21st Oct 2022 13:08
(Alliance News) - A third-quarter update from Deliveroo PLC seemed to split analyst opinion on Friday, with some getting consumer confidence jitters, while others chose to focus on slightly upgraded earnings guidance.
The London-based online food delivery service said gross transaction values rose 8.3% annually in the third quarter to GBP1.70 billion from GBP1.57 billion, though orders fell by 1.1% to 72.8 million from GBP73.6 million.
However, the figures do not provide the whole picture, according to Shore Capital.
"We urge caution with year-on-year comparisons as Deliveroo experienced a significant period of weakness in [the third quarter of 2021] with what we believe to be associated with freedom day and a reallocation of spending towards the high street," the investment bank said.
"Freedom day" refers to when Covid curbs in the UK were removed in July 2021.
Hargreaves Lansdown analyst Sophie Lund-Yates noted price inflation likely "padded out" the GTV growth, as opposed to organic improvements.
Deliveroo said the decline in orders was due to a difficult consumer environment. With economic data on Friday showing that UK consumer confidence remains near record lows, this seems unlikely to change anytime soon.
"The path to improvement is very hard to map – the higher calibre, restaurant quality food that Deliveroo peddles is precisely the sort of luxury that its middle-income customers are going to scrap until economic conditions improve. Spending power is being hugely eroded, and what money is left each month is going on keeping the lights on, not a gourmet burger," said HL's Lund-Yates.
interactive investor's Victoria Scholar concurred: "Deliveroo was very much a poster child stock of the stay-at-home pandemic trend in 2020 with supercharged demand for takeaways during lockdowns when restaurants and bars were forced to shut. However, the economic reopening and the cost-of-living crisis have dented demand for its non-essential offering."
Deliveroo lowered its guidance range for GTV growth for the full year to 4% to 8% in constant currency, compared to a previous range of 4% to 12%.
It expects a slight improvement in the margin for earnings, aiming to reach breakeven earnings before interest, tax, depreciation and amortisation at some point between the second half of 2023 and the first half of 2024.
The change to annual guidance is indicative of "potentially larger concerns" for the company, according to Third Bridge's Sandeep Sharma.
"This is not the first time Deliveroo has adjusted its guidance for FY22, with expectations of GTV growth being on the lower end of the guidance, however it is Deliveroo's continued maintenance of adjusted Ebitda guidance which is interesting to monitor," Sharma said.
Whilst some investors were scared off over cost-of-living concerns, Davy Research took heart from the upgrade to earnings guidance, dubbing the firm's update "solid".
"GTV/order at GBP23.4 sits well below other more selective players...The balance sheet is robust," Davy analysts said.
"It is still about staying in the game and ROO is certainly doing that."
Investors seemed inclined to look on the bright side on Friday afternoon, with Deliveroo shares up 2.9% to 84.30 pence in London. The stock is down over 70% in the past year, however.
By Elizabeth Winter; [email protected]
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