Hard times, very hard, for food delivery. We know something about this in Italy where some of the main brands have raised the white flag: think of Uber Eats, the Turkish Getir and Domino’s pizza. Now, however, it is clear that the situation is deteriorating, and not only in Italy. The litmus test is given by three brands: Delivery Hero, Just Eat Takeaway.com and Deliveroo. 

The combined value of the three European companies, from the peak of september 2021, shows a loss of over 75%: in three, in short, they have lost over 50 billion dollars of combined market value from 2021 to today. It is therefore logical that concerns about their long-term potential are increasing. Put simply, weak profitability and slowdown in growth affect investor interest.

Uber Eats, Uber’s food delivery service, operates in key European markets such as the UK, Spain and Germany, but its performance is poor. Deliveroo, on the other hand, recorded growth of 60% this year, but remains about 65% below the peak of august 2021. The industry, analysts say, "must regain shareholder confidence", given the performance of the past two years. "There is still a lot to be done to achieve profitability on a sustainable basis", experts say: and here they explicitly refer to Uber Eats' European rivals who "still have to recover from the crisis".

Although adjusted ebitda suggests a recent improvement, the industry’s actual losses are higher. Delivery Hero, for example, recorded a loss of 821 million Euro on income in the first half of the year, even though adjusted ebitda went up by items such as interest costs and share-based compensation. With a decline of more than 25% this year, the stock performance of Delivery Hero and Just Eat contrasts with the strong earnings of the US company DoorDash which, together with ride hailing company Uber Technologies, saw its share price at least double. 

"Some investors rightly question the validity of the profitability and free cash flow targets, as they are correct measures -explains William Woods, analyst at Bernstein, one of the world’s top rating agencies-. For management, providing guidance on an unadjusted basis could be an important step towards attracting more investors".

According to analysts, it will be more important to increase operational efficiency, for example by stacking nearby delivery orders in one solution. Also because, the next stage of margin improvement will be more difficult: companies, in fact, have already reduced marketing expenses, increased service costs and abandoned the high discounts. 

To make the situation more difficult we also put the growth of sales, which is subject to strong pressure: forecasts say that the value of orders registered on the Just Eat platform this year will decrease, because customers reduce their take away spending because of high inflation. The gmv, that is the gross value of the goods of the other two operators, that is Delivery Hero and Deliveroo, should increase but well below the levels seen in 2020 and 2021. 

Growth, in short, is still to come, as if to understand. Bernstein explains why: key European markets have been well penetrated after a period of strong expansion. That is why the rating agency expects an annual gross increase of 5% or less for Deliveroo and Just Eat over the next five years.

The three European companies have tried to reduce losses and analysts predict that next year will generate a positive free cash flow. Competition also shows signs of slackening after companies reduced their customer subsidies and exited non-strategic markets. Moreover, the growing optimism for a potential monetary easing could give the sector a boost, but only next year. The transactions could also give a boost: Delivery Hero is negotiating to sell part of the assets in Southeast Asia and Just Eat is considering selling Grubhub in the US.

"We think that this will be an element that will rekindle the interest of investors in space, if we see something more concrete in terms of consolidation," analysts of Citigroup say.