Dusseldorf The delivery service Delivery Hero exceeded its growth target in the past financial year. The turnover generated via the platform increased by 62 percent to 35.4 billion euros. The forecast was between 33 and 35 billion euros. These sales also include partners on the platform.
Own sales rose by 89 percent to 6.6 billion euros – and are thus at the upper end of the target corridor. However, the company has strayed somewhat from the goal it set itself of approaching profitability. The profit margin measured against platform sales was minus 2.2 percent. The company had predicted minus two percent.
Investors were disappointed with the numbers. At the start of the stock exchange, the price almost crashed. By Thursday afternoon, the share had fallen more than 29 percent and cost around 47 euros. The day before, the papers had closed at a price of a good 66 euros. The highest rate last year was 140 euros.
Delivery Hero had announced that it would be in the black for the first time in terms of operating profit in the second half of the year. However, new business areas such as Quick Commerce (ultra-fast delivery service) are excluded, because massive investments have to be made there first. But there is still a long way to go to make a profit in the core business. The environment of rising capital market interest rates is likely to make this path even more difficult.
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Investors acknowledge this with a veritable flight from the share. With today’s daily low of 49.90 euros, the paper has even slipped below the lowest level during the corona crash in March 2020. The share certificate was last listed at a lower level in December 2019.
Wealth manager: “Delivery Hero is an air number”
Asset manager Markus Schön describes this process in one sentence: “When interest rates rise, the insubstantial values go under”. Without the zero interest rate policy of the central banks worldwide, Tesla, Netflix and Facebook would never have become so valuable, says Schön. However, these companies have a perspective of making money or are already doing so. If the growth is not enough, there are also historic slumps there, as the meta-record loss of almost $300 billion in market capitalization in one day has shown.
In his view, Delivery Hero is an “air number” that buys low-margin sales with loans in order to eventually have a dominant position in the market. The latter is an illusion, so that in the end only the substance of the technical platform at Delivery Hero has to be evaluated. In his opinion, the value of this platform is between 15 and 20 euros per share. “Therefore, the price slide and the panic are only the beginning of the sell-off at such values,” says Schön.
Delivery Hero CFO Emmanuel Thomassin, on the other hand, was optimistic: “Our conscious focus on scaling and increasing efficiency is paying off, our contribution margins are improving from quarter to quarter,” he told Handelsblatt. He sees the fact that they are sticking to their goal of breaking even in their core business this year as an “important sign”.
CFO: “We are an exception in the Dax”
The targets for the current year remain ambitious. The Dax company wants to increase its platform sales to 44 to 45 billion euros, its own sales should be between 9.5 and 10.5 billion euros. For the entire business, Delivery Hero expects a profit margin of between minus one and minus 1.2 percent.
Apparently, however, this failed to meet the expectations of the stock market. “Analysts’ and investors’ expectations were probably simply higher than what we announced for this year,” says Thomassin.
The fact that Delivery Hero is the only Dax company that has never made a profit certainly also has an influence. “We are an exception in the Dax, but we have been since we were listed on the stock exchange,” emphasizes Thomassin.
“We have made growth a priority, and that requires years of investment,” explains the chief financial officer. Companies like Alibaba or Amazon would have invested for years and accepted losses in order to get to their current leadership position. “This strategy is not easy, it requires discipline and risk,” said Thomassin.
High hopes for Glovo takeover
The company made a number of decisions over the past year that need to be seen first if they will have a positive impact on the road to profitability — and when they will show up in the bottom line.
The most important strategic step was to take over the majority of the Spanish delivery service Glovo, in which Delivery Hero previously held shares. The share is to be increased from 44 to 84 percent for an estimated €800 million. The deal is expected to close in the second quarter.
>>> Read about this: Glovo founder and CEO Oscar Pierre explains how his company plans to grow following its acquisition by Delivery Hero
What speaks in favor of the takeover from the point of view of analysts: the two companies complement each other well, they hardly overlap geographically. Silvia Cuneo from Deutsche Bank described the step in a study as “very sensible”. Glovo is strong in South America and Eastern Europe, where Delivery Hero still has large gaps. At the same time, Glovo is still making high investments, so that a loss of 330 million euros has been calculated there for the current year.
In the short term, the renewed withdrawal from the German market is viewed more as a setback. Delivery Hero sold its home market business to competitor Just Eat Takeaway in 2018. But last year the company started again in Berlin under the Foodpanda brand.
After just a few months, Delivery Hero ended this attempt again in December last year. “That didn’t cost us much financially, but it certainly cost us our reputation,” admits CFO Thomassin.
CEO Östberg called it a “difficult decision”, which he also justified with the strong competition in Germany. But at the same time, this now offers the opportunity to put the money into other, possibly more profitable projects. “This decision ultimately enables us to seize other attractive growth opportunities throughout the group,” said the CEO.
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