Zomato Ltd (ZOMATO) Q3 FY23 Earnings Concall Transcript

Zomato Ltd (NSE:ZOMATO) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

 

Corporate Participants:

Akshant Goyal — Chief Financial Officer

Kunal Swarup — Head of Corporate Development

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Deepinder Goyal — Founder and Chief Executive Officer

Analysts:

Ankur Rudra — JPMorgan — Analyst

Sachin Salgaonkar — Bank of America — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Vivek Maheshwari — Jefferies — Analyst

Vijit Jain — Citigroup — Analyst

Manish Adukia — Goldman Sachs — Analyst

Swapnil Potdukhe — JM Financial — Analyst

Aditya Suresh — Macquarie — Analyst

Mukul Garg — Motilal Oswal Financial Services — Analyst

Presentation:

 

Operator

Ladies and gentlemen, a very good evening and welcome to Zomato Limited’s Q3 FY ’23 Earnings Conference Call.

From Zomato’s management team, we have with us today, Mr. Deepinder Goyal, Founder and Chief Executive Officer; Mr. Akshant Goyal, Chief Financial Officer; Mr. Albinder Singh Dhindsa, Founder and CEO of Blinkit and Mr. Kunal Swarup, Head of Corporate Development.

Before we begin, a few quick announcements for the attendees. Anything said on this call which reflects outlook for the future, or which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance, and actual results may differ from those statements.

Additionally, please note that this earnings call is scheduled for a duration of 45 minutes, and

We will be starting directly with the Q&A section of the call. If you wish to ask a question, please use the raise hand feature available on your Zoom dashboard. We will announce your name on the call and unmute your line, post which you can proceed with your question. We will wait for a minute while the question queue assembles. The first question is from the line of Mr. Ankur Rudra from JPMorgan. Please go ahead.

Questions and Answers:

 

Ankur Rudra — JPMorgan — Analyst

The first question is, you mentioned several drivers of the growth slowdown in your prepared remarks and the Q&A. I was curious if there was any loss of market share, particularly with your most frequent customers that also contributed to this?

Akshant Goyal — Chief Financial Officer

Hi, Ankur. Thanks for your question. Akshant this side. So, look, I think, for us it’s very hard to measure market share on an ongoing basis, because we compete with multiple players and most of them are and some — at least some of them are unlisted. There was nothing that pointed to a significant share loss to us as far as we know, right? I think a majority of the slowdown, I would — I attribute to the general macro, industry-wide macro than anything else.

Ankur Rudra — JPMorgan — Analyst

Okay. In terms of — you mentioned that, for example, the growth has remained weak in Jan, but you’ve been able to get profitability in the month. Could you maybe highlight what was the lever of profitability if it wasn’t for — if there was no growth?

Akshant Goyal — Chief Financial Officer

So yeah, two elements there. I mean, Ankur eventually the growth — profit, the absolute profit is the function of growth in the business and your margin expansion. As you would’ve also seen in the December quarter results, our contribution margins in the business have expanded compared to the September quarters. So I think that sort of margin expansion is enough right now to — for us to sort of get to break even in the month of January. And once growth comes back, that’ll only accelerate the absolute profits from the business, which should help us get there faster, and over time generate profits in the business.

Ankur Rudra — JPMorgan — Analyst

I mean, maybe I can take this forward, there’s a concern among investors that is there any kind of tradeoff between growth and profitability here? And can growth and profitability happen at the same time?

Akshant Goyal — Chief Financial Officer

Yeah. I mean, there is always a tradeoff of some — there is always some kind of tradeoff, right? I mean, eventually, you can spend more, you make delivery free for every customer, of course, you will get growth, but that’s not the kind of growth we want, right? So in an environment, where there is macro slowdown and the industry is not growing, we think we’ve grown faster than the industry overall, the restaurant pool industry in that quarter, right? So to that extent, I don’t think, we are trading good quality growth for margins at this point.

Ankur Rudra — JPMorgan — Analyst

Okay. Sorry, the last question on Zomato Gold. Is this a cost correction and an acceptance that you — perhaps shutting down Pro Plus was not right, while your competitors still had a very aggressive program?

Akshant Goyal — Chief Financial Officer

So I think this is a very different program from Zomato Pro, right? So Zomato Pro essentially had a free delivery as a feature and which applied to all orders. So you would’ve seen that Zomato Gold has multiple other benefits in addition to that, and the free delivery is on only certain orders. So I think what we have done is, I mean, even before Zomato Pro Plus, we had a Zomato Pro program, and like two, three years ago we had Zomato Gold. So I think there were a lot of learnings that we had in terms of what worked, what did not work for customers, for our P&L, for restaurants. And what we wanted to do essentially was to take a step back and put all of this together into a program, which we think can now last going forward, right?

So one of the main key highlights of the program this time is, on-time guarantee, right, which is a very unique thing in the market right now and developing that also took some time. So I don’t think of this as a call that we took, which we sort of now correcting. I think this was the natural path of moving forward in terms of developing a very robust membership program.

