While it continues to post strong revenue growth, Deliveroo's inability to turn a profit is likely to make investors grow somewhat impatient, analyst Dan Thomas of Third Bridge has said.
“Despite seeing a huge surge in revenues since the pandemic, Deliveroo continues to be unprofitable," Thomas commented. "The big question is how long investors will tolerate such a situation in a more demanding funding environment."
Margin Expectations
Thomas was commenting following the publication of Deliveroo's first-quarter results, in which it said that adjusted EBITDA margin for 2022 is likely to come in between -1.5% and -1.8%.
This is an expected improvement on the -2.0% EBITDA margin reported in full-year 2021, and the -3.2% in the second half of 2021.
Increased competition and the spectre of further regulation may weigh on Deliveroo's performance going forward, Thomas added.
“Deliveroo and its peers in the food delivery space are facing further regulation of the UK's gig economy," he said. "Just Eat’s employee and agency-led delivery model means it is less exposed than Deliveroo and Uber Eats to any unfavourable regulation.
“Competition amongst food delivery companies is relentless making it unlikely that Deliveroo will be able to reduce its high marketing expenditure any time soon. Instead, Deliveroo will be counting on better rider cost per order as their network density improves and some advantage from their Amazon Prime partnership driving higher retention."
GTV Growth In First Quarter
In the first quarter of its financial year, Deliveroo reported an increase in gross transaction value (GTV) of 12% year-on-year at constant currency levels, while orders were up 18%.
GTV in its UK operations rose 12%, with orders up 20%, while GTV in its International business was up 11% and orders up 16%.
It also continued to announce new partnerships during the period, with its Deliveroo Plus collaboration with Amazon Prime expanding to France and Italy, Deliveroo Hop services launching at Carrefour in Italy and Waitrose in the UK, a new tie-up with Albert Heijn in the Netherlands, and a WH Smith pilot set to launch.
For the full year, Deliveroo expects GTV growth to come in between 15% and 25%, with a higher growth rate expected in the second half of the year.
Adapt To Changes
"We remain confident in our ability to adapt financially to any further changes in the macroeconomic environment," commented Will Shu, chief executive. "We continue to be excited about the opportunity ahead and our ability to capitalise on it.”
It did, however, cite 'current uncertainties' across its core markets, including inflationary pressures, post-COVID consumer behaviour, and the broader geopolitical and economic impacts of the conflict in Ukraine.
Summing up, Third Bridge's Thomas added, “It’s early days in the highly competitive grocery segment which hit 8% of GTV in 2021. Relatively low sequential growth in GTV suggests the cost of living crisis may be dampening consumer appetite.”
© 2022 European Supermarket Magazine – your source for the latest technology news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
