Company Reports

Deliveroo released its first-quarter trading update, which included gross transaction value up 6% in constant currency (5% in reported currency), slightly above company-compiled consensus of 4% in reported currency. Order growth returned to positive territory at 2% for the group, driven by the international segment (up 4%), with UK and Ireland flat. This compares with 7% GTV growth and 1% order growth for Just Eat Takeaway in UK and Ireland in the first quarter, implying incremental market share losses for Deliveroo in the period. In international, GTV growth was 6%, a strong sequential improvement from 1% in the fourth quarter of 2023, with good performance driven by France, United Arab Emirates, and Hong Kong. Revenue growth came in lower than GTV growth, implying decreasing take rates, a function of Deliveroo's investments in the customer value proposition. Management reiterated its guidance for fiscal 2024 GTV growth of 5%-9% (versus 8% in our model), adjusted EBITDA of GBP 110 million-GBP 130 million (versus GBP 120 million in our model), and free cash flow to be positive for 2024 (versus around GBP 60 million in our model).

Deliveroo released fiscal 2023 results with gross transaction value up 3%, in line with its fourth-quarter trading update and guidance. Adjusted EBITDA of GBP 85 million was ahead of GBP 60 million-GBP 80 million guidance and our estimate of GBP 72 million in our model. More importantly, free cash flow was negative GBP 38 million, implying second-half cash burn of around GBP 10 million versus GBP 30 million free cash outflow in the first half. Management guided for fiscal 2024 GTV growth in a range of 5%-9% (versus 8% in our model), adjusted EBITDA in a range of GBP 110 million-GBP 130 million (versus GBP 120 million in our model), and free cash flow to be positive for 2024 (versus around GBP 60 million in our model).

Deliveroo's fourth-quarter fiscal 2023 trading update showed its gross transaction value rose 4% and orders were flat year over year. Within this, the U.K. and Ireland segments continued to outperform, especially compared with competitors on a year-over-year basis. This segment's GTV growth was 7% and orders were up 1% versus Just Eat Takeaway's GTV up 5% and orders down 2% in the same period. This implies robust market share gains on a year-over-year basis, but a change of market share dynamic on a sequential basis. GTV was up 8% for Just Eat Takeaway versus 7% for Deliveroo in the U.K. The international segment, about 40% of GTV, continues to lag the U.K. and Ireland with orders flat versus 5% down in the third quarter and GTV up 1% versus 1% down in the third quarter. Revenue take rates continued to decline, by 90 basis points versus 60 basis points in the third quarter on a year-over-year basis due to customer value proposition investments, which the company had previously flagged.

Deliveroo is a food delivery company focused on logistics with a number-two or -three position, and we believe it's well positioned to benefit from the structural trend of increasing digitization of food delivery orders. A combination of a strong brand (high order frequency), exceptional service levels (leading average delivery times), strong and profitable market positions in key cities (70% market share in London with low-double-digit gross profit margin), a favorable restaurant mix (majority of restaurants are independents), low capital intensity, and an untapped addressable market underpin Deliveroo’s investment thesis.

In a press release published earlier on Nov. 29, its capital markets day, Deliveroo updated midterm guidance for growth in gross transaction value in the midteens per year from 20%-25% per year previously versus about 15% in our model (2022-27). Deliveroo announced that there will be no new disclosures on current trading and reiterated guidance for 2023 (low single-digit GTV growth and GBP 60 million-GBP 80 million EBITDA). The capital markets day presentation focused on growth opportunities in its existing restaurant and grocery business, the launch of new retail propositions, improvements in delivery experiences, Deliveroo Plus loyalty program (subscriptions), scaling of the advertising business, vision of the future consumer experience, and the company's financial framework.

