Shares of food delivery firm Deliveroo climbed over 10% Monday after the company announced larger German rival Delivery Hero has taken a 5.09% stake in the business.
The firm’s stock climbed from £3.36 ($4.66) per share to £3.60 per share in early deals on the London Stock Exchange Monday.
In a note to investors, Deliveroo said it received a notification “of major holdings in the company’s shares from Delivery Hero after market close on 6 August 2021.”
Founded in 2013 by Will Shu and Greg Orlowski, Deliveroo got a boost from Amazon in 2019 when the e-commerce giant led a $575 million funding round into the company.
It made a loss of £223.7 million on revenues of £4.1 billion in 2020, which is substantially less than the £317 million it lost on £2.5 billion of revenue in 2019.
Deliveroo and Delivery Hero don’t, however, compete in the U.K., which is Deliveroo’s main market. That’s because Delivery Hero sold its U.K. business, Hungryhouse, to Just Eat in 2016 for around £200 million.
“Like UberEats and DoorDash, Deliveroo and Delivery Hero rely on an army of self-employed couriers to deliver food from restaurant kitchens to people’s homes and offices in cities around the world in around 30 minutes,” said the founder.
For the First Time, Deliveroo’s Annual Revenue Tops £1 Billion.
This morning, Deliveroo announced that it has achieved a first-ever revenue of over £1 billion in the first half of the year, surpassing all analyst projections.
Having introduced a new platform to advertise fast-moving-consumer-goods earlier this year, the company was able to enhance its advertising business’s contribution by 12%, in addition to its commission from restaurants and consumer fees. That growth rate was higher than the 6.8% predicted by experts.
As a result of increasing commissions and fees, the company was able to increase its gross margin from 7.8% to 8.5%, leading to a 16% increase in gross profit, to £300.9 million.
In contrast, the £368.8 million spent during the period on advertising and general overhead more than cancelled out the £68 million loss in adjusted Ebitda. This was also a significant increase over the £73.3 million that experts had predicted.
In Other Words, Deliveroo’s Prognosis for the Year Remains Unchanged.
At a recent investor meeting, Deliveroo reaffirmed its updated annual goals for 2018. GTV growth is expected to slow to 4-12% in 2022 from an earlier projected 15%-25%. With the inflationary climate and shifting consumer patterns making predictions more challenging, the large range allows room for this to be tightened later this year once visibility improves.
Deliveroo claimed that inflationary pressures, post-COVID consumer behaviour, and the broader geopolitical and economic repercussions of the situation in Ukraine are all factors that are causing uncertainty for the company’s 2022 projections.
In the second half, experts predict both GTV and revenue to increase by 16%, and the adjusted Ebitda deficit would be less than half of what it was in the first half.
When Deliveroo Leaves the Netherlands, it will be for Good.
Due to the country’s tightening budget, Deliveroo has announced its intention to leave the Netherlands. In the first half of the year, it contributed less than one percent to the country’s GTV. It aims to leave the market by November since it lacks the resources to maintain even its minuscule share. They left Spain in the same fashion towards the end of last year.
This is essential because Deliveroo’s long-term goal is to achieve adjusted Ebitda profitability. Consequently, its primary activities in the United Kingdom and Ireland are generating positive adjusted Ebitda, but this is being more than eaten up by its overseas offerings, rising costs, and higher investment.
To What Point in Time does Deliveroo Expect to Turn a Profit?
Getting a handle on expenses and costs, Deliveroo stated in March that it expects to turn a profit at the adjusted Ebitda level between June 2023 and June 2024.
Deliveroo’s goal is to increase revenue while cutting costs. We are committed to guiding the company to the point of adjusted EBITDA profitability and beyond, where it can sustainably generate positive free cash flow.
We laid out our plan for achieving profitability and the tools that will help us get there back in March. We have made solid progress toward delivering on our profitability objective so far in 2022, the company reported this morning, despite heightened consumer headwinds and decreasing growth throughout the year.
“Underpinning our progress is a strict approach to capital allocation, ensuring that we invest behind the opportunities with the highest returns,” it stated.
While the outlook for demand is bleak due to the current macroeconomic conditions, Deliveroo’s commitment to profitable expansion is paying off and inspiring confidence that it will meet its target on time.
In the first six months of 2018, it lost approximately £128 million due to its activities, which is an increase over the same period the previous year. Given that Deliveroo has more than £1.1 billion in cash as of the end of June and no debt on the balance sheet, this kind of cash burn is easily doable.
Deliveroo announced a £75 million share repurchase scheme this morning that will continue through the end of March 2023. These measures will mitigate the dilution caused by employee stock compensation plans.