10th Aug 2022 12:34
(Alliance News) - Deliveroo PLC was enjoying a nice session on Wednesday as the food delivery platform reported half-year results that were a "pleasant surprise" but may see itself staring down a number of concerns in the near future.
Deliveroo also announced the departure of Simon Wolfson from its board.
Wolfson is chief executive officer of Next PLC and currently the longest serving FTSE 100 CEO. "After much consideration, and with regret, I believe that the time required to continue in my role at Deliveroo is no longer compatible with my executive and other commitments," he said.
Shares in Deliveroo were up 3.4% in London on Wednesday at 94.36 pence. The shares have struggled in 2022 so far, however, slumping 53% and are down a striking 74% in the past 12 months.
For the six months ending June 30, London-based Deliveroo reported a 12% increase in revenue to GBP1.03 billion from GBP907.0 million a year before, due to growth in consumer fees, commission revenue and contribution from advertising.
The company also saw a 10% increase in orders for the first half of the year. However, in 2021, revenue jumped by 57% from 2020.
Danni Hewson, financial analyst at AJ Bell, said: "It's a pleasant surprise to see Deliveroo beat estimates, as it looked to be a prime candidate to serve up bad news. After all, if consumers are under increasing financial pressure, cutting back on a takeaway meals is an easy win and that would feed through to lower activity for Deliveroo."
Pretax loss widened to GBP147.3 million from GBP95.4 million a year prior, though adjusted earnings before interest, tax, depreciation and amortisation narrowed to GBP68 million from GBP106 million.
"If you dig deeper into its latest results, there are still reasons to be cautious, however. Growth has slowed in the past quarter and the principal reason it managed to beat estimates was by cutting back on marketing spend. That might explain why the share price didn't rally on the news," Hewson added.
Deliveroo said a weaker consumer environment was reflected in the growth in gross transaction value, which slowed substantially to 2% for the second quarter from 12% in the first quarter. Post-Covid consumer behaviour and inflationary pressure has caused consumers to be more careful with their spending, it said.
Looking ahead, Deliveroo has adjusted its guidance to reflect the uncertainty in the economic environment. It now expects growth in gross transaction value for the full year to be in the range of 4% to 12%. The company said it will implement tighter cost control measures and be more efficient with marketing expenditure.
It expects an adjusted Ebitda margin of negative 1.5% to 1.8% in all of 2022. The company still expects to reach breakeven on adjusted earnings sometime between the second half of next year and the first half of 2024.
Deliveroo has expanded its grocery offering as well as its non-food offering, which includes WH Smith PLC and LloydsPharmacy.
Victoria Scholar, head of Investment at interactive investor, said: "Stay-at-home stocks like Deliveroo fared extremely well during the pandemic when restaurants and bars were shut and households were forced into lockdown.
"However, the reopening of the economy combined with stiff competition from the likes of Just Eat and Uber Eats and q-commerce players like Gorillas and Go Puff as well as the cost-of-living crisis have created an extremely challenging environment for Deliveroo."
Scholar noted the firm has to streamline its business, as it exits the Netherlands following a move out of Spain last year.
"Plus Deliveroo's IPO in London last year was a PR disaster, detracting investors for buying its shares. Its share price has sunk into double digits, trading in a descending path ever since its flotation with the potential for further losses ahead," Scholar added.
Shore Capital also believes Deliveroo faces a "plethora of problems".
"A better than expected revenue growth comes likely at the expense of materially higher marketing and overhead costs which clocked 29% growth in the period, possibly a reflection of the recent aggressive stance Just Eat has begun to take in London, which so far they've been relatively dormant," Shore said.
The stockbroker added: "As the pressure piles on from more profitable operators, the scope for incrementally higher fees will disappear and the retention of labour will prove more difficult in our view."
By Paul McGowan; [email protected]
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