Zomato’s share fell to the lowest ever. Why?

zomato's share fell

If you are an investor and track stock market performance. Then you are well aware of the news that Zomato’s share price fell (slipped) slipped to its lowest on 26th July. When Zomato was listed a year ago then the investors collected a huge profit from it. But if we look recently then we find it’s the lowest price ever. We will discuss the reasons behind this slipped down.

How low?

On Friday 22nd July, when the market closed the price was 53.30. On Monday price lowed to a massive bottom and went to the lowest of 46.95. The price lowed by 10.5%. On Tuesday the price low by 9.6%, with the lowest value of 41.70%. In the last five days, Zomato’s share fell low by 19.18%.

zomato's share fell

Is one year responsible for Zomato’s share fell?

One of the biggest reasons experts are suggesting is the termination of the year-long lock-in period for its pre-initial public offering (IPO) on Friday(22nd July). As of the 23rd of July, Zomato’s IPO listing completed its one year. This one-year lock-in period was also ended which resulted in a long sell-off this week and resulting in Zomato’s share fell.

Lock-In period

On 23rd July when Zomata completed its one year than the first stack holders like promoters, employees, and other holders get released from, mandatory lock-in. Under Mandatory lock-in, according to SEBI(Securities Exchange Board of India) promoters, employees, and other holders can’t sell their shares for one year. They can’t sell like us but have to wait for one year.

As because of this rule of lock-in period by SEBI, we saw a massive sell-off on Monday.

Will this affect Market Capitalization?

Yes, it will definitely affect the market capitalization it directly depends upon the value of one share price. It can also be defined as the product of the total number of share and the value of one share. It represents the worth of a company.

If we see the peaks of Zomato. Then the one share price was Rs.169.10 which will create a market capitalization of Rs 1.33 lakh crore. But till now it slipped by 73% and has a market capitalization of Rs. 34,000 crores. It really lost 1 lakh crores.

Acquisition of a loss-making company

Recently Zomato acquired BLINK IT which was a quick commerce startup. People are well aware with Grofers and Blink it was formerly Grofers. And like the current down in price, a similar low was observed when it acquired blink it. Blink was also a loss-making company.

Zomato acquired blink in a share swap deal of Rs 44.5 billion. The idea of acquisition is an investment in the quick commerce business. The company approved the deal of up to 33,018 equity shares of Blink commerce Pvt Ltd from the shareholders.

Zomato knows very well that it should have to be in quick commerce from future aspects. As we see that blink it and Zomato both are loss-making companies then it’s expected that this acquisition will have an adverse effect. Investors are not really pleased with this acquisition as is normal to see high operating losses.

Zomato’s thinking is that blink will support it in the food delivery business and both will have a significant growth in the future. Today there are many quick commerce markets, so the business is now extremely competitive. And it will take a long time for blink it to become profitable.

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