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Deliveroo rides further into the red

Increased costs have hurt the bottom line as the delivery outlook worsens
August 10, 2022
  • Next chair leaves board
  • Share buyback announced

Deliveroo (ROO) fell to a deeper pre-tax loss as the online food delivery company was hit by higher rider and staff costs. A challenging half was not unexpected, after last month’s dour trading update which flagged slowing growth and slashed gross transaction value (GTV) forecasts, but there is also cause for optimism with the gross margin up and the revealment of a share purchase programme.   

As with other delivery companies, Deliveroo is struggling with a post-pandemic comedown and a challenging environment for consumer spending. Order growth is being hampered as the cost of living crisis intensifies. The difficult outlook for the sector was highlighted by rival Just Eat’s (JET) €3.5bn (£2.9bn) half-year loss, announced earlier this month, with orders down by 7 per cent and a €3bn writedown of delivery platform Grubhub.

Deliveroo, unlike Just Eat, did manage to increase orders. These were up by 10 per cent to 161mn, although GTV per order fell by 3 per cent to £22.10. Revenue climbed by 13 per cent in the UK and Ireland to £544mn and by 10 per cent to £469mn in international markets, helped by commission and consumer income growth alongside increased advertising revenue (a new advertising platform was launched in the period). Total GTV was up by 7 per cent to £3.6bn, although as noted in July’s update full-year expectations have been heavily downgraded, with GTV growth of 4-12 per cent now forecast compared with the previously trailed 15-25 per cent. Ouch.

Management said that “gross margin improvements, more efficient marketing expenditure and tight cost control” would help the business navigate macroeconomic headwinds. While the gross margin put in a good shift, up by 130 basis points to 9 per cent on a GTV basis over the past six months, the cost side of the equation looks like more of a challenge. Administrative expenses soared by 29 per cent to £453mn year on year, driven by a bigger spend on staff technology positions, while higher orders bled through to chunkier rider costs, with cost of sales up 10 per cent to £712mn.  

The market did like a £75mn share buyback programme, to be completed by March, with the shares up 7.5 per cent on results day. A loss of experience at board level will hurt, however, with Next (NXT) chair Lord Wolfson stepping down as a non-exec due to “compatibility” with other commitments. Given economic headwinds and downgrades to growth forecasts, Deliveroo’s path to profitability looks a bit more challenging. We adjust our recommendation downwards accordingly.

Last IC View: Buy, 128p, 17 Mar 2022

DELIVEROO (ROO)   
ORD PRICE:93pMARKET VALUE:£1.64bn
TOUCH:92-93p12-MONTH HIGH:397pLOW: 78p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:55pNET CASH:£1.01bn
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2021 (restated)0.91-95.4-0.06nil
20221.01-147-0.08nil
% change+11---
Ex-div:-   
Payment:-