core difficulties in consistently making profits within the quick commerce (Q-commerce) sector. While demand is strong, especially in cities where speed and convenience are highly valued, the economics of each transaction are difficult. High operating costs, from managing delivery hubs to delivering orders, often result in losing money on each transaction. For instance, in the third quarter of fiscal year 2026, Zomato reported a net profit of ₹102 crore on revenue from operations of ₹16,315 crore, showing a considerable journey ahead to achieve profitability at scale. Swiggy, though planning an IPO with a valuation of $15-17 billion based on about 11 times its expected FY24 revenue, still loses money on its food delivery business. Blinkit, Zomato's subsidiary, has shown progress in its Q-commerce arm, with sharp reductions in losses before certain costs. It even achieved breaking even each month on earnings before certain costs by March 2024, though making a net profit is still a future target. Global rivals like DoorDash trade at much higher multiples, such as around 29 times expected earnings (P/E) and 54 times earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), highlighting growth expectations but also how much money is needed to run these businesses.
The expansion of Q-commerce into non-grocery items is seen as an important driver of growth for 2026, aiming to increase basket sizes and improve profits. However, making sound financial sense in less populated cities and rural areas remains a significant obstacle, where customers might not pay extra for the speed and convenience. Fierce competition, with players like Blinkit, Swiggy Instamart, Zepto, and Amazon Fresh competing for customers, further pressures prices and how efficiently they operate.
The Bear Case: Margin Squeeze and Evolving Demand
While analysts like Motilal Oswal and Elara Securities rate the stocks as 'Buy,' a more critical view points to ongoing challenges. Zomato's stock, despite long-term gains, has seen sharp drops, such as in July 2022 and after downgrades in March 2025. The very high price-to-earnings (P/E) ratios for Zomato, ranging from over 300 times to nearly 1000 times in some reports, show high growth expectations, leaving no room for mistakes. The recent increase in Zomato's platform fee to ₹15 per order, matching Swiggy, aims to improve profits. However, how customers will react to this price increase is still unknown. Food prices, which rose 3.47% year-on-year in February 2026, combined with rising fuel costs, continue to increase operating costs. Furthermore, consumers are increasingly seeking better quality products at good value, meaning they are more selective. This could make it harder for delivery services that rely on many orders with small profits, especially if competitors offer lower prices or no fees. The Q-commerce market being split among many players, even with big companies joining forces, means new competitors could shake things up.
Future Outlook
India's consumer market is expected to become the world's third largest by 2026. This growing market, driven by rising incomes and an increase in spending on non-essential items, provides a good environment for delivery companies. Analysts forecast continued growth in the Q-commerce segment, with projections reaching $5.38 billion in 2025. However, for Zomato and Swiggy, the path forward hinges on turning this growth into profits that can last and grow. The key challenge will be managing costs, making operations as efficient as possible, and adjusting to how sensitive customers are to prices and their changing shopping habits. This means going beyond just getting more orders to achieving solid profits per order and making each transaction financially sound.