After its IPO back in March, the Deliveroo (LSE: ROO) share price is up nearly 30%. After a volatile five months, yesterday saw a near 9% rise amid the release of its positive maiden half-year results. It also rose after Delivery Hero took a stake in the business, detailed here by my fellow Fool Nadia Yaqub. So, is now a good time for me to buy Deliveroo shares? Let’s answer that question.
Half-year results
First, let’s start off by looking at the latest set of results released by Deliveroo, which were packed with encouraging signs. Revenues were up 82% to over £920m. This, in part, was because of a 102% increase in gross transaction value (GTV). It was over £3.3bn for the half-year, while for Q2 it was up 81%. Gross profit, along with the statutory loss before tax, also saw improvements. From this, it is clear to see why yesterday saw such a large rise in the price of Deliveroo shares.
To add to this, founder and CEO Will Shu also highlighted how the business was making good progress in executing its strategy. Deliveroo has widened its consumer base and could also reach 72% of the UK population by the end of June. This is ahead of the 67% target set for year-end. This shows Deliveroo is taking the correct steps towards success in the future.
Deliveroo concerns
Although Deliveroo provided a positive update, I do have my concerns — the main one is competition. Although the business is expanding, one could argue that its competitors, such as Just Eat Takeaway, are doing so at a quicker rate. Its recent acquisition of Grubhub for over £5bn exemplifies this. With Deliveroo announcing a proposal to end operations in Spain, this shows what can happen when a firm is unable to achieve a solid market position. A loss in market share would no doubt negatively impact the price of Deliveroo shares.
As well as this, I question whether the strong results Deliveroo posted and the growth we have witnessed is due to Covid-19. While shops and restaurants were closed, people would have opted to use Deliveroo’s service as an alternative. Will this continue as we now see countries within the UK remove all or some restrictions? The fact that Deliveroo is still a loss-making business also has the potential to worsen the impacts should demand decrease.
My verdict
The half-year results clearly show that Deliveroo shares have the potential to rise in the future. What does concern me, however, is that these results are based on a period when restrictions were in place. As the UK begins to open, I think that Deliveroo will see a fall in its demand. This would lead to a drop in the price of Deliveroo shares. As much as I think the business has the potential to thrive, I am going to hold off buying for now. Instead, I’m adding Deliveroo to my watchlist and seeing how it performs for the remainder of the year as we come out of the pandemic.