On Thursday, Bernstein maintained its Market Perform rating for Deliveroo (OTC:DROOF) Holdings PLC (ROO:LN) (OTC: DROOF) with a steady price target of £15.00. Deliveroo's full-year 2023 results were released earlier today, showing a slight outperformance in Adjusted EBITDA, which was up by 5%, and revenues that met expectations.
The company has guided a growth in Gross Transaction Value (GTV) of 5-9% in constant currency terms for fiscal year 2024, with an Adjusted EBITDA forecast between £110 million and £130 million, and a positive Free Cash Flow (FCF) expected for the entire year.
Deliveroo's guidance for fiscal year 2024 suggests that most of the GTV growth is anticipated in the second half of the year, requiring a significant uptick in customer and order growth as the Average Order Value (AOV) growth is predicted to slow down.
The midpoint of the guidance implies an Adjusted EBITDA margin of 1.5%, which is a year-over-year expansion of 30 basis points. Current consensus estimates are leaning towards the upper end of the guidance, with an expected 7% GTV growth in reported currency, £128 million in Adjusted EBITDA, and £55 million in FCF for fiscal year 2024.
The company's performance in the first quarter of 2024 is expected to be similar to the fourth quarter of 2023, with approximately 4% GTV growth in constant currency. This is slightly below the full-year growth range, indicating management's anticipation of continued top-line acceleration throughout the year. Deliveroo has also seen improvements in FCF, with the second half of 2023 at a negative £10 million, but it is expected to turn positive as the Adjusted EBITDA margin expands.
In the breakdown of Deliveroo's segments, the UK and Ireland (UKI) sector exhibited faster growth with better margins at 6.1% for the second half of 2023, surpassing consensus expectations by 26 basis points. However, the International segment grew by 2.7%, falling short of consensus expectations by 30 basis points. The Adjusted EBITDA margin for the International segment also saw a decline of 20 basis points compared to the first half of 2023, which raises some concerns.
Despite these challenges, the overall gross margin for the second half of 2023 aligned with consensus at 10.2%, although it showed a 20 basis point reduction from the first half of the year. This was primarily due to a lower gross margin in the UK and Ireland at 10.7%, possibly due to promotional efforts aimed at reinvigorating growth, such as offering discounts like £7 off 7 orders.
Deliveroo's management call, scheduled for 0900 GMT, is expected to address questions on the strategies for growth acceleration in fiscal year 2024 and the ongoing challenges in the International market regarding both growth and margins.
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