Down 75%, has the Deliveroo share price bottomed?

The last 12 months have been torrid for the Deliveroo share price. But does this open an opportunity to grab the stock? This Fool explores.

Charlie Keough

Charlie Keough is a freelance investment writer. Prior to joining the Motley Fool UK, he worked for a global asset management company. He has also spent time working at a corporate finance boutique focused on sell-side M&A. He aims to buy blue-chip high yield stocks that he can hold in his portfolio for the decades to come.

Published 13 August, 2022 9:30 am BST

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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.

Since its IPO back in March 2021, the Deliveroo (LSE: ROO) share price has been on some journey. After initially tanking, the stock saw its price surge as pandemic restrictions saw locked-down consumers taking full advantage of its services. At times, Deliveroo stock has flirted with the 400p mark.

However, a Covid hangover has seen it once again suffer. In the last 12 months, Deliveroo has fallen a massive 75%. This year alone it’s down 53%.

So, could it possibly fall some more? Or would picking up Deliveroo shares now be a smart move?

Half-year updates

Late July saw the business update investors with its second-quarter trading performance. While the group saw a small growth in gross transaction value (GTV), headlines were stolen by the decision to downgrade its full-year GTV growth outlook from between 15% and 25%, to somewhere closer to the 4% to 12% range. With the firm pinning this to “a more cautious economic outlook,” given the way 2022 has played out, this isn’t a surprise.

More recently, Deliveroo provided shareholders with its performance for the first six months of the year, in which it warned of rising pressures from the higher cost of living. While revenues were up 12%, losses before tax grew to £147m, up from just £95m the year prior. Its adjusted EBITDA also sat at a loss of £68m, a large rise from the £26m seen in H1 2021. With that said, this figure had been trimmed compared to H2 2021.

Where next?

After this, what’s next for Deliveroo?

Its most pressing issue is inflation. While this has pushed up staff costs, the cost-of-living crisis has also seen consumers tighten their belts as they cut back on takeaways. With inflation expected to peak at 13% this year, the second half of 2022 could only see further cutbacks on the part of customers.

What also worries me about the business is its inability to turn a profit. Despite a booming 2021, it still posted losses of £300m. Although it’s confident in its EBITDA margin guidance, along with stating that its balance sheet “remains strong,” this is obviously a concern.

One area that provides me with hope is the partnerships that the firm managed to strike. This includes the likes of McDonald’s and WHSmith.

More recently, it also announced a new relationship with Asda for the rapid delivery of groceries. With the deal in place for 15 stores, there are plans to expand the partnership to 300 Asda stores by the end of the year. The hopeful rise in business from deals like these should help Deliveroo offset rising costs.

Would I buy?

So, has the Deliveroo share price bottomed? And should I buy?

The business has shown glimmers of its potential over the last few years. But I won’t be buying any shares today. I think Deliveroo will struggle further into the year as rising costs eat away at its bottom line. Its lack of profit is also of concern to me. Regardless of the drastic fall, I’ll be avoiding Deliveroo for now.