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Stock Watch

Will H1 earnings keep the Deliveroo share price looking tasty?

Deliveroo share price: Deliveroo rider with food carrier bag with Deliveroo logo on the back

When the Deliveroo share price floated on the London Stock Exchange in March, the IPO was heralded as a major milestone for the city, given that the stock market had been underperforming peers in the US and Europe. 

However, the float was more of a dog’s dinner than a feast. The Deliveroo share price listed at 390p on 31 March. By the end of its first day of trading, Deliveroo’s share price dropped to 287.45p a share.

Investors appeared nervous about Deliveroo’s continued failure to make a profit and an over reliance on London-based customer demand. As the online food delivery firm prepares to announce its half-year results on 11 August, will these results help the Deliveroo share price to heat up?

Deliveroo share price falls after mixed Q1 earnings 

The Deliveroo share price continued its downward streak since listing, hitting 233p at the close on 21 April, after unveiling mixed first-quarter results earlier that month. The group announced that it had recorded its fourth consecutive quarter of accelerating growth with orders in the UK and abroad up 114% year-on-year to 71m. Its gross transaction value (GTV) was up 130% to £1.65bn.

Demand had been boosted by shuttered restaurants using Deliveroo to deliver food to customers during lockdowns, with supermarkets such as Waitrose also trialling on-demand grocery.

However, there was also a warning from the group in its earnings report that a lifting of lockdown restrictions meant that growth was likely to decelerate at an “uncertain” rate. Its shares sat at 234.1p at the close on 14 May.

Court victory and surging supermarket demand 

The Deliveroo share price has recovered since May, rising to 260.3p on 18 June and 316.4p at the close on 2 July, before moving above 340p during trading on Monday 9 August. 

It was boosted by the UK Court of Appeal’s decision on 24 June that Deliveroo’s drivers were self-employed, not employees, as well as the announcement of a two-year partnership and more store tie-ups with Waitrose, after enjoying strong demand from new and younger customers.

Another lift came from its second-quarter results, which revealed that GTV had soared 76% to £1.7bn with orders up 88% to 78m. It increased full-year guidance for GTV from between 30-40% growth to between 50-60%.

What can investors and traders expect from first-half earnings?

In its second-quarter update, Deliveroo announced that GTV for the first half of 2021 would come in £3.3bn, up 99% year on year. 

Analysts are bullish, with Jefferies setting a 390p price target in May, according to Proactive Investors. Jefferies analysts believe Deliveroo is the “definitive online food company” with first-mover advantage in groceries and virtual kitchens. It says that online penetration is low and that Deliveroo has a path to sustainable UK profit. 

Numis Securities says the Deliveroo share price could hit 400p this year or in early 2022, Shares Magazine reported Analysts at the firm said Deliveroo was “building credibility following a weak start on public markets”. However, it said that annual gross profit margins in the lower half of the 7.5% to 8% range will be due to a drop in the average order value post-lockdown.

Indeed, there are several barriers ahead for the Deliveroo share price, which may be highlighted in the half-year results. Society has still not fully unlocked from the coronavirus pandemic, with many people working remotely and perhaps nervous about consuming food and drink in large groups indoors. If indoor dining returns to pre-pandemic levels in 2022, this may impact takeaway demand.

The labour conditions of the company’s drivers also continue to be of significance to the media and regulators. Elsewhere, at the end of July Deliveroo announced it was contemplating closing its Spanish business due to limited market share.

The potential closures in Spain could also be due to a recent Spanish law requiring on-demand firms to hire their couriers. Where else could Deliveroo retreat from, especially as the European Commission opened a consultation on the gig economy back in February? Until these roadblocks die down, they may restrict investor appetite for the Deliveroo share price going forward.

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