Urban Demand And AI Logistics Will Expand Market Reach

Key Takeaways

• Expanding technology, network partnerships, and verticals like grocery and advertising are enhancing operational efficiency, market differentiation, and overall profitability.
  
• Rising urbanization and demand for convenience are boosting order frequency, recurring revenue, and customer retention, strengthening Deliveroo's sustainable growth trajectory.
  
• Increasing taxes, competitive pressures, wage inflation, and expansion challenges are squeezing profitability and limiting Deliveroo's prospects for sustained revenue growth and market share gains.

Catalysts

A holding company, operates an online on-demand food and non-food delivery platform in the United Kingdom, Ireland, France, Italy, Belgium, Hong Kong, Singapore, the United Arab Emirates, Kuwait, and Qatar.

• Ongoing growth in urban population density and smartphone adoption is increasing the frequency and breadth of orders across Deliveroo's core restaurant, grocery, and retail verticals. This is driving higher gross transaction value (GTV) and underpins sustainable revenue growth.
  
• Increasing consumer expectation for convenience and time-saving solutions is strengthening customer engagement, as evidenced by rising order frequency, improved retention, and all-time highs in Plus subscriber counts-positively impacting recurring revenue and supporting higher earnings quality.
  
• Enhanced technology and AI-driven logistics-such as improved order stacking and reduced delivery defects-are supporting better cost control and operational efficiency, leading to improved EBITDA margins and sustainable profitability.
  
• Expansion into higher-margin areas like rapid grocery delivery, retail, and advertising broadens Deliveroo's addressable market and supports growth in gross profit and net margins, over and above core restaurant delivery revenues.
  
• Strengthening network effects through growing partner ecosystems (restaurants, grocers, retailers) and exclusives (like Editions) is differentiating the platform, driving higher order volumes, and reinforcing barriers to entry-all supportive of accelerating topline and bottom-line growth.

Deliveroo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Deliveroo's revenue will grow by 9.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.3% today to 8.7% in 3 years time.
• Analysts expect earnings to reach £245.4 million (and earnings per share of £0.11) by about August 2028, up from £-28.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from -92.0x today. This future PE is lower than the current PE for the GB Hospitality industry at 19.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.59%, as per the Simply Wall St company report.

Deliveroo Future Earnings Per Share Growth

Risks

• Increased exposure to the UK digital services tax and potential for further digital taxation initiatives in key markets, which have already begun to drag on Deliveroo's take rate and could further compress net margins and profitability.
  
• Ongoing mix shift towards lower-margin verticals like grocery, retail, and QSRs, as well as Plus loyalty orders, is diluting unit economics and take rates, which could limit long-term revenue growth and pressure gross profit margins.
  
• Heightened competition-evident in "softer market conditions and the competitive environment" noted for France and the need to "take share" in the UK-may drive up marketing costs and force commission reductions, impacting Deliveroo's market share, revenue, and earnings potential.
  
• Rising wage inflation (e.g., "national insurance and minimum wage has increased" in the UK) and related regulatory changes expose Deliveroo to higher operating expenses; sustained cost increases could negatively impact net margins even if top-line growth continues.
  
• Historical challenges and volatility in international expansion (e.g., exit from Hong Kong, past struggles in Spain and Germany) suggest Deliveroo may be limited in capturing global addressable market share, constraining future revenue growth and long-term earnings scalability.

Valuation

• The analysts have a consensus price target of £1.817 for Deliveroo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.0, and the most bearish reporting a price target of just £1.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.8 billion, earnings will come to £245.4 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of £1.77, the analyst price target of £1.82 is 2.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.