By Zomato’s share price witnessed a significant uptick on Friday, climbing over 3% after the company announced the shutdown of its Intercity Legends service. This decision, which was communicated by Zomato’s CEO Deepinder Goyal, comes after two years of attempting to make the service a success, but ultimately not finding a suitable product market fit.
The announcement increased investor confidence, with Zomato shares reaching an intraday high of ₹267.30 on the BSE, a 3.68% increase from the previous close.
The Intercity Legends service, which debuted in 2022, was an ambitious effort by Zomato to bring iconic dishes from 10 different cities to customers across the country. The service allowed users to order famous local delicacies from far-off places, offering a unique culinary experience.
However, despite its innovative concept, the service struggled to gain the necessary traction. In July 2024, Zomato had already paused the service temporarily, making some changes in an attempt to boost profitability. These efforts, however, did not yield the desired results, leading to the final decision to shut it down.
CEO Deepinder Goyal announced the closure on the microblogging platform ‘X’ (formerly Twitter), stating, “After two years of trying, not finding product market fit, we have decided to shut down the service with immediate effect.”
This candid admission reflects the company’s pragmatic approach to business, where even innovative ideas are subject to rigorous market testing and assessment. The decision to discontinue the service underscores Zomato’s focus on optimizing its operations and resources towards more promising ventures.
This announcement’s timing is notable, as it comes just a day after Zomato disclosed its acquisition of Paytm’s entertainment and ticketing business for ₹2,048 crore. This strategic move is aimed at bolstering Zomato’s ‘going out’ segment, which the company plans to spin off into a new app called ‘District’. The acquisition is expected to add considerable size and scale to Zomato’s operations, providing a new growth engine over the medium to long term.
Analysts have responded positively to the acquisition, viewing it as a significant step forward for Zomato. Morgan Stanley, in particular, has expressed optimism about the deal, suggesting that it could lead to upside risks in Zomato’s adjusted EBITDA forecasts for FY2027 and beyond, provided the execution in this segment remains strong.
The firm has maintained an ‘Overweight’ rating on Zomato shares, with a target price of ₹278 apiece, reflecting confidence in the company’s strategic direction.
The acquisition is expected to significantly boost Zomato’s Gross Order Value (GOV). Zomato’s Q1FY25 GOV run rate was ₹5,000 crore, and with this acquisition, it is projected to increase to ₹7,000 crore.
The company is aiming for a GOV of at least ₹10,000 crore by FY2026 for the combined business. This growth trajectory is further supported by the fact that Zomato is acquiring a profitable and asset-light business, with positive working capital. Over time, Zomato expects the newly acquired business to generate adjusted EBITDA margins of 4-5%, compared to the current 1.5% for FY2024.
The market’s reaction to Zomato’s recent developments reflects a broader confidence in the company’s ability to adapt and grow. The decision to shut down the Intercity Legends service, though a setback, is also a testament to Zomato’s commitment to focusing on scalable and profitable ventures.
By shedding underperforming services and acquiring businesses that align with its growth strategy, Zomato is positioning itself for sustained success in an increasingly competitive market.
At around 10:05 AM on Friday, Zomato shares were trading 3.30% higher at ₹266.30 apiece on the BSE, further indicating investor approval of the company’s recent moves. As Zomato continues to streamline its operations and expand its portfolio, the market will likely keep a close watch on its next steps, especially in the wake of the Paytm acquisition and the anticipated launch of the ‘District’ app.
