Digital Titans: Zomato vs. Paytm – A Long-Term Investment Analysis

In 2023, internet stocks are making a strong comeback after a subdued initial investor response to their public offerings. This resurgence is fueled by improved profitability, rising revenues, and reduced expenses. In this dynamic landscape, the spotlight is on two Internet giants: Zomato and Paytm. Let’s explore which of these companies holds the promise of superior long-term growth opportunities.

Stock Performance:

Over the past year, Zomato has outshone Paytm, surging by 68% compared to Paytm’s 39%. Both companies have outperformed the Nifty benchmark, which saw a 6% rise during this period. In 2023, Zomato continued its stellar performance, rallying over 79% and registering positive returns in 8 out of 10 months. Paytm, too, displayed robust growth, jumping 65% and maintaining positive returns for 8 of the 10 months. However, both stocks have yet to reach their previous peak values.

Financial Insights:

Zomato, with its strategic moves, reported its first-ever consolidated net profit of ₹2 crore in Q2FY24, a significant turnaround from previous losses. Its expansion into sectors like grocery delivery enhances its appeal. On the other hand, Paytm posted a narrowed net loss of ₹292 crore for Q2FY24, indicating progress in its financial health. Yet, Paytm faces intense competition and regulatory challenges that could affect its growth trajectory.

Expert Opinions:

Experts lean towards Zomato due to its dominance in the food delivery sector, where it competes with Swiggy. Zomato’s growing user base and ventures like quick grocery delivery bolster its position. In contrast, Paytm faces fierce competition from established players and larger entities replicating its services.

While both stocks show promise, investors are advised to caution due to inherent sector volatility. However, the current period might offer a strategic opportunity for long-term accumulation, considering the rapid global digital integration. Zomato, with its consistent growth and diversification efforts, emerges as a promising choice for investors eyeing the digital sector’s potential.

ICICI Securities, a leading brokerage, maintains a ‘buy’ rating on both stocks. Zomato, in particular, enjoys a 48% upside potential, with a target of ₹160, reinforcing its position as a top pick in the Indian internet space.

Vijayakumar, Chief Investment Strategist at Geojit Financial Services, expresses confidence in both Zomato and Paytm. These stocks, with their extensive growth runway, have the potential to deliver substantial returns in the long run. Investors, however, must navigate the market with a balanced approach, considering the ebb and flow of the digital sector’s fortunes.