Leading online food delivery companies in Europe and the US have suffered more than $20 billion in combined operating losses since their IPOs, following a fierce battle for market share.
Shares in Deliveroo, Just Eat Takeaway, Delivery Hero and DoorDash – the four largest standalone, publicly traded food delivery companies in the US and Europe – are all trading well below their pandemic-era peaks as investors scrutinize their business models.
After a period of pandemic-driven growth, the four companies are now facing a tougher macroeconomic environment that has hit consumers.
As they once again scramble to demonstrate profitability to investors, 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 the 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 share-based compensation.
“Investors’ willingness to finance losses has changed” and they now want food delivery companies to “demonstrate sustainable, profitable growth” after a rise in interest rates, said UBS analyst Jo Barnet-Lamb.
Rival Uber isn’t breaking out the profitability of its Eats business, but it marked its first full year of operating profitability at a group level in 2023 after a concerted effort to boost margins, a moment the company hailed as an “inflection point.”
For years, venture capital groups have poured money into so-called gig economy companies that subsidized food deliveries to lure customers with low prices and gain market share.
However, investors have shifted their focus to profitability as interest rates have risen, even as companies’ operating costs, including marketing, remain high.
The sector also faces constant scrutiny from regulators and union groups over workers’ rights. If couriers were paid higher wages, skeptics have argued that consumers would never be willing to pay for the true costs of food delivery.
Nevertheless, stock market analysts are becoming increasingly optimistic that companies can improve their financial situation. In April, the three European players said they expected to follow DoorDash this year and become free cash flow positive on an annual basis.
The focus on free cash flow follows a long-standing emphasis among companies in the sector on an alternative profit measure – adjusted earnings before interest, taxes, depreciation and amortization – that ignores a range of costs, such as regulatory provisions.
But many people “don’t see it [adjusted earnings metrics] as a true level of profitability of the underlying business,” said Joseph McNamara, analyst at Citi.
Operating losses provide “the best standardized view of all businesses” that minimize adjustments and other non-cash and non-operational impacts, said Amanda Benincasa Arena, partner at management consultancy Aon.
Whether the companies could demonstrate they were generating more money than they were spending was the next big “litmus test,” McNamara added, now that the “growth at all costs” phase was over.
Giles Thorne, an analyst at Jefferies, noted that consumers continued to use the services in recent years “despite having less money and despite having to pay more” – due to fewer discounts and higher inflation – which he said undermined the long-term prospects of supported the sector.
While the online food delivery industry received a boost from the impact of the pandemic, sales growth has declined in the years since. The groups have sought to develop new revenue streams to help accelerate growth, such as grocery delivery and higher-margin advertising businesses.
Uber has credited the broader range of services it offers with helping to increase overall revenue, increase the number of users and improve economies of scale.
The maturing sector is also going through a period of consolidation, with some players exiting certain markets while others look to double down on locations they believe they can dominate.
US-focused DoorDash previously told the FT it was looking to enter new markets, while Delivery Hero announced in May that it planned to sell its Taiwan operations to Uber to “focus our resources” elsewhere. In January, the German group also sold its minority stake in London-listed Deliveroo.
However, historic deals have also hit the bottom line of some of the four companies, with a sharp decline in sector valuations leading to writedowns.
The extent of JET’s losses in 2022 and 2023 was driven in part by a total of $6.5 billion in writedowns on the value of the acquired businesses, with impairment charges mainly related to Grubhub, which JET has struggled to acquire since 2022 repayment, and Just Eat. Delivery Hero also reported significant recent writedowns totaling approximately $1.7 billion in 2022 and 2023.
Impairments may indicate that an acquisition or merger is not “turning out” as hoped, according to Aon’s Benincasa Arena. Continued writedowns could mean a company is “entering the wrong markets through acquisition or is not properly conducting its business in these markets,” she said.
Expenses related to employee stock awards have also negatively impacted corporate profits, with DoorDash reporting more than $1 billion in such expenses in 2023.
Operating losses since listing:
JET: operating loss of $9.1 billion since it was formed in 2020 from a merger of the British Just Eat and the Dutch Takeaway.com.
Delivery hero: operating losses of $7.8 billion since its IPO in 2017.
DoorDash: operating losses of $2.6 billion since its 2020 IPO.
Deliveroo: operating losses of $777 million since its 2021 IPO.
Deliveroo said: “We continue to make strong progress on 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 expects to “[generally accepted accounting principles] profitability over time”.
Emmanuel Thomassin, Chief Financial Officer at Delivery Hero, said the operating losses “include items that are not considered operationally relevant to measure the economic development of the company.” The company is more focused on other metrics, including free cash flow, he added.
Just Eat Takeaway said: “We are pleased to have made significant improvements to our financial performance across all our segments and to return to positive free cash flow in 2023.”
After the initial publication of this story, JET said that operating losses in recent years were “primarily driven by impairments related to intangible assets following equity-financed acquisitions” and “are not related to the actual profitability of our operations in recent years”. The company said it instead preferred to measure its profitability by adjusted EBITDA.