Deliveroo's Results Mixed, Cautious Guidance; Profitability Path and Cash Position Support Sentiment

Following January's fourth-quarter trading update (gross transaction value, or GTV, up 36% to GBP 1,733 million and orders up 42% to GBP 81 million), Deliveroo reported fiscal 2021 results with revenue up 57% at GBP 1,824 million (versus GBP 1,857 million in our model and GBP 1,832 million for FactSet consensus). Gross profit of GBP 497 million came in lower than consensus (GBP 509 million) but in line with our estimates (GBP 494 million, at the low end of guided range 7.5% to 7.75%) while group the adjusted EBITDA loss of GBP 131 million was better than both our expectations (GBP 203 million) and consensus (GBP 150 million). More importantly, Deliveroo provided guidance on fiscal 2022 GTV growth (15% to 25%) and EBITDA margins (negative 1.5% to negative 1.8% of GTV or about GBP 133 million loss at the midpoint), which are in line with our estimates (20% GTV growth and negative 1.8% EBITDA margin or GBP 137 million loss in our model) and lower than consensus (GBP 123 million EBITDA losses). The company also provided commentary on its profitability path (EBITDA break-even around second-half 2023/first-half 2024), which is in line (directionally) both with our estimates and consensus. Longer-term, Deliveroo expects over 4% EBITDA margins (as a percentage of GTV) with further upside beyond 2026 (versus a 2.6% EBITDA margin in fiscal 2026 and 4.3% in 2030 in our model). Deliveroo's cash position at the end of fiscal 2021 was GBP 1.29 billion, higher than our GBP 1.189 billion in our model; the company has no debt in the balance sheet. We don't expect to materially change our GBX 350 fair value estimate and no moat rating for Deliveroo. In intraday trading, shares are up as high as 8%, driven by confident commentary on its profitability path, a strong balance sheet (relative to some of its peers) and despite fiscal 2022 guidance being lower than consensus expectations.