Deliveroo Delays Profitability Target, Citing Weak Consumer Spending

Deliveroo shares plunged 9% on Thursday after the food delivery company pushed back its profit margin target, blaming a slower-than-anticipated recovery in consumer spending, particularly in international markets. The drop erased a year's worth of gains for the company's stock.

While Deliveroo reported its first full year of statutory profit, at £2.9 million ($3.8 million) compared to a £31.8 million loss in 2023, and positive cash flow, the revised outlook overshadowed the positive results. Core earnings reached £129.6 million, at the top end of guidance.

CEO Will Shu had previously aimed for a 4% core earnings margin "by 2026," but now expects margin growth to accelerate "from 2026," reaching 4% in the medium term. "The consumer market since our capital markets event hasn't been the smoothest," Shu explained in an interview.

The revised forecast comes on the heels of Deliveroo's announcement on Monday that it would exit the Hong Kong market. The company will sell some assets to Delivery Hero's Foodpanda and close others, ending its nine-year presence in the city. Shu described Hong Kong as "by far the most promiscuous market in terms of user behaviour and the most discount-led," highlighting the intense price wars driven by competitors like Foodpanda and Meituan's KeeTa.

KeeTa, which launched in Hong Kong in 2023, rapidly gained market share through aggressive promotions and lower prices. According to Measurable AI, KeeTa's average order value is about HK$60 lower than Foodpanda and Deliveroo's. This aggressive discounting strategy, fueled by Meituan's success in China, proved too challenging for Deliveroo, which focused on higher-end restaurants and premium pricing. Meituan, with a market value exceeding HK$1.06 trillion ($136 billion), is also expanding aggressively in other regions, including the Middle East.

Deliveroo's Hong Kong exit is also under scrutiny by the city's privacy watchdog. The Office of the Privacy Commissioner for Personal Data has initiated a compliance check to ensure the proper handling of customer and delivery rider data during the transition. The watchdog emphasized the need to prevent misuse, leakage, or fraudulent use of personal information.

The company's struggles reflect a broader trend of consolidation in the food delivery industry, which is grappling with a return to pre-pandemic growth levels. Recent examples include Prosus NV's acquisition of Just Eat Takeaway.com and the blocked attempt by Uber to acquire Delivery Hero's Foodpanda operations in Taiwan.

Despite the setback, Shu emphasized that growth in gross transaction value (GTV) had improved in the second half of 2024, with order growth in its core UK and Ireland market accelerating each quarter. He stated that "Q1 trading has been good" and that Deliveroo would focus on "levers in our control," such as value offerings and tiered membership programs. The Hong Kong exit leaves Deliveroo operating in seven international markets in addition to the UK and Ireland.

Jefferies analysts acknowledged the revised margin timeline as a "blemish" but noted that consensus forecasts were already lagging behind the original target.