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What's going on?
British-based delivery company Deliveroo gave a disappointing trading update on Monday.
What does this mean?
Food delivery companies are in a tough spot: cash-strapped customers are shunning increasingly expensive takeouts, and those that do want restaurant-quality food are more likely to leave the house now that lockdowns are a distant memory. In fact, Deliveroo reported that its customers spent a measly 2% more on its platform last quarter versus the same time last year – a massive slowdown from the 12% increase it saw the quarter before. That’s unlikely to pick up anytime soon, since consumer confidence is only going in one direction as would-be customers get more worried about rising costs. Maybe that’s why Deliveroo cut its full-year transaction growth outlook from 15-25% to just 4-12%, following in the footsteps of rival Just Eat which slashed its own outlook in April.
Why should I care?
For markets: Deliveroo’s cost-cutting.
Food delivery companies burn a lot of money in hopes of growing quickly, and lately investors have been more taken by businesses that actually turn a profit. That’s slashed Deliveroo’s share price by 60% this year, meaning it’s now down by around 75% from when the company first went public in 2021. But Deliveroo has a plan to win investors over: it’s confident that tighter cost-controls will help it adapt to the changing economy, and even thinks it could break even in the next two years as its marketing costs eat up less cash (tweet this).
The bigger picture: Do you want an ad with that?
Deliveroo also has another revenue stream up its blue, waterproof sleeve: it started selling advertising slots on its website and app this month, so – shock horror – you might see adverts for your nearest 24/7 gym the next time you order pizza. Mind you, it’s not the first to make the move: rivals Jokr and Delivery Hero have been supplementing their main businesses with ad revenue for a while now.
Originally posted as part of the Finimize daily email.
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