Deliveroo investors shrug off bad news to focus on improving margins | New


Widening losses, slowing growth and losing a board industry heavyweight is an unusual recipe for success, but Deliveroo shares rose again this week as the city ​​praised its progress in improving margins.

The tech delivery platform managed to grow revenue, orders and gross transaction value (GTV) in the first half of 2022, despite what it called “challenging market conditions”.

Revenue rose 12% to £1bn, with GTV up 7% to £3.6bn as its consumer commissions and fees rose and it earned more money from the advertising. However, GTV growth slowed as the half-year progressed from 12% in the first quarter to just 2% in the second quarter as consumers tightened their belts amid the cost of living crisis.

In the UK & Ireland, revenue rose 13% to £544.4m, outpacing GTV growth of 8%, driven by orders up 12% to 80.1m. Deliveroo said it also gained market share despite headwinds from consumers.

The group’s pre-tax losses widened to £147m, from £95m a year ago. However, Deliveroo highlighted an improvement from the second half of 2021, when losses totaled £203m.

The group also highlighted that it has also made “good progress” on the road to profitability, with its adjusted EBITDA loss falling from £106m in the last six months of 2021 to £68m. in the first half of 2022.

The margin improvement was driven by higher fees paid by consumers, an increased contribution from advertising revenue and a reduction in marketing expenses.

Positive sentiment around its better-than-expected margins was tempered by news of Next boss Simon Wolfson who has decided to step down from the board. Wolfson joined in January 2021 ahead of its London Stock Exchange listing later that year, but backed out as his role on the board is no longer “compatible with my executive and other commitments”.

AJ Bell said it was a “pleasant surprise to see Deliveroo beat estimates”, given investor nervousness over tech stocks and fears over growth rates. However, he added: “If you dig deeper into his latest results, there are still reasons to be cautious. Growth slowed in the last quarter and the main reason it managed to beat estimates was the reduction in marketing spend. »

While acknowledging Deliveroo’s previously announced lower growth expectations, Jefferies commented: “Deliveroo appears to be well on its way to profitability, which is to be applauded given the difficult trading conditions at present.”

The broker said its grocery division will be a key driver in its path to profitability. “As pure dark store operators entrench themselves, Deliveroo is positioned to thrive through its multimodal…we view the grocery category as the dividing line between operators.”

Shares of Deliveroo closed 7.4% higher on Wednesday at 98p on the news, after recovering from mid-June lows of 77.6p, but remain down more than 50% since the start of the year.


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