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Following a shakeout that caused several startups to scale back or shut down in recent years, the survivors of the on-demand food-delivery sector are hoping to take a victory lap in the public markets. Last week, Blue Apron filed for an IPO on the NYSE. Now, Delivery Hero says it’s planning to do the same on the Frankfurt stock exchange.
Rather than filing a formal prospectus, Delivery Hero released a statement outlining its plans to generate proceeds of as much as $450 million by selling new shares as well as those held by current shareholders. Rocket Internet SE, the German startup incubator, owns 35 percent of Delivery Hero, while South African Internet conglomerate Naspers bought a 10 percent stake for 387 million euros ($450 million).
Berlin-based Delivery Hero isn’t much of a brand name in the U.S., but it could dwarf U.S. rivals after its IPO. The valuation of last month’s investment suggests the company will be valued around $4.5 billion once it starts trading, making it not only one of Europe’s largest Internet startups but larger than GrubHub’s $3.8 billion market cap.
Blue Apron was valued at $2 billion in 2015 and could be worth much more once public. Blue Apron’s S-1 filing said it will raise $100 million, although it may raise much more than that as that figure was likely used as a placeholder while underwriters gauge investor interest.
While Delivery Hero and Blue Apron occupy two different corners of the food-delivery market, the two companies offer an interesting look into the companies that have emerged as leaders in the market. Blue Apron offers ready-to-cook meals in the U.S., while Delivery Hero operates restaurant-meal deliveries in 40 countries in Europe, Asia, Latin America, and the Middle East.
Still, the two have much in common. Both companies are relatively young for IPO candidates, with Delivery Hero founded in 2011 and Blue Apron founded the following year. Both employ between 5,000 and 6,000 workers. And both are spending heavily to gain a sizable share of their respective markets.
“We want to grow as fast as we can and profitability comes with size,” said Delivery Hero CEO Niklas Östberg in a conference call discussing the IPO plans. Östberg said much of the money raised from Naspers last month had been reinvested in the company already.
Östberg noted that the proceeds will be used to fuel his company’s growth, both organically as well as through acquisitions. Last week, Delivery Hero bought Carriage, a Kuwait-based rival. Previously, the company acquired companies such as Foodpanda, another Rocket-owned startup with operations in Eastern Europe and Asia, as well as Turkey’s Yemeksepeti.
The push for rapid growth has some logic to it, given the consolidation that the food-delivery market has been experiencing, as well as the entrance of deep-pocketed rivals like Amazon. Munchery has cut back on staff, while SpoonRocket, Maple, and Sprig have shut down operations.
In an interview last year with McKinsey Quarterly, Östberg said he sees an opportunity to grow in an inefficient food-delivery industry, but with competitors like Amazon moving in, “if we don’t stay innovative and don’t stay the best and don’t offer access to the best and fastest food, then in the long term we are in trouble. That’s why we can never relax.”
But the growth comes at a cost. Delivery Hero said its adjusted EBITDA showed a loss of $130 million last year, compared with a loss of $197 million in 2015. Blue Apron, meanwhile, posted a net loss of $54.9 million last year and a net loss of $52.2 million in the first three months of 2017 as it ramped up spending on hiring and advertising.
While a year younger, Blue Apron is seeing larger revenue and smaller losses than Delivery Hero, while the latter is enjoying a higher rate of growth. Blue Apron said revenue rose rose 42 percent to $245 million last quarter. Delivery Hero, meanwhile, said revenue rose 68 percent to $136 million.
A successful IPO from Delivery Hero could help Rocket, which hasn’t taken one of its startup public in nearly three years and which has seen its share prices fall 62 percent since late 2014. Both IPOs will test investor appetite in the rapid growth but cost-intensive sector of the food-delivery market.
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