Ankur Rudra — JPMorgan — Analyst

Okay. Just as a follow-up to this only, is this going to be extended to Blinkit?

Akshant Goyal — Chief Financial Officer

So we are not sure of, we don’t want to comment on that Ankur. So far we have kept it restricted to the food business, but I mean, this is a business call we will take down the line if we think it makes sense.

Ankur Rudra — JPMorgan — Analyst

Okay. Thank you.

Akshant Goyal — Chief Financial Officer

You’re welcome.

Operator

Thank you. Next question is from the line of Mr. Sachin Salgaonkar from Bank of America. Please go ahead.

Sachin Salgaonkar — Bank of America — Analyst

Hi. Thank you for the opportunity. I have three questions. First question, Akshant, just wanted to understand if you could give a little bit more clarity on the mix of GOV, i.e., did in this quarter we see a stable AOV and the order frequency was lower, or any data point you could provide? And going ahead, how should we look at the drivers, which is the incremental GOV would be driven more by increase [Phonetic] in order frequency, or it’s still AOV which will continue to increase?

Akshant Goyal — Chief Financial Officer

Yes. Thanks, Sachin. So if you look at the data that we had shared on a year-on-year basis, with 21% GOV growth, year-on-year was an outcome of 14% growth year-on-year on orders, and about 6% growth year-on-year on average order value. Specifically Q-on-Q, the order volume declined, and that was because of slightly lower monthly transacting users and slightly lower auditing frequency in the quarter, right? So we attribute that to the general slowdown that I just spoke about as a response to the previous question.

So going forward, I think, I mean, as we now seeing the recovery coming in the business already, we are seeing more customers coming back. So we expect to continue growing both on MTUs and frequency going forward. And combination of growth across these two should drive the order value — order volume up going forward.

As far as average order values are concerned, I mean, a large part, these are — I mean, this is an outcome metric of the context and the environment, right? So we’ve seen a decent bit of AOV growth in the last three, four quarters. Part of it is driven by inflation, which has led to the restaurants increasing their menu prices, which we’ve also seen with the number of listed QSR players in the recent past.

And another part of it is essentially driven by the product improving and the recommendations on the platform, improving supply side, getting more premium, because a lot of more fine dining restaurants coming on the platform for delivery and so on. So I think some of these factors will continue to play now on balance whether the order values continue to go up or they come down slightly, I think it’s hard to predict. But I would say that majority of the growth in long term should come from order volume growth, which in turn would be driven by more customers ordering and — more frequently.

Sachin Salgaonkar — Bank of America — Analyst

Thank you. Very clear. Second question is on the take rate, it appears to have been now stabilized, so just wanted to understand, is it the new normal or we see room for it to there improve?

Akshant Goyal — Chief Financial Officer

Yes. So I’m assuming you’re referring to take rate as a combination of the commission revenue, ads revenue and the customer delivery charges, right?

Sachin Salgaonkar — Bank of America — Analyst

Correct.

Akshant Goyal — Chief Financial Officer

So I think as an aggregate, we think there is still room to grow here. We are at about close to 23.8% or 24% take rate ballpark right now in the last quarter. From here on, I think this will go up despite the delivery charges perhaps continuing to come down slightly because of Zomato Gold gaining scale. So majority of the growth here could come from restaurants spending more on growth on our platform in form of advertisements and some sort of continued correction on take rates that we continue to do, and then, which we’ve spoken about in the last couple of quarters.

Sachin Salgaonkar — Bank of America — Analyst

Thank you. Very clear. And last question is just wanted to have a little bit more clarity on consumption slowdown and the reason is there are certain mixed signals coming from QSRs, right? Certain QSRs are seeing slowdown, others are not. So question to you is, is there any particular segment and I read your, obviously reports where you indicated, which all segments where you’re seeing a bit of impact. But any more clarity you could give in terms of any particular segment, any particular geography which is seeing a bit of a slowdown or do you see that being more across the board?

Akshant Goyal — Chief Financial Officer

So I think at least as far as our data is concerned, we think it’s across the board. It’s hard to — we can’t single out any particular cuisine or geography at this point. Having said that, I think given we — our platform works with like thousands of restaurants, there will be restaurants which grow more than others because they spend more on marketing and investments. I think some of the restaurant — individual restaurant growth is also coming from them opening more new outlets in the quarter as compared to the others, right?

So I agree with you that there is sort of some mixed signals there, but I don’t think at least from what we’ve observed, we are not able to, I mean, we don’t think there is any slowdown in any particular pocket of either a cuisine or geography.

Sachin Salgaonkar — Bank of America — Analyst

Alright. Thank you and all the best.

Akshant Goyal — Chief Financial Officer

Thank you, Sachin.

Operator

Thank you. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Gaurav Rateria — Morgan Stanley — Analyst

Hi, am I audible?

