Tech

Leila Abboud is a former Bloomberg Gadfly columnist.

Europe is well-stocked with listed takeout delivery companies these days, but it would be foolish to assume there will always be enough investor appetite to go round.

The U.K.'s Just Eat Plc, Germany's Delivery Hero AG and Dutch-based Takeaway.com NV have benefited from easy access to capital and big share price jumps. Meanwhile, venture-backed Deliveroo just raised another $385 million from investors, valuing a still unproven and unprofitable business at more than $2 billion.

Fed Up
Investors have been in the mood for take-out as these shares price rises show
Source: Bloomberg
Delivery Hero went public on June 30

Silicon Valley giants such as Uber Technologies Inc. and Amazon.com Inc. are joining the scrap for urban customers who can't be bothered cooking. More competition means higher marketing costs and a helping hand to restaurants angling for lower commission payments. Of the European crowd, only Just Eat turns a profit because of its domestic dominance and an asset-light model that gets the restaurants to handle deliveries.

Delivery Hero, which reported its first quarter as a public company on Tuesday, aims to be profitable in 2019. For now, losses are widening as it expands across 40 countries. The Rocket Internet SE-backed company reported a first-half net loss of 221.4 million euros compared to a 125.5 million euro loss in the same period last year.

Growth Recipe
Delivery Hero sales are growing rapidly but it remains unprofitable as it spends to grow
Bloomberg

Unlike its competitors, Delivery Hero is playing both ends of the food delivery market. Like Just Eat, it has a higher-margin business where restaurants handle delivery and a Deliveroo-style premium brand called Foodora that employs its own bike couriers. It's been adding lots of staff to build a logistics arm to handle deliveries.

But that higher cost part of the business needs a higher average bill to turn a profit. Even as growth-hungry investors throw money at Deliveroo, no-one's yet shown that Just Eat is wrong to steer clear of hiring its own riders.

Indeed, one wonders whether Delivery Hero would've made this move if Rocket Internet hadn't owned Foodora. Delivery Hero bought the business from Rocket in 2015 for an undisclosed price. In the first half, Delivery Hero's delivery services brought in about 16 percent of sales while commissions accounted for 65 percent.

The hybrid model largely explains why Delivery Hero trades at a discount to Just Eat and Takeaway.com. Its enterprise value is 6.4 times its expected sales in 2018, according to Morgan Stanley, versus 7.3 times for Takeaway.com and 7.7 times for Just Eat. The Rocket-backed company has probably hedged its bets a little more prudently than Deliveroo. But catching up with its listed peers will need some pretty special sauce. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net