Deliveroo Good GTV Growth in Q3 Implies Share Gains in U.K.; Better EBITDA Guidance for the Year

Deliveroo reported third-quarter fiscal 2022 results with gross transaction value, or GTV, up 8% (up 5% at constant currency) while orders were down 1% versus up 2% and down 11% for Just Eat Takeaway in the same period. GTV and orders in the core U.K. and Ireland market were robust, up 11% and 5%, respectively, implying market share gains and still-resilient consumer behavior (monthly active consumers were marginally lower on a sequential basis in the U.K. to 3.9 million from 4 million). Lower third-quarter growth was primarily a function of fewer active consumers in the quarter (sequentially) and flat average monthly order frequency (3.3 in the period), trends in line with a weaker consumer discretionary spending backdrop and our own expectations. Deliveroo also announced that the company's final operating day 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) will be Nov. 30, 2022, following a consultation that was concluded in October, which reinforces our belief that the long-anticipated market repair is slowly, but surely taking place (following recent exit announcements by peers). Given a slowdown in GTV during the third quarter as well as lower marketing and overhead costs, the company updated fiscal 2022 guidance on GTV growth to 4%-8% from 4%-12% (versus 13% in our model) at constant-currency and EBITDA margins to negative 1.2% to negative 1.5% of GTV or about a GBP 95 million loss at the midpoint (from negative 1.5% to negative 1.8% of GTV ) versus GBP 122.9 million in our model. Despite a slightly better bottom-line guidance, we don't expect to materially change our GBX 215 fair value estimate and no-moat rating for Deliveroo. Shares trade deep in 5-star territory.