Deliveroo Reports Lower H1 Losses and Confirms Guidance; Market Repair Continues; FVE Maintained

Deliveroo reported first-half fiscal 2022 results with gross transaction value up 7%, orders up 10%, and revenue up 12%. This follows a release published in July and implies slowing growth on a sequential basis, reflecting strong comparatives and consumer headwinds. Deliveroo commented on market share gains in the United Kingdom, Ireland, and key markets such as Italy, citing third-party data providers. Adjusted EBITDA loss improved to GBP 68 million in the first half versus GBP 106 million in the second half of last year. This was driven by: first, a higher gross margin at 8.5% of GTV, in turn the result of higher consumer fees and advertising income and second, lower marketing expenses. Lower growth in the second quarter was primarily a function of fewer active consumers in the quarter (sequentially) and less frequent orders, trends in line with a weaker consumer discretionary spending backdrop, and our own expectations. More importantly, Deliveroo announced that it commenced consultations on a proposal to end operations in the Netherlands (1% of the group's GTV in the first half and the third-largest food delivery company in the country by our estimates), which reinforces our belief that the long-anticipated market repair is slowly, but surely taking place (following recent exit announcements by peers). For the Netherlands specifically, this follows an advisory decision by the country's advocate general issued on June 17, which agrees with the court of appeals' decision that Deliveroo's riders qualify as employees. The company reiterated it previously cut fiscal 2022 guidance on GTV growth to 4%-12% from 15%-25% (versus 13% in our model) at constant-currency and EBITDA margins (negative 1.5% to negative 1.8% of GTV or about a GBP 120 million loss at the midpoint versus GBP 122.9 million in our model). Given roughly in-line bottom-line guidance, we don't expect to change our GBX 215 fair value estimate and no moat rating for Deliveroo.