Posted on February 6, 2025, by Niftynews
Swiggy stock experienced a significant drop on February 6, falling by over 7% to Rs 387 per share after the company reported disappointing Q3FY25 results. The company net loss widened to Rs 800 crore from Rs 524 crore in the same quarter last year. This widening loss and continued pressure from rising competition and aggressive Swiggy dark store expansion are leading analysts to forecast a tough quarter ahead for the company. Swiggy share price is expected to remain volatile as market concerns grow over the company performance.
Brokerages Share Mixed Views on Swiggy Stock
Despite the widened losses, brokerages have offered mixed opinions on Swiggy stock. UBS has maintained a “Buy” rating on Swiggy, with a target price of Rs 515, citing growth in food delivery despite the challenges. However, Macquarie has taken a more cautious stance, reiterating its “Underperform” call and lowering its target price to Rs 325.
Swiggy share price has struggled to gain momentum since its market debut, hovering around its initial listing price of Rs 412 per share. While it briefly reached a high of Rs 617 in December 2024, it has since dropped nearly 40%. Investors are increasingly concerned about the future performance of the company, and this has significantly affected Swiggy share price in recent months.
Increased Margin Pressure from Competition
Analysts have warned that Swiggy is facing increasing margin pressure, particularly due to its ongoing dark store expansion. Unlike its competitors like Zomato, Swiggy has aggressively pursued the expansion of its dark store model, adding 90 new dark stores in January alone. These Swiggy dark store expansions are part of its effort to ramp up its quick commerce business, Instamart. However, this expansion strategy has resulted in increased operating costs, and the company is struggling to maintain profitability.
UBS analysts have forecast that margin pressure will continue, as Swiggy dark store expansion is unlikely to yield immediate returns. The company rapid expansion is expected to keep Swiggy share price under pressure as the market remains concerned about the long-term profitability of these investments.
Macquarie Flags Quick Commerce Losses as Key Risk
Macquarie analysts also raised concerns over Swiggy quick commerce division, Instamart. The brokerage noted that the company is facing stiff competition from rivals like Blinkit and Zepto, which are also aggressively expanding in the quick commerce space. Swiggy investment in Instamart has resulted in growing losses, with the contribution margin for Instamart dropping to -4.6% in Q3FY25 from -1.9% in the previous quarter.
Macquarie highlighted that Swiggy share price could face additional downward pressure if these losses continue to swell. The brokerage believes that the hyper-competitive nature of the quick commerce market will likely persist for several more quarters, making it challenging for Swiggy to turn a profit in this segment. Given the increased competition and pressure on margins, Macquarie continues to favor Zomato over Swiggy, at least in the near term.
Nuvama Highlights Dark Store Expansion as a Headwind
Nuvama analysts also flagged Swiggy dark store expansion as a significant challenge for the company. The ongoing investments in Instamart and the rapid expansion of dark stores are increasing operational costs, which are weighing heavily on Swiggy margins. Despite these challenges, Swiggy food delivery business saw a year-on-year rise of 19.2% in its Gross Order Value (GOV), reaching Rs 7,436 crore in Q3FY25. This growth was driven by an increase in both the transacting user base and order frequency.
However, this growth in the food delivery segment has not been enough to offset the losses in Instamart. The expansion of Swiggy dark stores and its investments in the quick commerce sector are continuing to put a strain on its financials, which is reflected in the decline of Swiggy share price.
Instamart Lags Behind Competitors in Quick Commerce
One of the major challenges facing Swiggy is the underperformance of its Instamart division. Although Instamart has reached an annualized gross sales run rate of $1.8 billion, it still lags behind competitors like Blinkit and Zepto, which have gross sales run rates of $3.7 billion and $3 billion, respectively. This performance gap is a concern for investors, as Swiggy share price could continue to be impacted by the company inability to catch up to its competitors in the quick commerce space.
Swiggy struggle in quick commerce further raises questions about the long-term sustainability of its dark store expansion strategy. While the company food delivery business continues to grow, its quick commerce venture is facing tough competition, and this imbalance is leading analysts to express caution regarding the future of Swiggy share price.
Conclusion: Swiggy Faces an Uncertain Future
Swiggy is facing multiple challenges, including fierce competition, increased operating costs from Swiggy dark store expansion, and mounting losses in its quick commerce division. While its food delivery segment continues to show growth, the broader outlook for the company remains uncertain. Analysts are divided on the stock future, with some maintaining a positive view, while others express concern over Swiggy financial health.
As a result, Swiggy share price is likely to remain volatile, with investors closely monitoring the company Q4 performance. If Swiggy can turn around its quick commerce business and manage its expansion efforts more efficiently, there may be potential for recovery in the Swiggy share price. However, if competition continues to intensify and losses persist, the Swiggy share price could face further declines.
Investors should stay cautious and continue to monitor developments in Swiggy business strategy, as the company navigates a highly competitive market while trying to balance expansion and profitability. Only time will tell if Swiggy share price can rebound or if the company will face further financial struggles.
