Deliveroo (LSE: ROO) got off to a weak start after a poorly-received IPO. But things have been changing for the takeaway food delivery company. In the past month, the Deliveroo share price has been climbing.
Part of that is down to German firm Delivery Hero taking a 5.1% stake in the company, and thoughts of a possible takeover attempt. That’s not happening, at least for the moment, after Delivery Hero told the market that it is not considering making an offer at this time.
It does, however, bring my thoughts round to the likelihood of further consolidations in the coming years. We’re still looking at a relatively new market, with its potential reach largely unknown. It’s also a business in which too many competitors could cause confusion for customers. So will we see mergers and takeovers coming? I think almost certainly.
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What is the potential reach likely to be? Deliveroo’s first-half update spoke of growth “materially ahead of expectations.” I was struck by one specific aspect of that. The firm told us that “consumer engagement post-reopening has been encouraging, with orders and average order value proving resilient despite restrictions easing.“
Changing shopping habits
Many folks turned to buying things online for home delivery during the pandemic out of necessity. The weekly Tesco order, some new clothes, or the evening meal… the inability to go out and get it limited our options. But now shopping restrictions are just about lifted, the boost for home delivery demand has not evaporated. No, there’s been a step change in our buying habits. Of those dipping their toes in for the first time, a lot have enjoyed the convenience and they’re going to stick with it. And that, I think, is helping keep the Deliveroo share price up.
Deliveroo also has the biggest slice of food merchants signed up and using its service. That’s important, and also part of the reason I expect to see mergers in the future. Hungry customers increasingly want a variety of meals from a range of suppliers, so that gives a big advantage to firms that can deliver the most menus.
Deliveroo share price valuation
So, I’m bullish on the future for the takeaway delivery market. I’m also impressed by Deliveroo’s better-than-expect growth, and by the fact that it has now uprated its full-year guidance. So I would buy Deliveroo shares, yes? Well, no, not now. And that’s down to one simple issue, valuation.
Deliveroo’s sales growth is impressive, but there’s no profit yet. The half saw an adjusted EBITDA loss of £27m, better than the £30.3m loss in H1 2020, but not by much. The statutory pre-tax loss of £104.8m was, similarly, an improvement on the previous year’s £128.4m loss. But unless the rate of change accelerates, it will be a while yet before there are any profits on the table.
Until I see meaningful ways of putting a value on the Deliveroo share price, I’m staying away. Still, I suspect a younger me, with the greater appetite I used to have for growth share risk, might have been buying.
