Food delivery – One hero, many zeros.

Delivery Hero has its sights on global leadership.

• Delivery Hero is making the most of the hand that it has been dealt with revenue growth at 100% and heavy investments being made in order to secure its long-term position.
• Delivery Hero has had an excellent Q2 2020 which has caused it to preannounce Q2 2020 and raise its guidance for the full year.
• Q2 2020 gross merchandising volume was up 64% at €2.8bn while revenues grew by 96% YoY to €612m.
• This gives H1 2020 revenues of €1.127bn which is 22% above the H1 2020 consensus revenue estimate of €921m.
• As a result Delivery Hero has increased its full-year guidance by €200m from €2.4 – €2.6bn to €2.6 – €2.8bn which I think is pretty conservative.
• Delivery Hero has effectively just taken the outperformance it delivered in H1 2020 and added it onto the full-year total meaning that it is expecting the rest of the year to be as it previously expected.
• In contrast, the pandemic is not going away anytime soon and so I think that elevated demand for its services is here to stay meaning that H2 2020 is also likely to remain at the current elevated level.
• Hence, I expect that in late October, it will once again raise its guidance for the full year.
• None of this extra revenue will be making its way back to shareholders in the form of profits just yet.
• Instead, the company is investing in entering the Japanese market as well as shoring up its position in its other Asian territories as well as at home in Europe.
• This is the never-ending battle that will continue until there is one dominant player in each market that has become the go-to place to order food, groceries, pharmacy items, flowers and so on.
• This is going to take some time and so any hopes of fat margins and a healthy dividend remain far off.
• To be fair to the company, this is the perfect time to invest because financing is more difficult to come by and its competitors are weaker than they were just 6 months ago.
• Delivery Hero is a market place where buyers (diners and shoppers) transact with sellers (restaurants and delivery drivers) meaning that there are very few barriers to entry other than market share.
• The company is clearly aiming to build this barrier and it is going to take a little time before the majority of its competition has been forced to consolidate or exit the market.
• Delivery Hero is shaping up to be one of the winners in this space but the shares are far from cheap at €20bn.
• However, they are far cheaper than its US-based peers which combined with the fact that it operates in Euros where the currency debasement has been far less, makes it attractive.
• Hence, I would look at this if I had to have something, but the market overall continues to look unattractive, so I am staying out.