So good to buy now or not yet?
1. Deliveroo ought to be mad profitable, because (other than customer acquisition costs) they've offloaded all variable costs to drivers and restaurants. Taking one more order means the restaurant needs more ingredients and the driver needs more fuel. But Deliveroo just need one more row in a database. How can they possibly lose money?
2. The company has a moat, in the form of drivers/restaurants/brand recognition/customers/app installs. They could raise their prices and become profitable immediately if they wanted to, they're just investing all the money in growing the business.
3. Even if they're inherently unprofitable now, if they can buy enough market share eventually economies of scale, like drivers making more deliveries per route, will make them profitable.
4. If investors continue to subsidise their growth, one day so much order volume will go through them that they can shake down restaurants for an even larger cut of each order.
5. Even if the company never becomes profitable in its current form, the future is robot kitchens/drone deliveries/driverless cars, and their moat will let them dominate that market.
6. Even if the company never becomes profitable in its current form, in the future nobody will cook or even have a kitchen. Their moat will let them dominate that market.
Of course, it's possible none of the stories above are true:
1. If they have a moat, how is it Just Eat, Deliveroo, Uber Eats, DoorDash and half a dozen smaller competitors are all in the same market?
2. If they'll be profitable through economies of scale, why hasn't the last 12 months done that? Delivery has been absolutely dominating the prepared food landscape. In-person dining is closed. Lots of people are looking for work - while people who've been lucky enough to work from home have saved loads of cash they would have been spending in the hospitality industry. If this unprecedented advantage hasn't been enough for them to make a profit, will anything be?
3. Is it really likely that a company smart enough to develop self-driving cars or workable delivery drones will be unable to launch a competing app? Even though they'll be able to offer much lower prices? Oh, some delivery companies might claim they're developing drones themselves, but everyone knows 99% of drone delivery PR have no tech behind them, and a manual pilot hiding behind the camera.
Personally, I won't be rushing out to invest.
You seem to be assuming it will be good to buy sometime...
In the case of solar panels, we *all" owe a debt of gratitude to China for commoditising a market that we all needed. It's industrial policy, yes. But even more because the product is strategic in other ways too.
In the case of Deliveroo and the like, it's another example of capital markets still haven't figured out how to price the capital / tech-growth new calculus that started with Amazon.
Deliveroo may turn out to be a harbinger, or markets may revert to dumb credibility in eventual tech-growth.
- The pandemic has meant more traditional chain restaurants embracing delivery (me personally in UK that has been Nandos, Wagamama being available to me via Deliveroo).
- There space for more premium restaurants to reach individuals at home, from what I have seen they prefer to own the whole chain (own website, driver network). Interesting if this expands and they decide to partner with provider. I would think Deliveroo would win here over JustEat (just my view).
- The whole driver situation is in a state of flux. There is a good paper here* that describes what's going on in gig worker fuelled platform companies as 'pre-automation'. Essentially they are keeping employees at arms length and 'taskifying' all activities with a long term view of automating away the human component with technology (Drones, Autonomous Cars...). This is where the margins start to look more attractive for companies like Deliveroo but the capital investment upfront along with political / legal issues means this will be painful.
* Pre-Automation:Insourcing and Automating the Gig Economy https://sociologica.unibo.it/article/view/11657/12290
In UK at least, they're seen as the 'premium' food delivery option (mainly restaurants, rather than takeaways) - and that's good. What's not so good, is that brand aside, I'm not sure what makes them unique. Speaking to their riders (and Uber drivers) their workforce isn't particularly loyal and have a few different phones for the few different gig-companies they work for. Somebody comes along and offers them more money (say a company that doesn't have to provide a return to investors) and their riders will vanish from the streets overnight - and everybody will seamlessly switch.
Deliveroo will be the Yahoo of food delivery.
Indeed.
So premium that I now always check other services (particularly Just-eat) to see if the restaurant is on them, as the price differential has been as much as 25%. Over £10 on orders in the £40-50 range!