Zomato Limited (NSE:ZOMATO) Just Reported Earnings, And Analysts Cut Their Target Price

Investors in Zomato Limited (NSE:ZOMATO) had a good week, as its shares rose 6.0% to close at ₹62.30 following the release of its full-year results. Sales hit ₹42b in line with forecasts, although the company reported a statutory loss per share of ₹1.67 that was somewhat smaller than the analysts expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Zomato after the latest results.

See our latest analysis for Zomato

Following the latest results, Zomato's 17 analysts are now forecasting revenues of ₹58.7b in 2023. This would be a huge 40% improvement in sales compared to the last 12 months. Per-share losses are predicted to creep up to ₹1.63. Before this earnings announcement, the analysts had been modelling revenues of ₹58.1b and losses of ₹1.22 per share in 2023. While this year's revenue estimates held steady, there was also a regrettable increase in loss per share expectations, suggesting the consensus has a bit of a mixed view on the stock.

The consensus price target fell 9.7% to ₹109per share, with the analysts clearly concerned by ballooning losses. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Zomato, with the most bullish analyst valuing it at ₹220 and the most bearish at ₹65.00 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's clear from the latest estimates that Zomato's rate of growth is expected to accelerate meaningfully, with the forecast 40% annualised revenue growth to the end of 2023 noticeably faster than its historical growth of 28% p.a. over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 22% annually. Factoring in the forecast acceleration in revenue, it's pretty clear that Zomato is expected to grow much faster than its industry.

The Bottom Line

The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Zomato. Fortunately, they also reconfirmed their revenue numbers, suggesting sales are tracking in line with expectations - and our data suggests that revenues are expected to grow faster than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Zomato analysts - going out to 2025, and you can see them free on our platform here.

And what about risks? Every company has them, and we've spotted 2 warning signs for Zomato you should know about.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.