Delivery Hero shares plunge on disappointing 2022 earnings forecast

The logo of the German food delivery service Delivery Hero.

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European food delivery company Delivery Hero saw its share price plunge on Thursday after announcing earnings forecasts that disappointed traders.

The Germany-based company said it generated 9.6 billion euros ($11 billion) in gross sales volume in the fourth quarter of 2021, up 39% year-over-year. Revenue climbed around 66% to 1.9 billion euros in the quarter.

For the full year, Delivery Hero reported overall sales volume of €35.4 billion, slightly beating its own forecast, while revenue soared 89% to €6.6 billion. , roughly in line with expectations. Its adjusted core profit margin came in at -2.2%, slightly below expectations.

Nevertheless, shares of Delivery Hero fell around 29% on Thursday morning. Rival companies Just Eat and Deliveroo fell 4% and 6% respectively.

Analysts pointed to Delivery Hero’s forecast for 2022 as the reason for the negative market reaction. While Delivery Hero said it expects its platform business to break even, the full-year forecast for the group’s core profit margin was between -1% and -1.2. %.

“It only takes a small bump in the road to pierce sentiment around pandemic winners like Delivery Hero, and projections for 2022 are somewhat underwhelming,” senior investment and market analyst Susannah Streeter told CNBC. at Hargreaves Lansdown.

“Investors seem to be losing patience with the company on its long road to profitability,” she said, adding that Delivery Hero “must continue to invest heavily to slowly pedal toward profitability in a highly competitive environment.”

Investors are increasingly wary of lofty valuations in the tech sector — especially for loss-making companies like Delivery Hero — as central banks begin raising interest rates to fight rising inflation.

The Bank of England was among the first to act, raising rates once in December and then again earlier this month. The US Federal Reserve announced that it would raise its rates as of March, while the European Central Bank was more accommodating.

Asked about the impact of inflation on his business, Delivery Hero CEO Niklas Ostberg said the business was “not that impacted” by the price hike. The company already operates in countries with “extreme levels” of inflation such as Turkey and Argentina, he added.

Delivery Hero won’t need to raise money from investors because it has a “strong balance sheet,” sitting on a few billion euros, Ostberg told CNBC’s “Squawk Box Europe.”

“Our first priority is always growth, and we are becoming profitable this year,” he said.

“We have to make sure that we are not dependent on the capital market. We don’t want to be forced to raise capital.”

The food delivery industry has undergone significant consolidation, with several large companies buying up smaller rivals in a bid to stay ahead of the competition. At the end of 2021, Delivery Hero announced that it would buy a majority stake in Spanish rival Glovo.

Delivery Hero has struggled even in its home market of Germany, where it is ending its food delivery operations just months after launch. Ostberg said the company came “late” to the game and would have required a “10, 15 year investment period.”

“In a brutally competitive industry, investors were looking for bulls, not conservatives, from management and the stock price reacted accordingly,” Danni Hewson, financial analyst at AJ Bell, told CNBC.

“There are certainly bright spots in this latest update to its core food delivery business and key investments should ultimately reward patience, but today’s selloff shows that many investors are nervous.”

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