Investment

Published: October 28, 2023
Updated: October 28, 2023

Zomato vs. Paytm: Unveiling the Better Long-Term Investment

As internet stocks stage a recovery in 2023, it's crucial to assess their long-term investment potential. The internet sector has seen a resurgence in profitability, revenue growth, and cost reduction in recent quarters. This article delves into a comparison between Zomato and One 97 Communications (Paytm) to determine which one offers better growth opportunities for long-term investors.

Stock Performance:

Over the past year, Zomato has outshone Paytm, with a remarkable surge of 68%, compared to a 39% rise in the latter. Both stocks have notably outperformed the Nifty benchmark, which saw a 6% increase during this period. Additionally, in the year-to-date performance for 2023, Zomato continued to outperform, exhibiting positive returns in 8 of the 10 months. Paytm also showed robust growth, gaining 65% and delivering positive returns in 8 out of 10 months.

Stock Performance Relative to Record Highs:

While Zomato is still 37% away from its all-time high of ₹169, Paytm lags by over 55% from its peak of ₹1,955. However, both stocks recently hit their 52-week highs, indicating a promising trajectory. Zomato is trading at ₹106.45, a remarkable 162% jump from its record low of ₹40.60. Paytm, on the other hand, stands at ₹875.95, showing a 100% increase from its record low of ₹438.35.

Earnings Outlook:

Zomato has not disclosed its Q2FY24 earnings yet, but experts anticipate a significant reduction in its EBITDA loss to ₹6 crore from ₹48 crore in Q1FY24. In the previous quarter, Zomato reported its first-ever consolidated net profit of ₹2 crore, a substantial improvement from the net loss of ₹186 crore in the year-ago period.

Paytm, on the other hand, reported a consolidated net loss of ₹292 crore in Q2FY24, marking a 49% reduction from the previous year's ₹1,914 crore loss. The firm also recorded a consolidated revenue growth of 32%, reaching ₹2,519 crore in the September quarter.

Expert Opinions:

Vinit Bolinjkar, Head of Research at Ventura Securities, favours Zomato for long-term investment due to its relatively lower competition in the food delivery sector, a growing user base, and its entry into the quick grocery delivery market through the acquisition of Blinkit.

Sonam Srivastava, Founder and Fund Manager at Wright Research, recommends Zomato over Paytm for its consistent growth, significant market share in the online food delivery sector, and promising expansion into new areas like grocery delivery and quick commerce.

ICICI Securities has a 'buy' rating for both stocks, with a 48% upside for Zomato and 15% for Paytm. Zomato's improved profitability and operating metrics make it a top pick in the Indian internet space. For Paytm, expansion in credit partners and the launch of a co-branded RuPay credit card are considered positive levers.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, acknowledges the potential of both Zomato and Paytm, emphasizing their long-term growth prospects and ability to deliver decent returns.

In the quest to choose the better long-term investment between Zomato and Paytm, several factors must be considered. Both companies hold substantial growth potential in India's evolving digital landscape. Zomato's strong presence in the food delivery sector and entry into quick grocery delivery make it an appealing option. Meanwhile, Paytm's digital payments platform competes with more established players and faces regulatory challenges. Investors must exercise caution given the inherent volatility of internet stocks, but the internet sector remains a dominant growth area. In conclusion, the choice between Zomato and Paytm depends on your investment strategy and risk tolerance.