Can Deliveroo shares deliver?

Shares in Deliveroo jumped 6% to 123p after the company posted encouraging full-year results on Thursday and another 5% on Friday to 130.7p. The online food delivery provider saw orders jump by 73% to £300.6m (from £173m in 2020) during the period and total gross transaction value increase by 67% to £6.6bn (compared to £4bn last year). Total revenues improved to £1.8bn from £1.1bn in the same period in 2020.

“We grew rapidly across all of our markets, with 70% GTV growth in constant currency – at the top end of our previously upgraded guidance range,” chief executive Will Shu told investors.

“Particularly encouraging to me was our performance in the UK and Ireland, where we continued to grow our market share and achieved profitability on an adjusted EBITDA (earnings before tax, interest, depreciation and amortisation) basis in a competitive environment – highlighting the strength of our consumer value proposition.”

Deliveroo set to reach break-even next year

Deliveroo remains loss-making, with pre-tax losses up 40% during the year to £298m in 2021 compared to £213m in 2020. However, the company is set to become profitable next year and due to reach break-even between the second-half of 2023 and the first-half of 2024. At that point, Shu expects the company to achieve a 4% or more adjusted EBITDA margin “with further upside potential beyond 2026,” he says.

Deliveroo’s disappointing flotation

Following the – somewhat mixed - IPO, Deliveroo is also now well-funded with £1.3bn in the bank at the end of the year and no borrowings. The shares slumped following the lacklustre flotation in March last year, with £2bn wiped off the value of the company. At the time a number of UK fund managers, including Aviva and Legal & General, avoided the IPO over concerns about workers’ rights, the share structure and regulatory issues.

Deliveroo initially said the shares would be priced at 390p but, on the day, opened trading at just 270p, with the shares down 30% on the launch day. The shares later hit highs of 384p in August last year but have since fallen 66%.

Inflationary headwinds for Deliveroo

However, despite the impressive progress, growth is set to slow from the 70% seen last year to just 15-25% as the fillip from the Covid-19 lockdowns disappears and competition hots up. Rampant inflation and the unknown consequences of the Ukraine conflict represent other challenges.

“This year it is clear that all three sides of our marketplace in Europe will face headwinds due to inflationary pressures, the removal of economic stimulus and the broader geopolitical and economic impacts of the conflict in Ukraine,” Shu admitted.

He added that the company’s 2022 guidance reflects its “caution on these factors” but that the company is “confident in our ability to adapt financially to a rapidly changing macroeconomic environment.”

Analysts at broker Numis noted that “[the company's] leading execution and... strong balance sheet should now be accompanied by forecast momentum and an improvement in margins.”

While Deliveroo still has challenges ahead, particularly inflationary pressures and the disappearing Covid lockdown benefit, the company looks on track in terms of revenue growth. At 130p and, with the company set to become profitable next year, the shares are worth buying.

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