Strong Sequential Growth for Deliveroo in Q4, Sign of Robust Demand for Online Food Ordering

Deliveroo reported fourth-quarter results with gross transaction value up 36% (up 11% versus the third quarter) to GBP 1,733 million (36% growth in the U.K. and Ireland and 36% in international) and orders up 42% to GBP 81 million (41% growth in the U.K. and Ireland and 43% in international). For the full year, GTV and order growth was 70% and 73% versus 62% and 68% in our model respectively, with the former (GTV) reaching the high end of guidance (60%-70% GTV growth), a sign of robust online food ordering trends. Deliveroo also confirmed gross profit margin guidance (as a percentage of GTV expected to be 7.50%-7.75% versus 7.5% in our model). On the Amazon partnership (U.K. and Ireland Prime subscribers can sign up for free Deliveroo Plus membership for a year, with unlimited free deliveries for orders over GBP 25/EUR 25. More specifically, since the launch Deliveroo has more than tripled its Plus subscriber base (over 1 million incremental subscribers in our estimates). Although tapping into the vast pool of prime members is an opportunity for Deliveroo (especially if the partnership extends to other countries in future), it's still unclear what percentage of the subscriber uptick is made up of current Deliveroo customers (paid-up subscribers and pay-as-you-go customers) and new customers. Although the unchanged gross profit guidance should provide some comfort, the economic impact of this partnership is still unclear to us (management says lower gross profitability in the short term is offset by incremental value extracted from higher frequencies leading to higher customer lifetime values). Although Deliveroo's 11% UK and Ireland GTV sequential growth in the fourth quarter was higher than Just Eat Takeaway's largely flat numbers (on a sequential basis), Deliveroo's mix is tilted toward higher growth but lower or more uncertain unit economics businesses (grocery, logistical orders). We maintain our GBX 350 fair value estimate and no moat rating for Deliveroo.