While food delivery stocks have experienced turbulence lately, the Royal Bank of Canada said there was potential for shares to “meaningfully recover” as start-ups approach profitability.
Former City darlings Deliveroo and Just Eat Takeaway have seen their share prices plummet by some 72 per cent and 77 per cent in the past year, despite blockbuster public listings.
The sector is also facing a challenging time with warnings that the cost of living crunch will see Brits cutting back on takeaway treats as household bills sky-rocket.
Shares could be restrained in the short term as firms slash growth outlooks to focus on profitability and consumers cut back on discretionary spending, the note published by analyst Sherri Malek acknowledged.
However, there was “potential” for shares to “meaningfully recover” within the next year, Malek said.
Analysis of the app usage of more than 1,750 consumers in the UK and US found that cumulative app downloads to date are lower than pre-Covid levels, especially in Europe.
The growth of users has decelerated or declined in recent months for all listed firms, RBC added.
Analysts suggested investors place their bets on Germany’s Delivery Hero, which it estimated could make a €27m profit next year, shifting from a previously forecast loss.
However, it said rival Just Eat Takeaway had to “continue to invest in order to defend its market positions,” and its app analysis revealed the firm was underperforming peers in the “majority of its markets.”
However, Just Eat Takeaway’s market leadership “appears to remain strong in Northern Europe, where competition is lower,” the note saisd.
Consumer sentiment towards food delivery players was “relatively negative,” especially in the UK, RBC said.
Uber Eats recently surged past Deliveroo as the operator with the best TrustPilot and social media ratings in the UK.
In its latest trading update, Deliveroo slashed its sales forecasts as it predicted the rising cost of living would lead to a slowdown in consumer spending this year.
Deliveroo said that total transactions on its platform hit £3.56bn in the first half of the year had- a seven per cent rise year-on-year – but bosses warned economic headwinds in the months ahead would lead to growth in the range of 4-12 per cent, down from previous guidance of 15-25 per cent.
The slashed forecast comes after London-listed delivery firm said growth in transactions slowed from 12 per cent in the first quarter to two per cent in the second quarter.
Bosses said they were now preparing to tighten spending to shore up the balance sheet in the months ahead.
“Management is confident in the Company’s ability to adapt financially to a rapidly changing macroeconomic environment, through gross margin improvements, more efficient marketing expenditure and tight cost control,” they said in a statement.