Zomato Share Price Slips After Company Forecasts ESOP expense increase in FY25

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by Sandip Das on 15 May 2024,  3 min read

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Zomato‘s shares continued to decline on May 14, dropping by as much as 6 percent in morning trading sessions due to anticipated increases in the company’s expenses associated with its employee stock ownership plan (ESOP).

During post-earnings call on Monday, Zomato management noted that costs related to ESOPs, which are non-cash expenditures, are expected to climb in the current fiscal year. This is primarily attributed to the allocation of ESOPs to Blinkit’s leadership team and senior staff.

For the January-March (Q4FY24) period, Zomato recorded a net profit of Rs 175 crore, a significant turnaround from the net loss of Rs 188 crore reported in the same quarter last year. Revenue also surged by 73 percent year-on-year to reach Rs 3,562 crore.

Additionally, Zomato has proposed a new employee stock option plan (ESOP) comprising 18.2 crore shares, valued at over Rs 3,500 crore based on current market prices. Typically, such plans are distributed to employees over several years pending shareholder approval.

In the shareholder letter, Zomato CEO Deepinder Goyal said that this ESOP pool should be sufficient for the next 5 years and amounts to 2 percent of the company’s outstanding share capital on a fully diluted basis.

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ESOPs are important to help build a culture of long-term thinking and innovation and create a ‘founder mindset’ amongst senior employees, which ultimately drives the right outcomes for long-term shareholder value creation, Zomato management said.

“Also, in people-dependent businesses like ours, where great execution and constant innovation are the only determinants of survival, ESOPs are a great way to drive the high-performance culture that we thrive on,” it added.

In the March quarter, Zomato saw its ESOP expenses nearly double to Rs 161 crore, up from Rs 84 crore in the corresponding period of the previous year. Zomato’s management anticipates a further escalation in ESOP costs in FY25.

“On employee cost, we look at the sum of ESOPs and cash together. That total as a percentage of revenue has come down meaningfully. We expect that to continue which is our operating leverage in business. Within that, there is a balance of ESOP and cash comp,” said Zomato CFO Akshant Goyal in the post-earnings analyst call.

“The last dilution (for ESOP) we did was pre-IPO. We still have a meaningful portion of that today. We believe we should be good with this for the next 5 years or more,” Goyal added.

At 1:29 PM, Zomato stock price was trading at Rs 189.35 per share on NSE, down Rs 4.95 or 2.55 percent.

Source: moneycontrol

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