Akshant Goyal — Chief Financial Officer

Yes, Gaurav. Hi. Go ahead.

Gaurav Rateria — Morgan Stanley — Analyst

I have three questions. The first is, on the frequency, if I look at the high-frequency users as a percentage of total annual transacting users, that has actually gone up, which would actually help frequency at the company level. So which cohort of customers, which basket of customers you are not seeing the major increase in frequency or where there’s a key roadblock, and what are the initiatives that you’re taking to kind of change that?

Kunal Swarup — Head of Corporate Development

So, hi, Gaurav. This is Kunal here. So, you rightly pointed out that the power user or power customer cohort is sort of, has gained, but, next to that, we’ve also talked about the increase in annual transacting users. And if you see, that number is also pretty healthy, 23 million new users added. And we’ve also mentioned that for the last quarter as well, that new user addition has been healthy.

Now when you put this in context of the overall numbers, obviously, we’ve mentioned in the past as well, the new users when they start transacting on our platform, the ordering frequency is lower, so therefore, the aggregate would sort of remain flattish. As long as our new user addition continues to be quite strong and healthy, the aggregates will not present the right picture. Therefore, we’ve presented the power user cohorts as well for you to understand how the health of the business is improving.

Akshant Goyal — Chief Financial Officer

And Gaurav, just to add here, I think, if you’re — specifically, if your question was specific to the last quarter, even these power users, the frequency went down in that quarter, right? So the data here in this chart is on an annual basis, where we see the ratio of power users and the frequency going up. But for the last quarter, the frequency drop was across the board. In fact, I would say it was more pronounced in the slightly higher frequency customers than in the others.

Gaurav Rateria — Morgan Stanley — Analyst

Got it. The second question is that it looks like, you have load back some part of your operating profits in the form of indirect cost, because that has grown like 14%, 15% on a Y-o-Y versus a very muted trend in the first half of the fiscal year. So what are these investments that you’re making and how are they going to yield results and kind of reflecting a better profitability overall?

Kunal Swarup — Head of Corporate Development

Gaurav, part of this is also seasonal, because if you look at the expenses below contribution, they’re a combination of both marketing expenses as well as corporate overheads, which include server and tech and other costs. So in — given that this is a festive season quarter typically, there is some incremental spend on marketing, branding. And in terms of our server and tech costs, there are also some sort of annual renewals that kick in. So — and if you look at the same quarter last year, there was a bit of a jump in that quarter, but if you look at the average for the last three quarters, that would be in the range of 1% to 2% growth. On an annual basis, if you look at these numbers, that would be more in the range of 12% to 14% kind of growth, right? So, therefore, I think it’s not meaningful when you look at it from a annual perspective. Hope this answers your question.

Gaurav Rateria — Morgan Stanley — Analyst

Yeah, sure. Thanks. Last question, any color on every day — Zomato Everyday? Is it going to be a cloud kitchen, what form and what factor? Just trying to understand, is it going to be asset-heavy kind of a investment in the form of you opening kitchens to cater to the home-cooked food?

Akshant Goyal — Chief Financial Officer

Yes. So Gaurav, it’s not going to be very asset-heavy, but we will have to open finishing stations to be able to service this food to customers. So we are currently planning to experiment with the infrastructure that we had anyways built for Zomato Instant. So we are using the same finishing stations to roll this out in the next few weeks in Gurgaon and Bangalore. These are the two cities where we had Zomato Instant. And depending on the offtake and what we learned from there, we’ll sort of decide on how to expand going forward from there. But it’s not — I mean, compared to the Zomato Instant, it’s only going to be less capital-intensive than what Instant was.

Gaurav Rateria — Morgan Stanley — Analyst

Alright. Thanks. This is very helpful.

Akshant Goyal — Chief Financial Officer

Thank you, Gaurav.

Operator

Thank you. Next question is from the line of Mr. Vivek Maheshwari from Jefferies. Please go ahead.

Vivek Maheshwari — Jefferies — Analyst

Hi, Good evening team. A few questions. My first question is, while you have mentioned about the slowdown, but the press release also talks about — about green shoots in January. Can you just elaborate on that?

Akshant Goyal — Chief Financial Officer

What is your question Vivek, can you be specific?

Vivek Maheshwari — Jefferies — Analyst

No. I’m saying that the fact that while we are talking about slowdown, you have also mentioned that you are witnessing green shoots, right, in January. So can you just comment on that? Has there been any specific, let’s say customer cohorts which has done better? Is it like you are seeing a pickup, in exit January, which is what we should look at in the fourth quarter? Can you just elaborate on that comment Akshant?

Akshant Goyal — Chief Financial Officer

Yes, Vivek. So I think what we meant there was that last I think a couple of weeks we’ve been seeing the app opens in our business go up, which sort of indicate — I mean, which is after a sort of a period of time, over the last two, three months when we haven’t seen that. So that is telling us that perhaps the slowdown has bottomed out and that’s sort of our conjecture at this point. But we’ll need to see how it unfolds in the rest of the quarter, the demand patterns, whether they change meaningfully or not.

