Improved Mobile Connectivity And Urbanization Will Expand Delivery Opportunities

Key Takeaways

• Cross-vertical adoption, tech upgrades, and localized logistics are driving user frequency, cost efficiencies, and margin expansion beyond analyst expectations.
  
• Accelerating mobile adoption and organizational agility position the company for strong growth and competitive advantage in underpenetrated emerging markets.
  
• Rising regulatory, labor, FX, and competitive pressures threaten Delivery Hero's profitability, margin stability, and reinvestment capacity, increasing operational costs and constraining earnings growth.

Catalysts

Offers online food ordering and delivery services.

• Analyst consensus sees multi-vertical expansion and customer experience improvements as supporting higher growth, but results are likely to be far more powerful than expected, with increasing cross-vertical adoption boosting frequency and spend per user by over five times, potentially driving revenue and GMV growth at a pace not yet reflected in current estimates.
  
• While analysts broadly expect subscription and own-delivery rollouts in Korea and emerging markets to improve margins and efficiencies, the evidence suggests that logistical integration and tech upgrades are improving delivery economics and reducing costs faster than anticipated-with cost per order dropping 9.5% and delivery utilization up 18%-setting the stage for sustained and outsized operating margin expansion group-wide.
  
• As smartphone penetration and mobile internet connectivity accelerate in underpenetrated emerging markets, Delivery Hero is positioned to capture a massive untapped customer base, creating strong upside risk to long-term topline growth and expanding frequency of use, especially in Asia and MENA.
  
• Delivery Hero's unified yet deeply localized technology stack allows rapid rollout of proprietary logistics, automation, and new verticals, which could unlock structural cost advantages and speed to market, leading to above-industry improvements in net margins and competitive defensibility.
  
• Ongoing broad-based leadership changes and focus improvements, as seen with the Foodpanda turnaround, indicate organizational agility that will support high operating leverage and rapid order growth even in challenging or formerly lagging geographies, likely accelerating positive impacts for group earnings and cash flow.

Delivery Hero Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Delivery Hero compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Delivery Hero's revenue will grow by 13.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -4.2% today to 6.1% in 3 years time.
• The bullish analysts expect earnings to reach €1.2 billion (and earnings per share of €4.47) by about August 2028, up from €-560.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from -12.0x today. This future PE is lower than the current PE for the GB Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 2.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Delivery Hero Future Earnings Per Share Growth

Risks

• Substantial upcoming payments and contingent liabilities from legal cases and regulatory changes in Spain and the EU, notably the €450 million rider reclassification demand and the €329 million antitrust settlement, are likely to increase operational costs and reduce net income and free cash flow over the next several years.
  
• The accelerated move to employment-based workforce models in key European countries, including the employment of approximately 30,000 riders in Spain, introduces higher fixed labor costs and inefficiencies during transition periods, leading to margin compression and long-term pressure on EBITDA.
  
• Persistent and substantial FX headwinds, especially due to the depreciation of the U.S. dollar and Korean won, have led to repeated guidance downgrades and reduced visibility for earnings, making future net income and free cash flow more volatile and limiting the company's ability to reinvest in growth.
  
• The aggressive ramp-up of own delivery services, particularly in South Korea and Turkey, involves significant incremental investments, which, despite long-term efficiency gains, currently yield lower per-order margins compared to the marketplace model and risk delaying sustainable profitability at group level.
  
• Ongoing high competitive intensity in major markets such as Korea, Saudi Arabia, and Turkey is resulting in increased marketing and operational expenditures to maintain market share, potentially eroding revenue growth rates and putting further downward pressure on net margins and earnings.

Valuation

• The assumed bullish price target for Delivery Hero is €50.1, which represents two standard deviations above the consensus price target of €34.1. This valuation is based on what can be assumed as the expectations of Delivery Hero's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €52.0, and the most bearish reporting a price target of just €21.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €19.5 billion, earnings will come to €1.2 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of €22.68, the bullish analyst price target of €50.1 is 54.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.