Deliveroo's third-quarter trading update showed gross transaction value, or GTV, and orders rose 5% and fell 1% year over year, respectively. Within this, the U.K. and Ireland segment continued to outperform, especially compared with competitors. The segment's GTV growth was 9% and orders were up 3% versus Just Eat Takeaway's GTV—up 4% and orders down 3% in the same period—implying robust market share gains, though some of those gains may well be attributed to Deliveroo's more focused execution in the grocery segment. The international segment, about 40% of GTV, continues to lag the U.K. and Ireland, with orders down 5% and GTV down 1% in the third quarter. Revenue take rates were down 60 basis points year on year and 20 basis points quarter on quarter due to customer value proposition investments, which the company had previously flagged.

Deliveroo reported 2023 half-year results with gross transaction value and orders up 3% and down 6% respectively. Within this, the U.K. and Ireland segment continue to impress in the second quarter, especially compared with competitors; GTV growth was 8% and orders were up 2% versus Just Eat Takeaway's GTV, up 3% and orders down 5% in the same period, implying robust market share gains (albeit some of those gains may well be attributed to Deliveroo's more focused execution in the grocery segment). The international segment (41% of GTV) continues to lag the U.K. and Ireland with orders down 11% and GTV up 3% in the first half. Revenue in the U.K. and Ireland was up 11%, implying 29.3% take rates, a solid step-up versus a year ago (28.4%) due to food price inflation, higher consumer fees, and the contribution from ad revenue (annualized run rate in the second quarter was GBP 55 million). From a unit economics view, Deliveroo has come a long way over the last two years with the cost of each order at GBP 4.5 (versus GBP 4.4 two years ago) and GTV per order at GBP 24.2 (versus GBP 21.5 ), leading to a 170-basis-point rise in gross margins to 10.4% of GTV (from 8.7% a year ago). More importantly, adjusted EBITDA increased to 1.1% of GTV, driven by marketing and overhead efficiencies with free cash outflow now at GBP 27.7 million (or GBP 9.2 million, excluding one-offs versus GBP 170 million a year ago).

Deliveroo reported a 2023 first-quarter trading update with gross transaction value and orders down 1% and 9% respectively. Within this, the U.K. and Ireland fared particularly well, especially compared with competitors with GTV growth at 6% and orders down 3% versus Just Eat Takeaway's GTV down 6% and orders down 11% in the same period and market, implying market share gains. Zooming in on the main drivers behind the significant top-line growth slowdown, this seems to be customer churn, with the average monthly order frequency remaining stable (3.4). Average monthly active consumers were lower on a sequential basis in its U.K. and international segments (from 4.1 million to 4.0 million and from 3.3 million to 3.1 million respectively).

Following its fourth-quarter trading update in January, no-moat Deliveroo reported 2022 results with an adjusted EBITDA loss of GBP 45 million for the year (negative 0.7% of gross transaction value, or GTV, excluding recent market exits of Australia and the Netherlands) and GBP 6.6 million in the second half, in line with previous guidance. As a reminder, GTV for the year was up 9% (up 6% at constant currency) and orders down 2% (versus Just Eat Takeaway's GTV down 2% and orders down 12% in the same period). GTV and orders in its core U.K. and Ireland market were robust, up 9% and flat, respectively, implying market share gains (versus Just Eat's GTV down 3% and orders down 10% in the U.K. and Ireland) with more monthly active consumers on a sequential basis in the U.K. to 4.1 million from 3.9 million, and flat year on year mainly due to seasonality.