Part of this growth could also be attributed to us launching Zomato Gold, right? So there is that attribution also. So I think still early days, but I think whatever signals that we are able to see, it seems like, it’s only going to get better from here from a demand standpoint.

Vivek Maheshwari — Jefferies — Analyst

Okay. Got it. And the other question, Akshant is, what Ankur asked at the beginning, and you responded growth versus profitability. Let’s say you are at over 5% on contribution margins right now as we go forward, your guidance still is a break even by fourth quarter or latest by September quarter, right? Now based on — based on the current contribution margins and let’s say these move up, does that change the trajectory of growth or let’s put it this way, what is your expectation if you keep seeing profitability — better profitability, what is the level of growth that you’ve seen in the business if macro were to be more conducive?

Akshant Goyal — Chief Financial Officer

So Vivek, we are not holding back on growth investment at this point, right, to increase margins. I think that is what we’ve been reiterating for the last two, three quarters also, right? So we are not making that trade-off between a good quality growth, which will sustain and compound for short-term increase in margins. I think the lack of growth right now as we have spoken multiple times is because of the context and industry slowdown. Now how quickly that changes and in what shape and form the growth comes back in the next one quarter, two quarter, I think is very hard for us to comment.

But long term if we take a four, five-year view, as we have mentioned that we remain bullish on the space and the market is still under-penetrated, and there’s a long way to go. So I think we should see healthy compounding over a five-year period in the business. but short term is relatively harder to predict at this point.

Vivek Maheshwari — Jefferies — Analyst

Okay. And a follow-up to that Akshant. So when you say that, that you are not pulling back on investment. From a margin standpoint, does that mean if I take — forget about the next few quarters, but let’s say if we take a three, five-year view, does that mean your margins will also have a cyclicality and extreme cyclicality, let’s say contribution margin ranging from whatever, let’s say 2% to 7%, or we will see some stability in contribution margin, and if the macro is conducive, you can still get to let’s say 25%, 30% kind of Y-o-Y growth. How do you think about this on an — the margin cyclicality is something that I’m unable to fully appreciate.

Akshant Goyal — Chief Financial Officer

So Vivek, I don’t think that we are going to have that large of a standard deviation in the margins in our business, right? So, while it can go up and down, over a period of four, five years, but I think it’s largely going to be range bound in a narrow range, and that might change because of some additional investments we want to make at some point in time in future, or we see opportunities of new growth expanding into newer cities and so on, right?

But like-to-like in the same city, where we are already present today, I don’t think there is going to be massive swings in margin going forward.

Vivek Maheshwari — Jefferies — Analyst

Sure. And my last question on — is on Blinkit. So with the tough macro, and I know you are a very early stage in that, any headwind that you are seeing on that business, particularly on the demand side, at least in the existing, in the — I wouldn’t say mature, mature locations, but any pullback in the consumer demand or any down trading that you are seeing in the markets where you forage early?

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Hi, Vivek. This is Albi, I’ll take this. So far, like we mentioned in the letter, we are seeing good user growth, we are seeing a lot of frequencies are healthy, and we are also seeing new user growth being at a very healthy level continuum — continuing forward. We saw about 3% dip in our average ticket size. And part of that, we are able to attribute to consumers buying smaller packs, which we — which could be indicated that maybe consumers are going to consume less during this period. However, that is a strong might, it also might be consumer behavior, the kind of customers that we are acquiring at this point — point of time. So we’re not able to exactly attribute that to a macro slowdown.

In terms of the other customer operating metrics, we are not seeing any slowdown, and that’s probably part of the fact that, one, we are already fairly under-penetrated in the cities that even we are already large in. And at the same time, our city spread, especially compared to, for example, the Zomato business is very, very small. 90%-plus stores are only in the top seven cities. So I think we would not be sort of at this point of time be able to be the predictor of whether macro trends are affecting the segment.

Vivek Maheshwari — Jefferies — Analyst

Okay. Got it. And Albi, another question, and — which will be my last one. What Akshant mentioned about let’s say food delivery business profit versus growth. What is your sense on Blinkit business, given that it’s early stage? So are you — and your numbers are obviously speaking for itself, but what is your thought process between growth and profitability at this stage?

Albinder Singh Dhindsa — Founder and Chief Executive Officer

So Vivek, I think we will let the numbers speak, and they’re basically showing that our business has a high amount of operating leverage. So for the last two quarters, the business has grown significantly while moving steadily towards profitability. And I think we will continue to see this trend. Our immediate obviously, focus is to be a contribution positive business. We are at about minus 4.5% right now. And I think, if you sort of also pick a view of the kind of investments that we need to make into the business in order for supply creation. Look, we take a very sensible approach to it. We look at it at — we don’t want to get too ahead of our management bandwidth. We don’t want to get too ahead of the kind of infrastructure investments that we need to make judiciously, while improving the supply side of our business. And that’s a major investment going forward that we foresee.

