Food delivery companies face growth slowdown

Bloomberg

For all it’s been a tough year for equities, food delivery stocks have had it much worse.
Just Eat Takeaway.com NV and Delivery Hero SE are among the 10 biggest losers in the Stoxx 600 Index in 2022, both down more than 60%, and when Deliveroo plc is added, the combined market value losses stand at $30 billion. The stocks have long since given up gains made on the back of a pandemic-inflated surge in sales.
A key concern for investors is that the growth these unprofitable firms are dependent on is starting to weaken. And most analysts expect that to continue in the second half as soaring inflation and energy bills erode disposable incomes and cause customers to tighten their purse strings.
The slowdown in orders could be “rather sharp” during leaner times, according to JPMorgan Chase & Co. analyst Marcus Diebel, who wrote in a note that any optimism for a better second half is “likely to remain unfulfilled.”
According to JPMorgan’s Diebel, all three European food delivery companies are at risk of slashing their full-year revenue guidance when they report first-half results in August.
He has neutral recommendations on Just Eat Takeaway and Delivery Hero, and downgraded Deliveroo to underweight within the past month.

Andrew Porteous, an analyst at HSBC Holdings Plc, sees investors holding fire on the stocks as long as uncertainties persist around future growth and consumer sentiment.
“Until companies can actually get a handle on how good or bad the consumer environment is, it’s going to be very difficult for them to give an outlook that the market can really buy into,” Porteous said in an interview.
The majority of analysts covering the stocks have buy or equivalent ratings, but even they recognise that tougher times are ahead.
The impact of inflation may start to be seen in second-quarter results, with “growth numbers not as high as we would have hoped for,” Bryan Garnier analyst Clement Genelot said in a phone interview. He has buy ratings on Just Eat Takeaway and Delivery Hero.
According to JPMorgan’s Diebel, all three European food delivery companies are at risk of slashing their full-year revenue guidance when they report first-half results in August. He has neutral recommendations on Just Eat Takeaway and Delivery Hero, and downgraded Deliveroo to underweight within the past month.
Part of the growth slowdown is likely to be self-inflicted. To help turn the corner to profitability, the firms are seen paring spending in areas such as customer discounts and marketing, while increasing delivery and service fees to pass on higher costs to consumers.
To be sure, prospects of slower growth may already be priced into the shares, given how much they have fallen this year.
“On the buy side, expectations are already for a much tougher second half,” Citigroup analyst Monique Pollard said in an interview. A reiteration of guidance could present “an interesting opportunity from an investment perspective,” she said.