August 2, 2018 / 10:55 AM / a year ago

Delivery Hero says investments to hurt profitability, shares fall

(Reuters) - German food delivery platform Delivery Hero (DHER.DE) said on Thursday it would not break even on a monthly basis this year as it plans to invest an additional 80 million euros ($93 million) to stimulate growth, sending its shares lower.

The online takeaway business has boomed in recent years, and firms such as Delivery Hero, (TKWY.AS) and Just Eat (JE.L) have spent heavily in order to gain greater market share.

Delivery Hero said due to investment costs, it does not expect to reach its target to break even on an adjusted EBITDA basis on a monthly level by the end of 2018 and in the full year 2019.

This overshadowed the company’s raised revenue guidance, now expected between 760 million and 780 million euros in 2018, against previous guidance of 740 million to 770 million euros.

Its Frankfurt-traded shares fell by up to 8 percent after the announcement but recovered to be 1.6 percent lower at 0938 GMT.

Chief Executive Niklas Östberg said in a media call it was difficult to speculate when the company will reach breakeven.

He added that one of the markets where it will increase investments is Germany where it is battling for control against Dutch rival

The company said it would continue investing at similar levels during 2019, which will also add about 25 million euros to next year’s revenue.

“We’ve long anticipated that across the sector EBITDA guidance will be shelved in the face of the massive secular growth opportunity ahead,” Jefferies analysts said in a note.

“We’ve seen Just Eat punished for this of late - it’s now Delivery Hero’s turn to test the market’s appetite for more revenue at the cost of an elongated EBITDA inflection.”

Just Eat said on Tuesday it would spend more on technology and delivery services to stay ahead of rivals.

Delivery Hero, which operates in more than 40 countries, said its first-half revenue rose 60 percent on a like-for-like basis to 357 million euros, driven by strong order growth in Middle East and North Africa and Asia.

In the six months to the end of June, orders grew 46 percent to 184 million, while the adjusted EBITDA margin came in at negative 15 percent.


In addition to increased investment, Delivery Hero announced plans to sell its operations in highly competitive markets Australia, France, Italy and the Netherlands. spokesman Joris Wilton told Reuters his company would “certainly consider” buying the Dutch Foodora operations from Delivery Hero, as it would add a number of food deliverers.

Delivery Hero’s investment plans would not change much in the battle for German customers, Wilton said. said on Wednesday its revenue in Germany rose 45 percent in the first six months of 2018 to 39.2 million euros, with order growth accelerating in the second quarter.

Delivery Hero does not publish quarterly revenue numbers for Germany, but in the full year 2017 it had revenue of 90.3 million euros in its home market, while Takeaway reported 57.9 million euros.

“We both grow very nicely, but I still think there is a big gap there”, Östberg said during the call when asked about its main competitor in Germany, but he declined to give details. said it would continue to invest as it guided for an unspecified loss over 2018 without providing a timeframe for when the company might break even.

Additional reporting by Bart Meijer; editing by Emelia Sithole-Matarise and David Evans

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