The growth investments in our business, at least at this point of time are not something that we are really worried about. I think we are more worried on the — we are spending more of our time on the supply side of the investment and what would be a right time for us to sort of start making them.

Vivek Maheshwari — Jefferies — Analyst

Got it, got it. Quite interesting. Wishing you all the very best. Thank you.

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Thank you, Vivek.

Operator

Thank you. Next question is from the line of Mr. Vijit Jain from Citigroup. Please go ahead.

Vijit Jain — Citigroup — Analyst

Yes. Thank you for the opportunity. Hey, Akshant, I have a couple of questions on those annual unique transacted customer data points that you shared. Now if I look at 2022 versus ’21, just looking at the previous year’s customers there, it looks like the churn rate went from about 10% in ’21 to about 30% in ’22. Do you think this is attributable to the rollback of Gold? And related question to that, all these end of quarter trend that we see in MTU decline and frequency decline, is this mostly to do with the fact that some of those people who were rolling out of Zomato Pro, Pro Plus, their frequency reduced primarily, and therefore, it’ll come back. That is my first question.

Akshant Goyal — Chief Financial Officer

Yes. Hi, Vijit. Yes. So I think absence of having a membership program definitely did have — I mean definitely did impact us in the last quarter. So we — I think we are covering from that now. And to some extent, that has played a role in some customers attriting and lower frequency that we saw in the last quarter. But generally, on the annual trends, I think our retention is fairly healthy. I’m not sure how did you come up with the maths of 32% retention. But…

Vijit Jain — Citigroup — Analyst

So basically, I just looked at 2020 customers, and if — in 2021, if you remove the new customers from that number and compare with the previous year, just a simple math on that. It looks like, yes, you lost 15 million of the customers you might have had in 2021 in 2022, and then you added another 23 million, something like that. I think that’s what I did.

Akshant Goyal — Chief Financial Officer

Yes. So I think a large — a large portion of our customer base is very infrequent, right, which quarters less than 4 times a year, right? And every year a lot of these customers keep coming back to our platform. So the absolute loss of customers on our platform, if you look at like annual cumulative, annual retention is very acceptable and I think, low compared to what we’ve seen with other businesses globally. So we are not worried about retention here. I think, largely everything is on track as far as retention and user acquisition is concerned.

Vijit Jain — Citigroup — Analyst

Got it. Thanks. And my second question, just staying on Gold is, if the current quarter, obviously as you invest in Gold, there are some introductory prices offered there, what kind of flavors do you think from the cost side offset that? I did see, you mentioned you’re shutting down 250 [Phonetic] of the smallest of cities. Is there material cost savings there? And if you can overall give a sense of the — how you look at the Gold program in its entirety from on a P&L perspective, that’ll be great?

And if it is related to that, my last question is, when you say you’re not holding back on growth investments, what are you talking about? Are you talking primarily about Gold, when you talk about growth investments in the food delivery business?

Akshant Goyal — Chief Financial Officer

So it’s multiple things. Yes, Gold, of course, will definitely help drive long-term growth in both frequency and retention. We are also continuing to invest in acquiring new users. So as we mentioned that, the pace of new user addition remains healthy. So which means we’re not cutting down on our marketing and user acquisition spend. So all of that continues.

And with the — I mean the second question on specifics of Gold at this point, we would not wan to comment on how it evolves and how we think it’ll shape up. I mean, those are some things which will evolve with time and as we get more data and then things sort of, we want to right now not share much about. But generally speaking, I think the impact of Gold on our economics we think will get offset with the progress we make, not just on the cost side, but on the revenue side in the business going forward.

Vijit Jain — Citigroup — Analyst

Right. And, so in just the first part of my question, Akshant the shutdown of those 250 very small cities, I know the GOV impact is minuscule, but is there material cost savings there from just being present in those cities?

Akshant Goyal — Chief Financial Officer

Not very material, Vijit.

Vijit Jain — Citigroup — Analyst

Yeah. Thanks, Akshant. Those were my questions. Sorry, one last question if I can, just if you can give an update on the overhaul of the dining out business. If I just look cursorily at your non-food, non-BlinkiT business, on a Q-o-Q basis, it appears to have improved. Is this mostly Hyperpure?

Akshant Goyal — Chief Financial Officer

Yes. So on the — Vichit, I think Hyperpure numbers are disclosed separately. And if you look at — I mean for — as far as others is concerned, we have given some color of what led to that, sharp growth in the Q-on-Q revenue in question number 13, I think.

Vijit Jain — Citigroup — Analyst

Yes. I’ll just check that. And just if you can give an update on dining out overall full year?

Akshant Goyal — Chief Financial Officer

Question number 11. Yes.

Vijit Jain — Citigroup — Analyst

Okay.

