The Deliveroo (LSE: ROO) share price rose by 15% last week. That’s a pretty large rise for a short period. After a disastrous Initial Public Offering (IPO) earlier this year, the shares have increased by 35% in 2021 so far.
What drove the Deliveroo share price last week? Well, there were two main reasons, which I’ll discuss. The stock remains on my watch list and here’s why.
Reason 1
The first reason that made the stock rally last week was the announcement that Delivery Hero, a German competitor had taken a 5.1% stake in the firm. I commented on this news and noted that this investor is much larger than Deliveroo.
Delivery Hero appears to be dipping its toe in for now. Could this be the start of a larger investment? On Friday it said not… for now. But I think it’s early days and the online food delivery market could consolidate one day. And the German rival is in prime position to snap up more Deliveroo shares.
Based on the stock price rally last week, I think most investors are hopeful of a takeover. Delivery Hero’s Friday statement that confirmed it isn’t considering making an offer just yet makes sense to me. It’s too soon, especially as Deliveroo just made its London stock market debut earlier this year.
I feel it doesn’t make sense for the company to go public and then shortly after be acquired by a competitor. Deliveroo could have been snapped up when it was a private firm. But what this investment has done is expressed Delivery Hero’s interest in the company.
I previously mentioned that Delivery Hero has an investment in Just Eat as well. I guess I’ll have to watch this space and see if anything else happens.
Reason 2
The company also released strong half-year results last week, which pushed the Deliveroo share price higher. Total revenue for the six-month period was up 82% to £922.5m compared to last year. The company still generated a loss after tax of £104.8m, but the bright side was that this narrowed compared to 2020’s loss.
Consumer demand remains strong as it reiterated its forward guidance. It’s worth noting here that the firm upgraded its forecast in its July update. Deliveroo reconfirmed that it expects full-year Gross Transaction Value (GTV) growth to sit between 50% and 60%. This was increased from prior guidance of 30%-40%. This is a large jump and highlights that it’s confident its strong performance will continue.
It also helps that the firm is now working with more food merchants. And it recently announced its partnership with Waitrose, which should attract more customers to use its platform.
Should I buy?
Last week was eventful for Deliveroo but I’m not buying just yet. Founder and CEO Will Shu has warned that “consumer behaviour may moderate later in the year”.
I’m concerned about this, especially now that normality is starting to resume and people are returning to work. Demand for online food delivery may start to fall. The shares are also trading close to all-time highs. For now I’ll only be watching the stock.
