What makes a hero?
Everyone knows that online food delivery is a business for the future. From Uber Eats to Deliveroo, profit is something for tomorrow. So the lack of profit targets at Delivery Hero is not surprising. But the Frankfurt-listed $18 billion delivery company is not a perfect fit for Germany’s blue-chip DAX index, which it is joining, replacing scandal-struck Wirecard.
For one thing, Delivery Hero has no German operations. Boss Niklas Oestberg looks for opportunities in markets that are less well served, notably in the Middle East and Africa. With the backing of its 30% shareholder Prosus, the $160 billion Amsterdam-listed tech-savvy investment group – main holding Tencent – Delivery Hero built up the value of deliveries to 7 billion euros in 2019.
The company has a rather un-DAX-like comfort with big losses. Adjusted EBITDA in 2019 was negative 431 million euros and analysts estimate a loss of 590 million euros this year, Refinitiv data shows.
Oestberg is firmly set on his buy-and-grow strategy. On Thursday, he announced the acquisition of InstaShop, a Dubai-based grocery delivery startup, for a minimum price of $270 million. InstaShop was profitable in the second quarter, but Delivery Hero is likely to push expansion at a cash-draining pace.
It is a lot to chew on. No one knows whether there is a profitable business delivering basic groceries in less than 45 minutes. Dmart, Delivery Hero’s existing entry in this field, is unprofitable.
Oestberg also has more diverse ambitions. In July, he moved into another cash-demanding sector – so-called sustainable foods. Delivery Hero bought stakes in two startups, including Beyond Meat rival Impossible Foods. It may all work out, but the strategic logic is thin.
Deutsche Boerse’s criteria for DAX membership are market capitalisation and trading volumes, not profit. Both have been rising at Delivery Hero, as investors salivate over the demand created by coronavirus-induced lockdowns. But joining the DAX will bring tracker funds into the stock. That will be good for the share price in the short term. However, some passive investors might not be that keen on Oestberg’s style of financial heroism.