Kunal Swarup — Head of Corporate Development

Yes. So here partly, one, there was contribution from our — the services that we offered to Talabat in the UAE and, our offline events, Zomaland etc., which came back after a hiatus, so that was partly the reason why there was an increase that you saw. So it’s not so much due to the monetization of the dining out business, where we are still in build-out mode like we’ve mentioned.

Vijit Jain — Citigroup — Analyst

Okay. Got it. Thanks.

Operator

Thank you. Next question is from the line of Mr. Manish Adukia from Goldman Sachs. Please go ahead.

Manish Adukia — Goldman Sachs — Analyst

Yes. Hi. Thank you so much for taking my questions. My first question is on just the growth drivers. In the shareholder letter, you talked about three factors or drivers that you think could help revive growth in the food delivery business. Do you see all of those three drivers as equally important, or do you think, one is, let’s say more important than the others? If you can just maybe help us give — provide some more color. And a related question to that is on the annual transacting users that you disclosed for 2022, which is about 58 million. And currently, you have about 17 odd million of MTUs. What does it take over a longer term, let’s say two, three-year period to convert a large number of these annual transacting users into MTUs? That would be my first question.

Akshant Goyal — Chief Financial Officer

Yes. So Manish answer to your second question is actually, also a response to the first question. So I think all of these initiatives that we have mentioned, I think they’ll drive higher frequency of ordering from our existing active customers, who are very infrequent today, which will mean that more of our customer base will start ordering every month, and hence our large portion of our ATU will start converting into MTU.

Now within those two, three things that we mentioned, I think, yes, Zomato Gold, of course, is going to be important as a retention and frequency driver in the long run. Zomato Everyday, which is essentially an offering where our customers will be able to order homestyle cooked meals at affordable prices, I think would be a big lever as well, if you’re able to execute that well and sustainably.

So that is something which we are very excited about and we’ll have some early results perhaps to talk about in the next quarter on how this is going. So, yes, I think all of these things are important, and continuously fixing, essentially the UX of our app, curating better collections of restaurants for our customers, and making our systems more reliable. I think all of that will lead to compounding growth over the next few years. And all these initiatives should help us drive MTU growth going forward.

Manish Adukia — Goldman Sachs — Analyst

Sure. Thank you for that. My second question is on Blinkit. So you mentioned that, Blinkit can potentially also be profitable at AOVs of about 20% lower. So just wanted to understand, are you actually expecting AOVs to decline by that magnitude over time? And if it does, what would be the offset for profitability in that case?

And a related question, Akshant last year, when you had announced the transaction with Blinkit, you had mentioned, and I know you said specifically it was not a guidance, but you had said that, in the next three years or less than three years, Blinkit can potentially be profitable. Given what you’ve seen in terms of the track record of the business, where losses have been narrowing consistently, do you think there’s potentially upside risk to that number? Meaning can that profitability actually be sooner?

Akshant Goyal — Chief Financial Officer

So I’ll let Albi take the first one. I’ll respond to the second question, Manish. So, so far I think the business has done better than what we expected, both in terms of top line growth as well as progression in economics, right? So I think I’m not either guiding to what — to anything different than what we said earlier. I think the next two, three-year is the horizon, which we should stick with for this business getting to profitability. But if the progress continues at the pace at which — at what we’ve seen in the last three quarters, then perhaps we’ll get there sooner, right? So we’ll have to sort of wait and watch on that.

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Hi, Manish. This is Albi. I’ll take the first part of the question around AOV. So, one of the drivers of AOV drop that we are at least seeing is, as we are also getting bigger and expanding our business, the kind of products that sellers are putting up for sale on the platform is also evolving. So the number of use cases that we can potentially cater to the customers that eventually help the platform increase our wallet share, those are going up. That causes variability in the average ticket size. So, as we introduce new use cases, which we did, for example, introducing fresh sweets during Diwali, introducing a lot of SKUs [phonetic] around dia or cakes around Christmas and Christmas decorations. A lot of these individual events as well as the general choice available to the customers on the platform that evolves. Some of these choices when consumers make to buy certain products, they can be lower average ticket size as well. And some of them obviously are, higher than the average grocery basket ticket size.

What you’re seeing and what we see is essentially the evolution of the business that as it gets bigger, there is still a little bit of uncertainty. We are confident on our ability to be able to break even, even at lower average ticket sizes, because some of these use cases as they come up, are also potentially high commissioned categories for us. So net — not necessarily do they lead to revenue impact, which is something that you are seeing in our quarterly results as well, that even though there was a drop in the average ticket size, the overall revenue and the commission percentage, that we are able to generate from that, that has gone up.

So, I think that gives us the confidence that we can — the business will evolve in its average order size as it expands beyond grocery. But at the same time, we should be able to make the economics of the business work, and that is what Akshant was referring to, in that answer.

