Swiggy vs Zomato: Which is better Investment Opportunity according to Morgan Stanley?

With Swiggy’s upcoming initial public offering (IPO) approved by the Securities and Exchange Board of India (SEBI), many investors are now debating whether to invest in Swiggy’s unlisted shares or stick with Zomato, whose stock has surged 138.3% since its debut on the stock market in July 2021. The question arises: which company holds better long-term potential?

Global brokerage firm Morgan Stanley has provided insights into both companies, offering a detailed comparison between Zomato and Swiggy across various segments. Swiggy, though an established name in the food delivery space, still finds itself trailing behind Zomato in certain key areas. According to Morgan Stanley’s report, Zomato continues to outperform Swiggy in food delivery and quick commerce, two critical sectors for both companies.

Food Delivery Segment

Despite Swiggy’s noticeable improvements in unit economics, it remains behind Zomato in terms of contribution margins and adjusted EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization). This is largely attributed to Swiggy’s smaller scale compared to Zomato’s extensive operations. In fiscal year 2024, Swiggy reported a Gross Order Value (GOV) of ₹24,700 crore, which falls short of Zomato’s ₹32,200 crore. However, Swiggy’s take rate—the commission charged to customers and restaurants—is slightly higher than Zomato’s, giving it a slight edge in this particular metric.

The average order values (AOVs) for both Swiggy and Zomato are relatively similar, according to Morgan Stanley. Still, Swiggy faces challenges when it comes to the number of monthly transacting users (MTUs), with Swiggy reporting 12.7 million MTUs, significantly lower than Zomato’s 18.4 million MTUs. This difference in user engagement highlights a major growth area for Swiggy, especially as Zomato’s frequent user base continues to expand.

While Swiggy’s GOV per MTU still outpaces Zomato’s, the gap is shrinking, raising concerns about Swiggy's long-term growth in this sector. As both companies compete to offer better services and attract more users, this metric could play a crucial role in determining their future profitability.

Quick Commerce Growth

In the rapidly growing quick commerce segment, Swiggy’s Instamart is facing stiff competition from Zomato’s Blinkit. Swiggy’s presence in this space spans 32 cities as of the first quarter of fiscal year 2025, but its AOV remains significantly lower than that of Blinkit, reflecting in Swiggy’s lower GOV per MTU. Swiggy’s Instamart also reports lower blended take rates, with 15% compared to Blinkit’s 19%. Contribution margins, a key profitability indicator, were -3.2% for Swiggy, whereas Blinkit managed to post positive margins of 4.2%.

Swiggy’s challenges in quick commerce extend to its dark store count—dedicated warehouses or stores used to fulfill online orders. Swiggy operates 557 dark stores, fewer than Blinkit’s 639, suggesting that Blinkit’s infrastructure is currently better positioned to meet customer demands in this sector.

Dine-Out and the Path Forward

Another segment where Zomato leads is the dine-out category. Zomato recorded a modest GOV of 0.8%, while Swiggy posted a negative GOV of -2%, further highlighting its struggles in this space. Despite these challenges, Swiggy has the potential to leverage its growing capital from the upcoming IPO to either gain market share or focus on improving profitability.

Morgan Stanley’s analysis suggests that Swiggy could take two distinct paths after its IPO. If the company chooses to focus on expanding its market share, particularly in food delivery, it could ramp up its competition with Zomato. On the other hand, if Swiggy shifts its focus toward profitability and steady improvements in mature segments like food delivery and quick commerce, this could align with market expectations and potentially enhance its standing in the eyes of investors.

Zomato, meanwhile, faces the risk of heightened competition from Swiggy, especially if Swiggy deploys its new capital aggressively. However, Zomato’s established presence and stronger metrics in both food delivery and quick commerce offer it a level of security that Swiggy is yet to match.

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In conclusion, while both companies have their strengths and weaknesses, Zomato seems to have an edge over Swiggy at the moment, particularly in food delivery and quick commerce. However, Swiggy’s upcoming IPO and the possibility of increased capital investment could significantly alter the competitive landscape, making it an exciting company to watch for potential investors.

[Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making any investment decisions.]