Food delivery firms drop €21bn in value as investors turn shy

Soaring inflation, increased competition, and the fall-off in the pandemic sales surge — challenges are coming at the sector from all sides

Shares in Just Eat dropped 35% in the last quarter.

In a market gripped by concerns over rising interest rates and soaring inflation, investors are avoiding European food delivery companies, turned off by their steep losses and determined efforts to expand.

Shares in Delivery Hero plunged 59% last quarter, the second-worst performance in Europe’s Stoxx 600 Index. Rivals including Just Eat Takeaway and Deliveroo dropped more than 35%. The three stocks wiped out a combined $23.7bn (€21.3bn), more than half their market value. 

While it is no surprise when tech stocks struggle in times of rising borrowing costs, the sharp slump in food delivery shares underscores the penalties markets can impose on companies for prioritising growth when they are yet to turn a profit.

Companies in the sector have done a bad job of adjusting their strategies to the rising cost of capital, Jefferies analyst Giles Thorne said.

“The cost of capital goes up, you don’t make money and you’ve got debt — then that’s how equity gets crushed,” he said.

Increased spending

The fear of losing market share has driven increased spending, even as sliding equity valuations signalled investor disapproval. Just Eat expanded into the UK grocery delivery market in December, after previously saying the category lacked scale. 

Delivery Hero agreed to buy a majority stake in Glovo in a transaction that valued the Spanish delivery startup at €2.3bn. 

“The Glovo deal continues to baffle us,” HSBC analysts, led by Andrew Porteous, said in a research note. Delivery Hero expects Glovo to post a loss of €330m in 2022.

Volatility in food delivery stocks will remain high until the sector is closer to becoming self-funding, Mr Thorne at Jefferies said. That remains months — or years — away. Deliveroo, for example, aims to reach break-even on an adjusted earnings basis between the second half of 2023 and the first half of 2024.

Challenges are coming at food delivery players from all sides. Inflation is squeezing consumer budgets, while competition is as heated as ever with startups like Getir and Gorillas pushing into rapid grocery delivery. Plus, the rapid growth achieved a year ago will be hard to repeat now the pandemic-generated sales surge has passed.

Some analysts say the worst may be over, given how much the stocks have fallen. HSBC said caution has been baked into a sector that now looks “punch drunk”.

That view is shared by Berenberg analyst Sarah Simon. “Yes, you’re going to have a couple of quarters when growth is less exciting, but we would say that’s already priced in,” she said. 

• Bloomberg