Manish Adukia — Goldman Sachs — Analyst

Thank you, Albi for that. Just a quick follow-up there. In the quick commerce business, there are quite a number of players which are operating. Given the macro environment that we are in, have you seen any slowdown in competitive intensity and environment? And let’s say hypothetically if in the next six, 12, 18 months, there happens to be any kind of consolidation in this industry, do you think there’s any merit in Zomato, let’s say, acquiring somebody out there, let’s, say like you did in the case of food delivery with the case of, Uber?

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Look, as of now, we are not seeing either a drop in the competitive intensity in quick commerce. I think, most of the players that are, in the segment are trying to grow their businesses as well. And I think if there are any opportunities in the future, we’ll evaluate them on merit. As of now, I think we are happy with the way we are building our business, and we would like to continue on this journey, and keep working on the basics of fixing our business and also delivering great experience to the customers. I don’t think we are going anywhere beyond that.

Manish Adukia — Goldman Sachs — Analyst

Thank you, Albi and Akshant for taking my questions. All the best.

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Thank you.

Operator

Thank you.. Next question is from the line of Mr. Swapnil Potdukhe from JM Financial. Please go ahead.

Swapnil Potdukhe — JM Financial — Analyst

Hey. Hi. Thanks for the opportunity. I have two or three questions. First of all, modeling-related question, like, how will the Gold program subscription revenue be recognized going ahead? Will some — some of the revenue be ascribed to food delivery vertical? And will it be considered while calculating contraction [Phonetic] margins?

Akshant Goyal — Chief Financial Officer

Yes, Swapnil. That’s right.

Swapnil Potdukhe — JM Financial — Analyst

Okay. The second question is with respect to Blinkit, I see that your dark store count same-store have come down by around 10% versus a couple of quarters back. So what is the thought process here? Have we closed down some operations in a few cities, because in the shareholder letter, you have also mentioned that addition of 30% to 40% store additions in the next year. So what is the strategy over here?

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Hi, Swapnil. This is Albi. So what you will see is, the store count should start inching upwards from where we are, in this quarter. The primary reason for the change in the store count was, a lot of our leases expired in the O&D [phonetic] quarter, because we had only signed short-term leases, till we had conviction on particular geographies. So some of those stores are in the process of being moved into either different locations or we are putting in more stores because the demand is higher.

So what you will see is that, we will be adding more stores going forward at a reasonable pace, and we have not pulled out of any geographies. We have not pulled out of any cities. And the plan is, for us to soon also — we have identified high potential cities. Some of our smaller cities that we opened up in the last quarter have given us really good results as well. So what we are hoping is, we will be able to expand more and more into — more and more beyond the top 10 cities, where we have put a lot of our initial focus on, and even expand our footprint within the cities that we are operational.

Just to give you an example, like we only serve about 40% of the geographical, area of Bombay. So we would like to increase our footprint over there if that market is somewhere we are growing. And it’s potentially becoming a key market for us.

Swapnil Potdukhe — JM Financial — Analyst

Right. Thanks, Albi. And just one more question on the food delivery side. So I would like to understand the cohort GMV movement. So have you seen a slowdown of GMV growth in only those cohorts that were acquired during COVID, especially in, let’s say in FY ’21 or ’22, or, there has been a slowdown across, pre-COVID cohorts as well?

Albinder Singh Dhindsa — Founder and Chief Executive Officer

Hi, Swapnil. Look, I think the slowdown has been across cohorts. I don’t think we can single out only the COVID-related cohort because like Akshant pointed out, it’s a broader sort of industry-wide macro slowdown. And there are some trends that we’re seeing, for example, in the more higher-end premium customers, it’s some share shift from online to offline, some loss of orders you do premium travel on the sort of mid-income side more driven by macro. So these are some of the trends that we saw and which is what we put out in our letter. But outside of that, I don’t think there is anything very noticeable.

Swapnil Potdukhe — JM Financial — Analyst

Right. And just one last question, if I can squeeze in. So in the Gold program, we have offered some discounts on certain restaurants. So I just wanted to understand who will be bearing the discounts, will it be the restaurants or Zomato is also taking some burden over here?

Akshant Goyal — Chief Financial Officer

It’s all restaurant-funded discount Swapnil.

Swapnil Potdukhe — JM Financial — Analyst

Okay. Got it. Thanks, Akshant. Thanks, Albi.

Akshant Goyal — Chief Financial Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, in the interest of time, we will now take the last one to two questions. The next question is from the line of Mr. Aditya Suresh from Macquarie. Please go ahead.

Aditya Suresh — Macquarie — Analyst

Hi. Thank you for taking the questions. Akshant, maybe for you, right? So we had Zomaland in this quarter, brand marketing expense went up. So what are some of the metrics you’re looking at to judge the efficiency of spending versus, for example, some of the more direct levers like say, increasing platform discounts?