Deliveroo reported a fourth-quarter fiscal 2022 trading update with gross transaction value up 9% (up 6% at constant currency) and orders down 2% (versus Just Eat Takeaway's GTV down 2% and orders down 12% in the same period). GTV and orders in its core U.K. and Ireland market were robust, up 9% and flat, respectively, implying market share gains (versus Just Eat's GTV down 3% and orders down 10% in the U.K. and Ireland) with monthly active consumers being higher on a sequential basis in the U.K. to 4.1 million from 3.9 million and flat year-on-year mainly due to seasonality. Fourth-quarter GTV growth was primarily a function of item-level price inflation and higher consumer fees (such as delivery fees) with a flat average monthly order frequency (3.4 in the period), despite the challenging consumer backdrop. Although this is a trading update, Deliveroo revealed that second-half adjusted EBITDA is "approximately breakeven" (including recent market exits of Australia and the Netherlands), for a fiscal 2022 adjusted EBITDA margin of negative 1% of GTV better than previous guidance of negative 1.2% to negative 1.5% of GTV. Management will provide guidance for fiscal 2023 on March 16 (annual results). We don't expect to materially change our GBX 215 fair value estimate and no moat rating for Deliveroo. Shares trade deep in 5-star territory.

Deliveroo reported third-quarter fiscal 2022 results with gross transaction value, or GTV, up 8% (up 5% at constant currency) while orders were down 1% versus up 2% and down 11% for Just Eat Takeaway in the same period. GTV and orders in the core U.K. and Ireland market were robust, up 11% and 5%, respectively, implying market share gains and still-resilient consumer behavior (monthly active consumers were marginally lower on a sequential basis in the U.K. to 3.9 million from 4 million). Lower third-quarter growth was primarily a function of fewer active consumers in the quarter (sequentially) and flat average monthly order frequency (3.3 in the period), trends in line with a weaker consumer discretionary spending backdrop and our own expectations. Deliveroo also announced that the company's final operating day in the Netherlands (1% of the group's GTV in the first half and the third-largest food delivery company in the country by our estimates) will be Nov. 30, 2022, following a consultation that was concluded in October, which reinforces our belief that the long-anticipated market repair is slowly, but surely taking place (following recent exit announcements by peers). Given a slowdown in GTV during the third quarter as well as lower marketing and overhead costs, the company updated fiscal 2022 guidance on GTV growth to 4%-8% from 4%-12% (versus 13% in our model) at constant-currency and EBITDA margins to negative 1.2% to negative 1.5% of GTV or about a GBP 95 million loss at the midpoint (from negative 1.5% to negative 1.8% of GTV ) versus GBP 122.9 million in our model. Despite a slightly better bottom-line guidance, we don't expect to materially change our GBX 215 fair value estimate and no-moat rating for Deliveroo. Shares trade deep in 5-star territory.

Deliveroo reported first-half fiscal 2022 results with gross transaction value up 7%, orders up 10%, and revenue up 12%. This follows a release published in July and implies slowing growth on a sequential basis, reflecting strong comparatives and consumer headwinds. Deliveroo commented on market share gains in the United Kingdom, Ireland, and key markets such as Italy, citing third-party data providers. Adjusted EBITDA loss improved to GBP 68 million in the first half versus GBP 106 million in the second half of last year. This was driven by: first, a higher gross margin at 8.5% of GTV, in turn the result of higher consumer fees and advertising income and second, lower marketing expenses. Lower growth in the second quarter was primarily a function of fewer active consumers in the quarter (sequentially) and less frequent orders, trends in line with a weaker consumer discretionary spending backdrop, and our own expectations. More importantly, Deliveroo announced that it commenced consultations on a proposal to end operations in the Netherlands (1% of the group's GTV in the first half and the third-largest food delivery company in the country by our estimates), which reinforces our belief that the long-anticipated market repair is slowly, but surely taking place (following recent exit announcements by peers). For the Netherlands specifically, this follows an advisory decision by the country's advocate general issued on June 17, which agrees with the court of appeals' decision that Deliveroo's riders qualify as employees. The company reiterated it previously cut fiscal 2022 guidance on GTV growth to 4%-12% from 15%-25% (versus 13% in our model) at constant-currency and EBITDA margins (negative 1.5% to negative 1.8% of GTV or about a GBP 120 million loss at the midpoint versus GBP 122.9 million in our model). Given roughly in-line bottom-line guidance, we don't expect to change our GBX 215 fair value estimate and no moat rating for Deliveroo.

