Deliveroo Shares Rise After FY Margin Guidance Revised Higher

By Scott Kanowsky 

Investing.com -- Shares in Deliveroo Holdings PLC (LON:ROO) jumped on Friday after the food delivery service upgraded its guidance for full-year core income margin.

The British company now expects adjusted earnings before interest, tax, depreciation and amortization margin to slide by between 1.2% - 1.5%, up from the prior estimate of a decline of 1.5% - 1.8%.

According to analysts at Morgan Stanley, a return in the midpoint of that range implies a core earnings loss of £95M, which would be above 2022 consensus expectations for a drop of £115m.

Deliveroo said the decision stemmed from continued gross profit margin expansion and lower spending on marketing.

"Throughout 2022 we have been adapting financially to the operating environment and driving forward on our path to profitability, and we now expect the H2 2022 adjusted EBITDA margin to be better than our previous guidance. We continue to be excited about the opportunity ahead and our ability to capitalize on it," said Founder and Chief executive officer Will Shu in a statement.

Despite the upgrade, the company still warned that annual gross transaction value (GTV) growth would now come in at 4% - 8%, which would be in the lower end of its previous target of 4% - 12%. The firm cited the impact of surging living costs leading households to cut back on expenditures like takeaway meals.

These inflationary pressures, along with the seasonal effects of summer in European markets, also caused third-quarter GTV to contract 5% versus the prior three-month period.

However, Deliveroo backed its aim to post breakeven adjusted EBITDA in late 2023 to early 2024, saying it is confident that it can adapt to a rapidly changing macroeconomic environment through gross margin improvements and tight cost controls.

Shares in Deliveroo are down by more than 72% over the past one-year period.