Leading online food delivery giants in Europe and the US have collectively amassed over $20 billion in operating losses since their initial public offerings, signaling a battleground for market dominance.
Shares of Deliveroo, Just Eat Takeaway, Delivery Hero, and DoorDash, the top four standalone publicly listed food delivery firms in the US and Europe, are currently trading significantly below their peak values during the pandemic era. Investors are closely scrutinizing their business models amidst a challenging macroeconomic landscape affecting consumer behavior.
Following a surge in demand during pandemic lockdowns, these companies now face a more challenging economic environment, impacting their profitability. In a bid to reassure investors, their cumulative annual operating losses have soared to $20.3 billion, according to calculations by the Financial Times and industry analyst theDelivery.World. These figures span the seven-year period since Deliveroo, Delivery Hero, and DoorDash went public, alongside Just Eat Takeaway’s formation post-merger in 2020, and include substantial writedowns associated with acquisitions and stock-based compensation.
UBS analyst Jo Barnet-Lamb highlighted a shift in investors’ expectations, emphasizing the demand for food delivery businesses to demonstrate sustainable and profitable growth amid rising interest rates.
Previously, venture capital firms heavily invested in “gig economy” companies, subsidizing food deliveries to attract customers with competitive pricing and gain market share. However, with rising interest rates, investors are now prioritizing profitability, despite sustained high operating costs, including marketing expenses.
Additionally, the sector faces ongoing scrutiny from regulators and labor groups concerning workers’ rights. Critics argue that if couriers were paid higher wages, consumers might resist paying the true cost of food delivery.
Nevertheless, stock market analysts express optimism regarding potential financial improvements within the industry. In April, the three major European players expressed expectations to achieve annual free cash flow positivity, following DoorDash’s lead.
The emphasis on free cash flow underscores a departure from the previous focus on adjusted earnings before interest, tax, depreciation, and amortization (EBITDA), which excludes certain costs. Some analysts, like Joseph McNamara from Citi, believe that operating losses provide a more standardized view of profitability across companies.
The evolving landscape has seen the online food delivery sector diversify revenue streams, including ventures into grocery delivery and higher-margin advertising businesses. Uber, for instance, attributes its overall sales growth to a broader range of services offered, driving increased user numbers and economies of scale.
Furthermore, industry consolidation is underway, with companies exiting certain markets while doubling down on others. DoorDash eyes expansion into new markets, while Delivery Hero plans to sell its Taiwan business to Uber to concentrate resources elsewhere. Notably, historic deals have impacted the bottom lines of these companies, with industry valuation declines resulting in significant writedowns.
Despite challenges, the sector’s long-term prospects remain buoyed by sustained consumer usage, even amidst economic constraints such as inflation. The companies continue to innovate, exploring avenues for growth beyond traditional food delivery services.
In response to inquiries, representatives from Deliveroo, DoorDash, Delivery Hero, and Just Eat Takeaway expressed confidence in their strategic direction and financial performance, highlighting various metrics to gauge profitability.
