Deliveroo’s growth hit by cost of living crisis

As we pointed out in December in our Sell tip on Just Eat (JET), there is an unfortunate focus by the food delivery app companies on “adjusted” profit measures. This is understandable, as it helps boards to say that “profitability” will be hit at an earlier stage than would otherwise be the case. This is the situation with Deliveroo (ROO), which boasted in these results that it posted positive adjusted cash profits in the second half of 2022.

But it is the statutory results that ultimately matter. And on that basis, Deliveroo is still heavily in the red, despite a £50mn improvement to the bottom line. The analyst consensus, according to FactSet, is for the company to first post statutory profits in 2025.

Annual revenue growth was driven by the “optimisation of customer fees” and progress with advertising. Sales in the UK and Ireland rose by 14 per cent to £1.1bn and by 13 per cent in international markets to £855mn. The international portfolio has now been streamlined after the exit from unsustainable operations in Australia and the Netherlands in the year.  

Total order numbers were up by 5 per cent, but growth rates worsened as 2022 went on from a 19 per cent uplift in the first quarter to a 2 per cent decline in the fourth. The cost of living crisis has had an impact on the desirability of takeaways.  

The results were also hampered by an increase in costs. Staff costs and other expenses rose by over £170mn, which management said was due to hiring more technology employees in the first half, and exceptional costs were up by 80 per cent due to overseas challenges. Cost control measures will mean that around 9 per cent of the overall workforce could shortly be made redundant.

Chief executive Will Shu pointed to “difficult market conditions” as gross transaction value (GTV) growth slowed. This key metric rose by 9 per cent to £6.8bn, but this compared with a 67 per cent increase in the same measure in 2021.

Numis analysts said that “further operating efficiencies underpin visibility on positive cash generation. This is in contrast to [Deliveroo's] key competitor [Just Eat] which is guiding to meaningful cash burn and sequentially declining margins”.

Deliveroo still looks like a – relatively – attractive sectoral pick. A new £50mn share buyback programme is underpinned by a strong balance sheet. Management's guidance for GTV growth of low-to-mid-single digits this year isn't mind-blowing, however. Hold.

Last IC view: Hold, 93p, 10 Aug 2022