Akshant Goyal — Chief Financial Officer

Yes. So I think like there is platform discounts, there is digital marketing. There is a broader mass media marketing and then we also market through some of the events that you mentioned, right? So I think ROIs for each of these channels of marketing have to be calculated differently and looked at differently because some of them have smaller feedback loops, some of them have slightly longer feedback loops. I think just like any other business, we continuously continue to evaluate the channels, which are working well for us and sort of slightly more index our marketing spend to those channels versus others. And some of these things are also seasonal, right? So some kind of brand marketing works in a particular quarter versus others. So now that we have a four, five-year history behind us, I think we’re getting better at this every year going forward.

Aditya Suresh — Macquarie — Analyst

Okay. And I appreciate that the conditions are dynamic and there are multiple levers that you’re kind of solving for at all times, right? But if I just have to practically ask you over the next, say, six, 12 months, what are the top three KPIs that you are managing for?

Akshant Goyal — Chief Financial Officer

I think there is — I mean there’s a bunch of things that I think eventually, everything is about growth and profitability, right? These are the two metrics in addition to customer NPS or stakeholder NPS. So I think if you were to ask me for three metrics, I would say, overall growth of the business, overall profitability and the stakeholder NPS in our ecosystem, I think those are the things we really care about.

Aditya Suresh — Macquarie — Analyst

If I could, at one level below that, Akshant, what would be the steps which are kind of prioritizing towards, whether it be, for example, any of the contribution margin levers or the growth levers of products? Any specific measures you want to speak about?

Akshant Goyal — Chief Financial Officer

So I think these are all business discussions, Aditya. I don’t want to share how we think about our business and strategy on this call, right? So I don’t want to be that specific. I hope that’s okay.

Aditya Suresh — Macquarie — Analyst

Thank you.

Operator

Thank you. Next question is from the line of Mr. Mukul Garg from Motilal Oswal Financial Services. Please go ahead.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Hey. Thank you for taking my questions. Akshant just — I know it’s still fairly early, but any initial reaction on the Gold impact on business? Are you seeing any increased ordering from the power users? And also given that the threshold for free delivery on Gold is INR199 [Phonetic] which is particularly half of your AOV, is it fair to assume that the — there will be a bit of a drag on AOV because of Gold scaling up?

Akshant Goyal — Chief Financial Officer

So Mukul, I think on the overall impact of Gold, I think it is very early right now. We are barely two weeks into it. I think the only thing that we wanted to share at this point, if you have shared in our letter is that we are now close to 900,000 members, which — the program is selling rapidly. But how it is impacting our economics and frequency, I think I would say it’s a little early to talk about that.

On your second question, I mean, it works both ways, right? Having a AOV baseline of INR199 [Phonetic] also helps move some lower AOV orders to higher AOV. So on balance, I would not conclude that the order value will come down because of it. It might also go up. So we’ll see evidence of that as we go along. But right now, it’s very early in the journey to be talking about any specific things.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Sure. Secondly on, if I take a slightly longer-term performance in the food delivery space over the last four to five quarters, your Y-o-Y growth has been coming off. And right now, you are growing at the same pace at which broader QSR space has grown in Q3. How should we see the long-term growth perspective of Zomato? Is it still fair to continue to assume that the growth will be meaningful because of the early stage of the food delivery industry in terms of adoption? Or should we now start seeing some convergence with the broader food industry, given the large revenue base as well as the infeasibility of scaling up in smaller cities.

Kunal Swarup — Head of Corporate Development

Hi, Mukul, this is Kunal here. I’ll take this. I think we’ve also adequately answered this in the SHL. I think obviously, the Y-o Y growth has come off a little bit because of the last quarter and the quarter before that being slower growth quarters. But like we’ve also pointed out, I think from a overall new user addition on an annual basis, I think it’s been pretty healthy. And so is our sort of our customer cohort.

And I think these are fairly good indicators that overall, I think we are heading in the right direction. There may be a couple of quarters of ups and downs that we see and then largely linked to macro events. But we don’t see anything structurally concerning at this point in time.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Fair enough. The last one first for Deepinder. Deepinder, thanks for providing a perspective on leadership in the letter, but I just wanted to clarify, have the key leadership roles been assigned to other members of the team? Or have they been consolidated with the current leadership for the time being?

Deepinder Goyal — Founder and Chief Executive Officer

Mukul, hi. This is actually a mix of both here. I’m also doing a bunch of things, Akshant has also taken a couple of things up, and we also have a strong bench. So with the combination of all these three things, we are good for now.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Sorry, sir, just to take this forward, how do you see this play out over the longer term? I know you have addressed the unusually high volatility in leadership. But given the bandwidth and the multiple roles, which you are jumbling at the moment, are you expecting to retain whatever you have taken additionally? Or will this will be kind of given to suitable candidates as you see them come up?

Deepinder Goyal — Founder and Chief Executive Officer

So far, we can fit it into the 12 to like 14 hours a day. So it’s perfectly fine, but we are always constantly on the look out for talent. So mix and match again.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Got it. Thanks for taking my question. I’ll — that’s all from my side.

Deepinder Goyal — Founder and Chief Executive Officer

Thank you, Mukul.

Operator

[Operator Closing Remarks]