Deliveroo provided a trading update for the second quarter (gross transaction value up 2% and orders up 3%) against a difficult comparative basis (coronavirus lockdown restrictions in second-quarter 2021). GTV per order was somewhat lower year over year due in part to increased basket sizes during lockdowns. Management attributed the decrease in orders and GTV to "increasing consumer headwinds" throughout the quarter. As a result, the company cuts its fiscal 2022 guidance on GTV growth to 4%-12% from 15%-25% (versus 13% in our model) at constant currency while maintaining EBITDA margins (negative 1.5% to negative 1.8% of GTV or about a GBP 120 million loss at the midpoint versus GBP 122.9 million in our model). Given roughly in-line bottom-line guidance, we don't expect to change our GBX 215 fair value estimate and no moat rating for Deliveroo. We recently released an update of our food delivery estimates given a weaker consumer spending outlook across the food delivery markets we follow. Deliveroo's 4% GTV growth in the U.K. compares with our forecasts for a 4% GTV decline for Just Eat Takeaway in the region.

As a result of recent macroeconomic developments, such as geopolitical uncertainty and pandemic-related supply constraints causing inflationary pressures, which tend to dampen consumer confidence and discretionary spending, we reduce our top-line growth estimates for European food delivery companies. In addition, we revise our cost of capital forecasts upwards, as a result of increased share price volatility over the last year, which reflects industry-wide headwinds and a tightening interest rate and valuation environment, as well as a high cost of debt. Significantly reduced values but unchanged star ratings arise from the preceding factors (all three names are in the 5-star territory). We continue to expect material secular growth opportunities in food delivery and its adjacent markets (such as supermarket convenience delivery), principally driven by the steady shift from phone-based to online meal ordering. As a result of pandemic-driven lockdowns, a much greater number of new clients have chosen to utilize meal delivery services. We anticipate that cohorts acquired during the pandemic will display weaker spending habits than historical generations, which, combined with a lack of strength in discretionary spending, will result in a noticeable slowing of order growth in the medium term (2022-2024, we observe early signs of this slowdown in google search trends data, mobile app downloads, website traffic numbers and restaurant dining activity trends). In our coverage of European food delivery companies (Just Eat Takeaway, Delivery Hero, and Deliveroo), we expect Gross Transaction Value or GTV growth to underperform management forecasts in fiscal 2022, although we feel this is already reflected in current prices. Our fair value estimates for Just Eat Takeaway, Delivery Hero, and Deliveroo decrease to EUR 81, EUR 88, and GBp 215 per share, from EUR 126, EUR 97 and GBp 350 per share, respectively. Just Eat Takeaway remains our top pick.

Deliveroo is a food delivery company focused on logistics with a number-two or -three position, and we believe it's well positioned to benefit from the structural trend of increasing digitization of food delivery orders. A combination of a strong brand (high order frequency), exceptional service levels (leading average delivery times), strong and profitable market positions in key cities (70% market share in London with about 12% gross profit margin), a favorable restaurant mix (more than 80% of restaurants are independents), low capital intensity, and an untapped addressable market underpin Deliveroo’s investment thesis.

Deliveroo reported its first-quarter trading update (gross transaction value, or GTV, up 12% and orders up 18%) versus a tough comparison base (coronavirus lockdown restrictions in first-quarter 2021). GTV per order was up 1% sequentially (versus fourth-quarter 2021) but down 6% year on year primarily driven by the U.K. and Ireland segment (down 7% year or year) and the result of elevated basket sizes during lockdowns. Average monthly active consumers continue to increase albeit at a lower rate (16% in the first quarter versus 37% in fourth-quarter 2021, flat in the U.K. and Ireland sequentially), while the average monthly order frequency remained flat at 3.4 per month. Deliveroo expanded the Plus partnership with Amazon Prime to include France and Italy. The company confirmed guidance of fiscal 2022 GTV growth (15% to 25%) and EBITDA margins (negative 1.5% to negative 1.8% of GTV or about a GBP 133 million loss at the midpoint), which are in line with our estimates (20% GTV growth and negative 1.8% EBITDA margin or a GBP 137 million loss in our model). We don't expect to materially change our GBX 350 fair value estimate and no moat rating for Deliveroo.

