Deliveroo (OTCPK), a UK-based food delivery service, recently experienced a 17% price surge amidst acquisition talks with DoorDash (DASH), although discussions have since ended.
- This article speculates on Deliveroo’s potential acquisition valuation based on comparisons with industry peers and evaluates its performance if no sale materializes.
- Despite positive fundamentals, including projected revenue growth and improved EBITDA, current market valuations do not suggest significant upside if Deliveroo remains independent.
Deliveroo’s Acquisition Talks
Deliveroo, a prominent player in the UK’s food delivery sector, garnered investor attention following a notable price increase driven by acquisition rumors with DoorDash.
Although talks have ceased, the possibility of acquisition remains open, prompting speculation on Deliveroo’s valuation under such circumstances and its standalone performance if a sale does not occur.
Speculative Valuation for Acquisition
To estimate Deliveroo’s potential acquisition price, two primary valuation metrics are considered: Enterprise Value to Sales (EV/Sales) and Enterprise Value to EBITDA (EV/EBITDA).
Projections for these metrics are based on Deliveroo’s forecasted revenue and adjusted EBITDA for 2024, assuming moderate growth in Gross Transaction Value (GTV) and revenue aligned with company guidance.
- EV/Sales: Estimated at 0.7x based on projected revenues of approximately USD 2.78 billion for 2024.
- EV/EBITDA: Projected at 12.6x, reflecting an improved adjusted EBITDA expected to grow by 40.5% year-on-year.
Comparison with Peers
Deliveroo’s primary market is the UK and Ireland, where it competes with Just Eat Takeaway (JTKWY) and Uber Eats (operated by Uber Technologies). Comparing market valuations:
- Just Eat Takeaway: Forward EV/Sales at 0.58x and EV/EBITDA at 6.61x.
- Uber Eats: Adjusted for its food delivery segment, forward EV/Sales at 3.48x and EV/EBITDA at 28.2x.
Potential Acquisition Price Analysis
Based on peer comparisons, Deliveroo could potentially achieve:
- EV/Sales method: Suggests a 127.2% upside, projecting a price per share of USD 3.51.
- EV/EBITDA method: Indicates a 25% upside, proposing a price per share of USD 2.10.
- Average of both methods: Implies a potential acquisition price of USD 2.80 per share, reflecting a 56% increase from current levels.
Future Without Acquisition
If Deliveroo remains independent, despite favorable financial indicators such as GTV growth and projected EBITDA profitability, its market valuations do not forecast significant price appreciation.
Current metrics, including a forward P/S ratio of 0.96x, still suggest relative overvaluation compared to peers like JTKWY and Delivery Hero (OTCPK).
Solid Fundamentals and Growth Prospects
While Deliveroo presents solid fundamentals and growth prospects in its market, its recent price surge post-acquisition talks underscores investor sentiment rather than intrinsic valuation metrics.
The potential for acquisition remains uncertain, and if not acquired, Deliveroo’s stock may not justify a significant increase based on current market valuations.
Proceed with Caution
Investors should carefully consider the speculative nature of Deliveroo’s valuation amidst acquisition rumors and assess its viability as a standalone investment.
Despite positive operational outlooks, the stock’s recent price movements and comparative metrics with peers advise caution in expecting substantial upside in the absence of a sale.
It remains to be seen if anything further comes from the acquisition talks. Furthermore, it remains to be seen if there is further impact on the stock price.
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I’m Jackson Hartwell, a writer who specializes in dissecting current business events. I’m dedicated to providing you with clear and concise insights into the world of politics, making it easier to understand the latest news and developments.
