News that Just Eat intends to delist from the United States isn’t an indication that the European food delivery giant intends to immediately sell GrubHub, the U.S. company it bought back in 2020. Instead, Just Eat’s CEO said, the move is focused on cost-cutting. The value of Just Eat’s U.S. shares — listed on the Nasdaq — has fallen from over $22 per share in 2021 to around $8.50 this morning, a huge reduction in worth.
The Just Eat retreat was not the only hard event to hit the on-demand market, which has seen former startups struggle once they reach the public markets. Delivery Hero is another example of the trend; its value fell sharply last week after its 2022 guidance proved a flop. (The Exchange recently dug into Delivery Hero’s appetite for Spanish delivery company Glovo.)
From a share price of around €130 last year, Delivery Hero has seen its value fall to around €41 per share. The company’s CEO actually apologized for his company’s declining value on Twitter, which felt rather human of him — in a good way, mind.
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U.K.-based Deliveroo has suffered since its IPO last year, losing about 65% of its value, measured from its trailing 52-week high.
And there’s more bad news domestically thanks to DoorDash’s falling value.
Given all that, you might think that investors would be pulling back on investment into the delivery space. And yet, we’ve seen capital pile into the delivery market even faster in recent quarters, thanks to startup enthusiasm to bring consumers goods and groceries in even faster time frames.
There’s a yawning gap between what public-market investors are saying about delivery companies and what private-market investors are hoping for the next crop of public companies from the space. Let’s tease apart what each group is saying and what it means for a host of startup wagers.
Growth concerns, profit matters
In reverse order of occurrence, let’s start with Just Eat Takeaway.com, as it is formally known. Its CEO, Jitse Groen, told a Dutch television program that his company’s decision to give up its U.S. listing in favor of its European listing is a “cost reduction measure.” The company, Reuters reports, has “come under pressure from shareholders to sell the unit.”
The latest data we have from Just Eat is a January document detailing 33% order growth in 2021 and a 14% year-on-year expansion in orders in Q4 2021. Gross transaction volume (GTV) rose 31% in 2021 compared to 2020, but just 17% year on year in Q4.
Notably, Just Eat also said that its “adjusted EBITDA margin improved substantially in the fourth quarter of 2021,” allowing it to hit the “midpoint of [its] guided range of minus 1% and minus 1.5% of GTV,” per the document.
Growth, then, was low-30s for the company in 2021, with about half that growth rate in the final quarter, albeit with rising profitability that’s just a little negative on a heavily adjusted basis. By more traditional accounting methods, Just Eat is likely losing a packet, once costs like share-based compensation and other expenses are included in its bottom line.
Our read? Slowing growth and persistent losses are not a great mix.
Turning to Delivery Hero, the company shit the bed last week after reporting the following guidance for 2022:
[The company anticipates 2022] GMV to range between EUR 44 to 45 billion, total segment revenue to reach EUR 9.5 to 10.5 billion and an adjusted EBITDA/GMV margin of around -1.0% to -1.2%. The company is on track to generate a positive adjusted EBITDA for the platform business for the full year 2022.
The fact that the company will continue to lose money this year — even on a heavily adjusted basis — was not welcome news to investors, who are in the business of selling-down shares of companies that did well during the pandemic; the world is re-opening, it appears, even as COVID-19 deaths remain high. For companies that rode the pandemic to new heights, the return to something akin to pre-COVID normalcy is proving brutal.
U.S. food delivery giant DoorDash reports earnings in two days, which will add another chunk of data to our coffers. But investors have already cast their vote, selling DoorDash stock from a 52-week high of $257.25 to around $99 today, a massive repricing of a company that rode high during COVID-19 and has since seen its stock come back to Earth. (But it’s worth noting that DoorDash remains worth more than $33 billion.)
The value of delivery giants around the world is in decline. Investors are worried about growth — and its costs — and the resulting profit metrics that will arrive in the coming quarters. Given all that, you might expect that investors would curtail wagers. And yet.
What if we went faster?
There’s a direct relationship between delivery speed and cost. The faster you want something delivered, the more expensive it is to execute.
For example, slow shipping can take low-cost channels with flexible delivery dates. It’s relatively inexpensive. To get to a two-day shipping window, Amazon had to build out a huge network of warehouses and invest in its own delivery fleets of airplanes and vans. On-demand delivery required gig-worker economics and hordes of couriers to scramble food around cities. You can get tacos in an hour or so now in most places.
But so-called instant delivery is even faster than that. Many startups now want to bring you goods in 15 minutes or less, a period that feels more akin to magic than anything else. However, behind the scenes, the magic is not cheap. A few headlines and quotes to make the point:
- The Information: “Jokr, founded earlier this year, lost $13.6 million on $1.7 million of revenue, as of the end of July. It spent $2.3 million just on purchasing and delivering goods.”
- WSJ: “Some of the [instant delivery] companies are averaging a loss of over $20 per order when factoring in costs like advertising, those people said.”
- Insider: “Gopuff stocks its warehouses with items purchased from Instacart, spending tens of thousands per month on the service.”
So it doesn’t appear that the economics of the instant-delivery market are entirely figured out, yeah? And yet:
- GoPuff has raised north of $3 billion, including a huge round last summer.
- Jokr has raised more than $400 million.
- Getir has raised around $1 billion, including a huge round last summer.
- Gorillas has raised around $1.3 billion, including a huge round last fall.
- Flink has raised more than $300 million, including, yes, a huge round last summer.
- And most recently, Zapp, which has raised $300 million, closed $200 million of that total just last month.
That’s a simply tectonic amount of capital in play for a space that is seeing a less-expensive (read: less rapid) delivery varietal struggle as money powers a faster (read: more expensive) sub-vertical to the nth degree.
It could be that the instant delivery folks that focus on a smaller set of goods can make the math work; if you only sell certain goods, and they enjoy high markup, perhaps the economics are functional. But I wonder, given the news that we’ve seen from the space in recent months.
Once again, it appears that we’re seeing the public market head toward a more risk-off posture while startup investors are either doubling down on more risky bets or sitting pat on prior wagers. Precisely who is more right — the more conservative or more aggressive investors of 2022 — will be something we figure out as the year trundles along. Just don’t expect the heavy discounts to last forever if you currently enjoy making other folks carry toothpaste to your house on the double.