Bullish: Manika Premsingh
I bought Deliveroo (LSE: ROO) shares shortly after its disastrous IPO. It has been a rewarding experience so far, even after its recent share price fall. And I reckon it will continue to be so, going by recent developments.
The food delivery app has just tied up with the e-commerce giant Amazon, which entails providing free deliveries to Amazon Prime members. This could drive new customers to it, both by increasing the market size and diverting customers from other delivery apps to it. This is its second big tie-up this year. In April, it entered into a two year contract with supermarket Waitrose for grocery deliveries. It will deliver grocery orders from across 150 such stores across the UK.
Also, Deliveroo’s growth numbers are strong. For the first-half of the year, its orders actually doubled from the same time last year. It also upgraded its guidance earlier this year. It expects gross transaction value (GTV), which is the total value paid by consumers, to rise by 50-60% this year. This is an increase from the 30-40% growth expected earlier.
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Some slowing down is possible in its next updates as pandemic restrictions have lifted, and ordering in could have slowed down. But I would see that as a red flag only if its growth falls below 2019 levels. From its projections, that appears unlikely, however.
If I had not bought Deliveroo stock already, I would think of the latest price dip as a buying opportunity for me.
Manika Premsingh owns shares in Deliveroo
Bearish: Alan Oscroft
The Deliveroo share price has lost almost a quarter of its value since climbing to an August peak. Does that make it a buy now? I don’t think so.
I’ve seen many growth stock darlings over the years, with some new technology or business model. Investors latch on to it and push the shares beyond reason.
The idea might be sound, as it is at Deliveroo. But starting with something that I think has a future – and putting a value on it today – is hard. That’s especially true for a company not yet profitable.
August’s first-half results announcement was full of rosy-sounding words. It even listed strong rider satisfaction up among the headlines. I’m happy for them, but I can’t retire on that.
Admittedly, sales growth was impressive. Gross transaction value doubled over the same period a year previously, and revenue grew by 82% to £922.5m. Yet that made only a small difference to adjusted EBITDA, which went from a £30.3m loss to a £27.0m loss.
On a statutory basis, Deliveroo recorded a £104.8m pre-tax loss. At least that was a proportionally bigger improvement from the previous £128.4m loss.
From these figures, what kind of valuation can I work out for the Deliveroo share price? I have no idea, and that’s the problem.
With the high-profile pandemic-led surge in takeaway orders probably set to subside, I can see the excitement fading. I’m expecting more volatility to come, but little concrete progress until we see profits. I’m out.
Alan Oscroft has no position in Deliveroo.
