(Bloomberg) — Europe’s food delivery firms are finding out the hard way that investors are no longer willing to look past continual losses and rising costs.
Delivery Hero SE’s shares shed close to a third of their value on Thursday, or about 5.1 billion euros ($5.8 billion), in a record rout as analysts lamented elusive profitability. The bleeding continued into Friday with a further 13% slump as analysts slashed price targets for the stock. Peers Just Eat Takeaway.com NV and Deliveroo Plc also tumbled on both days, adding to this year’s heavy losses.
Investors have been reassessing their love for technology stocks in the face of rising bond yields and higher interest rates. But while there’s a broader shift afoot, food delivery companies are plunging disproportionately to their tech peers.
Analysts point to the unpredictable nature of the business after a pandemic-driven surge, regulatory hurdles to their business models, incessant competition from startups and untested new businesses for why they are trailing peers.
“It feels to me that fundamentally the agenda has changed,” said David Reynolds, an analyst for Davy. And yet, Thursday’s outsized move “just feels crazy.”
Food delivery companies saw their order rates soar during lockdowns, when restaurant closures forced housebound consumers to turn to ordering online. The comedown has been swift since economies in western Europe began to reopen. All three European food delivery companies have seen their shares more than halve since reaching record highs over the course of the pandemic.
“It’s a reality check going on in the market in many respects that these businesses are not simplistically scalable in the way that technology often is,” Neil Campling, head of TMT Research at Mirabaud Securities, said by phone, adding that capital is the greatest barrier to entry in the industry.
Furthermore, new rules from the European Commission could mean millions of gig economy workers soon find themselves being designated as employees, while some cities in the U.S. have instituted regulations including commission fee caps.
And while companies like Deliveroo and Delivery Hero are leaning into new offerings around rapid delivery of consumer goods, they are relatively untested, said Ioannis Pontikis, an analyst for Morningstar.
And these delivery firms remain committed to expanding their businesses even as market sentiment shifts and investors demand profits. Pontikis said growth was the right priority for a business driven by network effects.
Yet not only do food delivery companies need to spend big to ward of competition and invest in new initiatives such as dark stores, but inflation is set to bite as wages and the cost of raw materials rise. Investors will be holding their breath when Just Eat and Deliveroo are set to update the market next month.
Then there’s also the matter of rising competition from newcomers such as rapid grocery delivery startups Getir, Gorillas, Zapp and Gopuff. Delivery Hero had to invest in Turkey last quarter to fend off Getir, while Deliveroo is building out its own speedy grocery service to compete with the upstarts.
Signs of experimentation persist in the sector even as investors demand a focus on profitability. On Thursday, Gorillas announced it was launching a music label to help employees enter the music industry.
“We’re still growth, we’ve always been growth and we’ll probably always be growth and we probably even double down a little bit harder on some areas in these days as others have to pull back,” Delivery Hero Chief Executive Officer Niklas Oestberg said in an interview Thursday.
(Updates to add Friday’s share-price losses and analyst comments.)
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