Deliveroo sets out path to profit

Despite revenue soaring by almost 60 per cent, Deliveroo’s (ROO) reported increased losses increased in its first annual results since its IPO. The online food delivery company, which listed on London’s main market in March 2021, was pulled into the red by a higher expenses burden as rider costs and marketing spend shot up.

Revenue in the UK and Ireland was up 64 per cent to £981mn and in international markets up 50 per cent to £844mn. This was driven by customer orders spiking by three-quarters to 301mn as consumers under lockdown turned to the company’s app.

Gross transactional value (GTV) was up by 70 per cent to £6.6bn, and medium-term GTV guidance of 20 to 25 per cent annual growth looks very attractive.

But the results were hit by a 75 per cent rise in marketing and overheads to £629mn, needed “to drive awareness and new customers”, and a 63 per cent jump in cost of sales to £1.3bn due to the higher number of orders bleeding through to increased rider costs.

Chief executive Will Shu warned that this year the company’s markets “will face headwinds due to inflationary pressures, the removal of economic stimulus and the broader geopolitical and economic impacts of the conflict in Ukraine”. Management is aiming for the company’s underlying trading performance to break even in the second half of 2023 or the first half of 2024, and wants to hit a 4 per cent adjusted Ebitda margin by 2026. 

Numis analysts said that “leading execution and a strong balance sheet should now be accompanied by forecast momentum and an improvement in margins”. The share price has struggled since last autumn, but with robust GTV guidance and the path to profitability becoming clearer – the UK and Ireland market was profitable on an adjusted Ebitda basis this time around – we think the business still looks like an attractive proposition. Buy.

Last IC view: Buy, 390p, 18 Aug 2021