16th Mar 2023 12:29
(Alliance News) - Deliveroo PLC is in the pincers of lower consumer spending and heightened competition, analysts said on Thursday, even as the food delivery service reported a narrowed annual loss and swung to profit in the second half of the year by an adjusted measure.
Deliveroo reported total loss after tax of GBP294.1 million in 2022, narrowed from a loss of GBP330.5 million in 2021.
Of this, its loss from discounted operations widened to GBP51.6 million from GBP41.3 million, while its loss from continued operations narrowed to GBP242.5 million from GBP289.2 million.
Revenue from continuing operations rose 14% to GBP1.97 billion from GBP1.74 billion, as its gross transaction value grew by 8.6% year-on-year to GBP6.85 billion from GBP6.30 billion the year prior.
Deliveroo explained the revenue growth reflected an increase in the revenue take - revenue as a percentage of gross transaction value - to 28.8% from 27.5%.
In addition, the company said it took steps to optimise consumer fees, optimise its logistics network and to optimise its marketing spend during the year. This, it said, drove the majority of its "path to profitability" in 2022.
Despite the improved annual figures, Russ Mould, investment director at AJ Bell, said that there were two big problems facing the company: the cost-of-living crisis and fierce market competition.
"Households with less money in their pocket are unlikely to casually order in food on a regular basis and, as we have emerged from the pandemic, there are competing demands for any disposable cash they do have," he said.
"Undoubtedly there will still be an appetite for ordering food through an easy-to-use platform but fierce competition in a market which also features big names like Just Eat and Uber Eats makes turning a profit hard. There's no reason for people to be anything other than platform agnostic. It's very hard to stand out and that means heavy marketing spend to stay front and centre in people's minds."
Victoria Scholar, head of investment at interactive investor, agreed: "When household budgets are squeezed, non-essential expenses such as on grocery deliveries or takeaways can be among the first to go, putting pressure on Deliveroo after its surge in popularity during the pandemic. On top of that, Deliveroo faces intense competition in the sector from Uber Eats, Just Eat Takeaway and q-commerce players like Go Puff."
Food delivery peer Just Eat Takeaway.com NV reported its annual results earlier in March. The company posted a widened pretax loss widened to EUR5.67 billion from EUR1.04 billion, driven by impairment losses of EUR4.6 billion relating to the Grubhub acquisition and the merger of Just Eat and Takeaway.com.
Revenue in the year up 4.3% to EUR5.56 billion from EUR5.33 billion a year ago. Revenue less order fulfilment costs increased 24% to EUR2.36 billion from EUR1.90 billion a year earlier.
Analysts at Davy Research said Just Eat Takeaway was Deliveroo's "key competitor".
"While Deliveroo may be somewhat sub-scale and not as far down the profitability track, it remains discernibly cheaper; the key dynamic here is perhaps the financial 2023 guidance," the analysts said.
Looking forward, Deliveroo Chief Executive Will Shu said the macroeconomic outlook for the year ahead remains "uncertain". Nonetheless, the company said it expects growth transaction value growth to be in the low- to mid-single digits at constant currency in 2023.
It also expects adjusted Ebitda to be in the range of GBP20 million to GBP50 million in 2023, weighted to the second half of the year.
In contrast, Just Eat Takeaway expects to achieved adjusted Ebitda of about EUR225 million, including additional investments in food and non-food adjacencies as well as wage costs inflation, in 2023.
Deliveroo CEO Shu said: "Our team has delivered in difficult market conditions, with continued growth and share gains in our key markets. I'm particularly pleased that the company reached adjusted earnings before interest, tax, depreciation and amortisation profitability in the second half of last year. This is a significant step on our path to sustainable cash generation, and we achieved this milestone a year earlier than our guidance by executing our strategy successfully despite headwinds from the market environment."
Deliveroo reported an adjusted Ebitda loss from continuing operations of GBP45.0 million in 2022, narrowed from GBP100.0 million the year prior. It the second half of 2022 it achieved adjusted Ebitda profitability of GBP6.6 million.
Shares in Deliveroo were down 1.5% at 88.20 pence on Thursday midday in London. The stock is down 24% in the past 12 months. Just Eat Takeaway shares were up 0.5% to 1,574.84 pence on Thursday and are down 41% over the past year.
Deliveroo declared no dividend, unchanged from a year prior. It added that it does not expect to declare any dividends for the "foreseeable future".
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
DeliverooJust Eat Takeaw