Leading online food delivery groups in Europe and the US have racked up more than $20 billion in combined operating losses since going public, after a fierce battle for market share.
Shares in Deliveroo, Just Eat Takeaway, Delivery Hero and DoorDash — the four largest independent, publicly listed food delivery companies in the U.S. and Europe — are trading well below their pandemic-era peaks as investors scrutinize their business models.
After a period of growth fueled by the pandemic, the four companies are now struggling with a tougher macroeconomic environment that has hit consumers hard.
As they try to show profitability to investors again, their cumulative annual operating losses have now reached $20.3 billion, according to calculations by the Financial Times and industry analyst theDelivery.World.
The figure covers seven years since Deliveroo, Delivery Hero and DoorDash went public and after Just Eat Takeaway was created following a merger in 2020. It includes significant write-downs related to acquisitions and stock-based compensation.
“Investors’ willingness to fund losses has changed” and they now want food delivery companies to “show sustainable, profitable growth” after interest rates rise, said UBS analyst Jo Barnet-Lamb.
Rival Uber is not breaking even on the profitability of its Eats business, but 2023 marked its first full year of group-wide operating profitability after a joint push to boost margins, a moment the company hailed as a “tipping point”.
For years, venture capital groups poured money into so-called “gig economy” companies that subsidized food delivery to attract customers with low prices and win market share.
However, investors have shifted their focus to profitability as interest rates have risen, although operating costs incurred by companies, including marketing costs, remain high.
The sector must also contend with the ongoing scrutiny of workers’ rights by regulatory bodies and labor groups. If delivery drivers were paid more, skeptics argued, consumers would never be willing to pay the actual cost of food delivery.
Despite this, stock market analysts are becoming increasingly optimistic that companies can improve their finances. In April, the three European players said they expected to follow DoorDash and become cash flow positive on an annual basis this year.
The focus on free cash flow follows a long-standing emphasis among companies in the sector on an alternative measure of profit – adjusted earnings before interest, taxes, depreciation and amortization – which strips out a range of costs such as statutory provisions.
But many people “don’t see [adjusted earnings metrics] as the actual level of profitability of the underlying business,” said Joseph McNamara, an analyst at Citi.
Operating losses offer “the best standardized view across companies” that minimizes adjustments and other non-cash and non-operating impacts, said Amanda Benincasa Arena, a partner at consulting firm Aon.
Whether companies could show they were generating more cash than they were spending was the next big “litmus test,” McNamara added, now that the “growth at any cost” phase is over.
Giles Thorne, an analyst at Jefferies, noted that consumers have continued to use services in recent years “despite having less money and despite being charged more” – because of fewer discounts and higher inflation – which he said supports the long-term outlook sector.
Although the online food delivery sector has been boosted by the impact of the pandemic, sales growth rates have fallen in the years since. The groups have sought to develop new revenue streams to accelerate growth, such as grocery delivery and higher-margin advertising businesses.
Uber is credited with increasing overall sales, increasing the number of users and improving economies of scale by expanding the range of services it offers.
The maturing industry is also witnessing a period of consolidation, with some players exiting certain markets and others looking to double down on locations they believe they can dominate.
US-focused DoorDash previously told the FT it was looking to break into new markets, while Delivery Hero announced in May that it planned to sell its Taiwan business to Uber to “focus its resources” elsewhere. In January, the German group also sold its minority stake in London-listed Deliveroo.
Historical deals also hit the bottom lines of some of the four companies, however, with sharp declines in industry valuations leading to write-downs.
The extent of JET’s losses in 2022 and 2023 was driven in part by a total of $6.5 billion in write-downs from the businesses it acquired, with write-downs mostly related to Grubhub, which JET has been fighting since 2022, and Just Eat. Delivery Hero also reported significant recent write-downs totaling about $1.7 billion in 2022 and 2023.
The damages could indicate that the acquisition or merger did not “work out” as expected, Aon’s Benincasa Arena said. Consistent write-downs can mean a company is “entering the wrong markets through an acquisition or not executing operations correctly in those markets,” she said.
Costs related to employee stock awards also hit operating profit, with DoorDash reporting more than $1 billion in such costs in 2023.
Operating losses from listing on the stock exchange:
JET: operating losses of $9.1 billion since the merger of UK-based Just Eat and Netherlands-based Takeaway.com in 2020.
Delivery hero: operating losses of $7.8 billion since 2017 when it was listed.
DoorDash: operating losses of $2.6 billion from 2020 when it was listed.
Deliveroo: operating losses of $777 million from 2021 when it was listed.
Deliveroo said: “We continue to make strong progress against our strategic priorities and remain confident in our ability to deliver profitable growth.”
DoorDash said it has “invested billions” to help merchants “build successful businesses,” adding that the company is expected to deliver “[generally accepted accounting principles] profitability over time”.
Emmanuel Thomassin, chief financial officer at Delivery Hero, said the operating losses included “items not considered operationally relevant to the measurement of the company’s economic development”. The company is more focused on other metrics including free cash flow, he added.
JET declined to comment.