(Bloomberg) -- A challenging period for Europe’s food delivery firms has left investors questioning whether they can turn a profit, as demand fades from pandemic-era levels.

Delivery Hero SE, Just Eat Takeaway.com NV and Deliveroo plc have lost more than 75%, or over $50 billion in combined market value since a September 2021 peak. Concerns about their longer-term potential are mounting.

The sector “needs to regain trust with shareholders again” given the performance over the last two years, said Elias Halbig, a portfolio manager at Union Investment in Frankfurt. “There is still much to do in order to achieve profitability on a sustainable basis.”

Down more than 25% this year, Delivery Hero and Just Eat’s share performance contrasts with strong gains US peer DoorDash Inc., which along with ride hailing firm Uber Technologies Inc. has seen its share price at least double. 

Uber’s food delivery service, Uber Eats, operates in key European markets such as the UK, Spain and Germany but data showing its performance is scarce. Deliveroo meanwhile is up 60% this year, but remains about 65% below its August 2021 peak. 

While adjusted Ebitda suggests some recent improvement, the sector’s actual losses are higher. Delivery Hero, for instance, recorded a loss of €821 million before income tax in the first half even as adjusted Ebitda swung to positive, dragged by items including interest costs and share-based compensation.

“Some investors rightfully question the validity of the profitability and free cash flow targets, given that they are adjusted measures,” Bernstein analyst William Woods said. For management, providing guidance on an unadjusted basis could be an important step to lure additional investors, he added.

Delivery Hero Sites Hit by Fresh EU Antitrust Raids 

The next leg of margin improvement will be more difficult, after companies already curtailed marketing spending, raised service charges and abandoned deep discounts. Analysts said that boosting operational efficiency — like stacking nearby delivery orders in one go — will become more crucial.

As companies shore up profits, sales growth comes under heavier pressure. The value of orders recorded on Just Eat’s platform is forecast to decline this year as customers curb spending on restaurant takeouts amid high inflation. Gross merchandise values (GMV) for the other two are expected to rise, but well short of the levels seen in 2020 and 2021.

Growth could still be hard to come by. Key European markets have been well penetrated after a period of supercharged expansion, said Bernstein’s Woods, who forecasts an annual GMV increase of 5% or less for Deliveroo and Just Eat for next five years.

Still, many of the challenges may be factored into valuations. Delivery Hero and Just Eat’s forward price-to-sales ratios are more than 60% below their three-year average levels, while Deliveroo’s multiple is less than one-third of the level when it was listed in 2021. Valuation multiples that are based on profits are more volatile due to companies’ limited profitability.

The three European firms have sought to narrow losses, with analysts expecting them to generate positive free cash flow next year. Competition also shows signs of easing after firms cut back on customer subsidies and exited non-core markets.

On top of that, growing optimism about potential monetary easing could give the sector an uplift next year. Deals may provide a boost, too, with Delivery Hero in talks to sell part of Southeast Asia operations and Just Eat eyeing a sale of Grubhub in the US.

“I do think that will be something that will reignite investor interest in the space — if we were to see anything more material in terms of consolidation,” said Citigroup analyst Monique Pollard.

Tech Chart of the Day

Alphabet Inc. shares rose 5.3% on Thursday, its biggest jump since late-July, as the release of the company’s Gemini AI model eased concerns about its position within the highly competitive market for artificial intelligence. The rally helped the stock add about $87 billion, propelling its market value to $1.7 trillion. Shares in the Google owner fell 1.7% on Friday. 

Top Tech Stories

  • Broadcom Inc., a chip supplier for Apple Inc. and other big tech companies, expects the rapid expansion of artificial intelligence computing to help offset its worst slowdown since 2020.
  • Micron Technology Inc. has struck a union deal for construction of a $15 billion chipmaking facility, potentially giving the company an advantage in the fierce competition for federal funds.
  • Amazon.com Inc. sued what it called an international ring of thieves who swiped millions of dollars in merchandise from the company through a series of refund scams that included buying products on Amazon and seeking refunds without returning the goods.
  • Spotify Technology SA said Chief Financial Officer Paul Vogel is departing, marking another top-level departure at the music streaming leader in the wake of sweeping cuts announced this week.
  • Conglomerate Tata Group plans to build one of India’s biggest iPhone assembly plants, tapping Apple Inc.’s ambitions to increase manufacturing in the South Asian country.

Earnings Due Friday 

  • Premarket
    • Hello Group
  • Postmarket
    • No major earnings expected

--With assistance from Isolde MacDonogh, Subrat Patnaik and Rheaa Rao.

(Updates stock move at open.)

©2023 Bloomberg L.P.