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.

Deliveroo reported fourth-quarter results with gross transaction value up 36% (up 11% versus the third quarter) to GBP 1,733 million (36% growth in the U.K. and Ireland and 36% in international) and orders up 42% to GBP 81 million (41% growth in the U.K. and Ireland and 43% in international). For the full year, GTV and order growth was 70% and 73% versus 62% and 68% in our model respectively, with the former (GTV) reaching the high end of guidance (60%-70% GTV growth), a sign of robust online food ordering trends. Deliveroo also confirmed gross profit margin guidance (as a percentage of GTV expected to be 7.50%-7.75% versus 7.5% in our model). On the Amazon partnership (U.K. and Ireland Prime subscribers can sign up for free Deliveroo Plus membership for a year, with unlimited free deliveries for orders over GBP 25/EUR 25. More specifically, since the launch Deliveroo has more than tripled its Plus subscriber base (over 1 million incremental subscribers in our estimates). Although tapping into the vast pool of prime members is an opportunity for Deliveroo (especially if the partnership extends to other countries in future), it's still unclear what percentage of the subscriber uptick is made up of current Deliveroo customers (paid-up subscribers and pay-as-you-go customers) and new customers. Although the unchanged gross profit guidance should provide some comfort, the economic impact of this partnership is still unclear to us (management says lower gross profitability in the short term is offset by incremental value extracted from higher frequencies leading to higher customer lifetime values). Although Deliveroo's 11% UK and Ireland GTV sequential growth in the fourth quarter was higher than Just Eat Takeaway's largely flat numbers (on a sequential basis), Deliveroo's mix is tilted toward higher growth but lower or more uncertain unit economics businesses (grocery, logistical orders). We maintain our GBX 350 fair value estimate and no moat rating for Deliveroo.

On Dec. 9, the European Commission published proposals to improve working conditions of people working through digital platforms. This is broadly in line with the set of proposals reported by media such as Bloomberg and others in the last few days. We maintain our initial assessment of the impact on food delivery names in our European coverage (valuation-, star- and moat ratings for Just Eat Takeaway, Delivery Hero and Deliveroo unchanged).

Bloomberg News reported a new European Commission proposal is expected to be published on Dec. 8 with regard to gig workers' labor rights in the region. Within this draft proposal, according to the article, the European Commission estimates additional costs for the sector could be as high as EUR 4.5 billion per year with the majority accounting for increased taxes and social security contributions for riders. If passed and approved by the European countries and European Parliament, the digital platforms would have the legal obligation to prove whether a worker is an employee or not. Although these elevated costs will likely be shared with customers, this is definitely a negative for the sector as a whole, since higher consumer fees will likely slow down food online ordering penetration and order growth. On a more granular level though and looking at our coverage list, we see this development benefiting (in relative terms) Just Eat Takeaway versus its main competitors in Europe such as Deliveroo and the European operations of Delivery Hero, both of which predominantly operate the gig economy worker model. Just Eat runs a hybrid model with both contractors and company-employed riders (Scoober) across Europe depending on local laws. In addition and more importantly, Just Eat's logistical orders are not a significant part of the business (less than 40% of European orders), with the majority of group orders being marketplace orders (restaurant delivers the order). In contrast, Deliveroo's group orders are predominantly logistical with significant exposure in Europe. For Delivery Hero we don't expect a material impact at the group level as the firm's European operations are only a small part of the group (less than 10%). That being said, it remains to be seen what the final form of the proposal will be and how many European countries will support and enact it. We maintain our valuations, and star and moat ratings for Just Eat, Delivery Hero and Deliveroo.