Why the Deliveroo share price might now be justified

After positive Q3 results and improving worker conditions, Charles Archer thinks now might be the time to add Deliveroo to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

On 12 August, I asked whether the Deliveroo (LSE: ROO) share price was justified. At the time, I had two major concerns for its valuation. First, I was worried Deliveroo’s revenue would fall as restaurants opened up. Second, I was concerned that its independent contractors could be reclassified as more expensive employees. So I decided to wait for more information.

I’m glad I did. The Deliveroo share price has fallen 17% since then, from 362p to 300p as I write. But it’s up 24% in the past six months, and 4% in the past year. And after today’s Q3 results, I’m now tempted to add some shares to my portfolio.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Q3 results

The company’s key takeaway was “continued strong performance, with robust consumer engagement post-re-openings”. Full-year gross transaction value growth guidance was increased to 60%-70%. Investors were previously told to expect an increase of 50%-60%. GTV in Q3 alone was £1.6bn, a 58% year-over-year increase.

However, the company’s monthly active users fell by 300,000 to 7.5m. That’s a big concern for a growth stock. But average customer frequency stayed stable at 3.3 times a month in Q3 “despite the widespread removal of lockdown restrictions”. Some perspective is important though. Orders were up 64% to 75m orders in Q3 2021 compared to Q3 2020. And the company has expanded its food offering to 10,000 grocery delivery partners. 

CEO Will Shu commented that he expects the Deliveroo share price to show “further strong performance in the remainder of the year”. This positivity is exactly what I was looking for back in August.

Partnership promise 

On 15 September, the company launched a successful Plus partnership with Amazon. All UK and Ireland Amazon Prime subscribers are now entitled to a year’s free Deliveroo Plus membership. This grants subscribers unlimited free delivery on orders over £25/€25. Since the partnership started, Plus membership has doubled. And many of these new subscribers will be using the Deliveroo for the very first time.

It has also seen promising results from the launch of Deliveroo Hop, a London-based trial in partnership with Morrisons. Customers will be able to get grocery deliveries in as little as 10 minutes. And because availability is updated in real time, there’s no substitutions. Deliveroo has also launched a new partnership with Boots. Deliveroo is now delivering to every town in the UK with a population of over 50,000 people. I think it could become the primary delivery partner for most of the high street. 

Legal issues for the Deliveroo share price

In August, I was worried that the February Supreme Court ruling over Uber that forced it to reclassify some contractors as employees. This precedent could possibly be extended to Deliveroo contractors. However, my concerns have been somewhat alleviated. That’s because Deliveroo has enhanced benefits for most of its contractors, including parental leave and sick pay. UK Deliveroo riders now receive a £1,000 payment after the birth of a child. I think this makes legal action less likely. Contractors who value the freedom of self-employment are now also receiving some of the benefits of employment. 

My bottom line is that Deliveroo has shown continued post-pandemic growth, while also improving contractor conditions. And the Deliveroo share price has fallen 17% just before the lucrative Christmas period. I think now is an excellent entry point for me.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charles Archer owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Deliveroo Holdings Plc, Morrisons, and Uber Technologies and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Lloyds shares are down 10% in 2022. What next?

Lloyds shares have dropped by almost a tenth so far in 2022. But the bank is in good shape to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to aim to use the Warren Buffett method to make a million, starting today

Why do investors love Warren Buffett so much? His 3.6 million percent investment return since 1965 probably has a lot…

Read more »

Various denominations of notes in a pile
Investing Articles

3 big income stocks hiding in plain sight

There are plenty of high-paying income stocks flying under the radar right now. Paul Summers offers three examples he likes.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 FTSE 100 shares I’m buying in July

Andrew Woods wonders whether these two FTSE 100 shares could bring growth to his portfolio and if he should add…

Read more »

positive mental health woman
Investing Articles

2 dirt-cheap stocks investors should buy to hold until 2030!

Recent market volatility means lots of UK shares now offer brilliant value. Here are two ultra-cheap stocks on my radar…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

My top 7 dividend shares to buy as inflation soars

Dividend shares can be an excellent way to earn some passive income. Our writer considers seven top picks to help…

Read more »

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »