On-Demand Still Looks Pretty Unprofitable

Morning Markets: Deliveroo’s latest numbers are equally impressive and not.

I think it’s fair to say that the pubic market struggles from Uber, Lyft, Peloton, SmileDirectClub, and the pulled WeWork IPO are showing late-stage private tech companies that losses are less in vogue than they once were. Or more precisely, that losing as much money as was once considered acceptable may no longer be.

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This may present a problem for some tech, tech-adjacent, or merely venture-backed companies — especially those who have enjoyed huge checks from private investors that they deployed to power growth.

Powering growth is, to some degree, startup speak for taking up one’s burn rate, and losing more money. This brings us to Deliveroo’s 2018 recent financial results. Let’s examine.

Costly Growth

Deliveroo is a popular European delivery company, which has raised a staggering $1.5 billion according to Crunchbase data. That makes it one of the best-funded startups out there today. Here’s what it got done in 2018, as summarized by VentureBeat:

London-based Deliveroo reported today that sales rose to $584 million in 2018, up 72% from $340 million in 2017. But losses also jumped to $284 million, up from $244 million.

Clearly, the company lost less in 2018 than the preceding year on a percent-of-revenue basis. At the same time, its losses rose as the company scaled. So that’s one positive-ish sign, and one negative-ish sign.

We’ll know a lot more when we get an IPO filing from the company, but Deliveroo’s business, last year at least, costs about 50 percent more to run than it brings in in revenue. That’s not a great place to be for a company that is worth just a hair under $4 billion according to its May 2019 Series G. You might expect a company worth that many billions (and born seven years ago) would have learned how to lessen unprofitability (startup speak for expanding profitability) at scale. It hadn’t as of last year.

No none of this is to say that Deliveroo isn’t a great company (I don’t know), or that it’s overvalued (it may not be). But it does show that there are companies out there with lots of money that have a history of the sort of losses that, it appears, are falling out of favor.

Growth, in fact, can cost too much in 2019.

Illustration: Dom Guzman

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