HelloFresh, Deliveroo and the path to profitability in Food Tech
HelloFresh, the Berlin-based global meal kit service that’s 53% owned by Rocket Internet, is planning an IPO in October.
HelloFresh is said to be seeking a valuation of €2 billion, roughly 2x its run-rate revenues of €1 billion. Our online valuation multiples show that is double the 1x revenue multiple of Blue Apron, a U.S based close peer, which has been badly struggling after IPO-ing earlier in 2017.
HelloFresh has shown impressive growth in recent quarters of about 53% by revenues and customers, 3x faster than 18% growth for Blue Apron, which it has now also overtaken in size. Blue Apron even posted a net loss in active customers in Q2, and had to announce that it will scale back its marketing efforts. Incidentally, HelloFresh is also the second fastest hiring company in European Food Tech in the Dealroom database (after Deliveroo).
On the other hand, HelloFresh has yet to achieve positive gross margins (i.e. margins after cost of goods, fulfillment and marketing expenses). The below analysis shows what the path to profitability might look like:
In other words, if HelloFresh can reduce marketing expenses closer to Blue Apron’s 14% of sales, then positive gross margins and even positive EBITDA margins are well within reach. Today however, HelloFresh is burning about €100 million in cash per year and with €113 million of cash on the balance sheet this means it has about one year run-way left. An IPO is therefore very welcome and should provide the company with enough new capital and time to reach that profitability. The open question is what user growth will look like by then.
Another high-profile food tech player is Deliveroo. Recently its 2016 financials were disclosed, showing zero gross margins and a negative 100% (!) operating margin. It is easy to be cynical (as this funny Twitter exchange between Index Ventures Partner and Deliveroo investor Ben Holmes and skeptic Luke Johnson showed). But perhaps it is far more interesting to try and understand the numbers, to see if there is a path to profitability here:
In the case of Deliveroo there are clear precedents. Of course Deliveroo’s business model is more complicated and operationally risky than Just Eat’s business model. And Deliveroo’s management already disclosed it needs affluent areas with high densities to thrive. There are plenty such places around the world of course. At the same time, rival Uber has lost it’s aura of invincibility (and potentially it’s London license).
Food tech investment has had a major revival in 2017, almost back to 2015 levels. This is partly thanks to large venture capital investments into Delivery Hero (which has been performing above market expectations recently), Deliveroo, Picnic and others. To explore the investment data in more detail, see the below interactive Food Tech VC funding chart:
Interested in a further deep dive into food tech? Check out this Dealroom / Priori Data report from earlier this year. It combines proprietary data from Dealroom and Priori Data with annual reports, investor presentations and equity research about Just Eat, Takeaway.com and Rocket Internet, plus SimilarWeb online traffic data:
Report - Food Delivery Tech: a Deep Dive
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