Legal risks, growth concerns, and regulatory scrutiny could explain why investors are favoring Deliveroo and Just Eat Takeaway over Delivery Hero.
The European food delivery sector is undergoing a transformation, and Delivery Hero’s legal problems could cost the company more than just fines. During the pandemic, the stock prices of major players such as Deliveroo, Delivery Hero, and Just Eat Takeaway soared, but they suffered sharp declines in order volumes once COVID-19 restrictions were lifted. This downturn also led these companies to post heavy losses for several consecutive years.
However, as we reported earlier this year, financial analysts have identified 2025 as a potential turning point for the sector. Recent financial statements suggest the worst may be over, with losses shrinking and some companies even returning to profitability. Deliveroo, for instance, reported an EBITDA of GBP 16 million, while Just Eat Takeaway also posted a positive EBITDA, although it continues to report a net loss.
With stock prices still relatively low and signs of recovery emerging, it was only a matter of time before larger companies began scouting for acquisition opportunities. In February, Prosus announced its acquisition of Just Eat Takeaway for €4.1 billion, a deal still subject to regulatory approval. And just last Friday, DoorDash made headlines with its €3.6 billion offer to acquire Deliveroo.
Delivery Hero’s Strategic Position
Delivery Hero, despite being objectively larger than Deliveroo and Just Eat Takeaway, may not appear as attractive to investors for several reasons. One concern is that, according to analysts, its projected revenue, EBITDA, and EPS growth are not expected to match the performance of its two rivals (see table below).
Another major factor is the antitrust risk. Delivery Hero operates in numerous European markets, and any acquisition by major players like DoorDash or Uber could trigger regulatory scrutiny in several jurisdictions, especially if the deal would significantly strengthen its market position. For instance, just last March, the Taiwanese regulator blocked Uber’s proposed acquisition of Delivery Hero’s Foodpanda unit on antitrust grounds.
However, other pending legal risks facing Delivery Hero may also have deterred potential buyers—not only because of the inherent risk, but also because these issues could give its competitors a strategic advantage.
Delivery Hero’s Legal Risks
The German company has disclosed several legal risks that could significantly impact its cash flow and impair revenue in the near future. Delivery Hero has set aside provisions totaling nearly €900 million to cover these risks. However, this figure represents an estimate before any liabilities are finalized, meaning the actual financial impact could ultimately be higher—or lower—than currently anticipated.
For context, Delivery Hero reported a net loss of €254 million last year, narrowing its losses by almost half compared to the previous year, but still falling short of achieving profitability. Furthermore, its levered free cash flow (FCF)—the amount available to pay dividends, fund acquisitions, or settle fines—stood at €499 million.
Antitrust Investigation
One of the most significant legal challenges Delivery Hero faces is an antitrust investigation. In July 2024, the European Commission opened a formal probe into Delivery Hero and Glovo, focusing on allegations of market allocation and the exchange of commercially sensitive information, such as strategies, prices, capacity, costs, and product characteristics.
Delivery Hero has estimated a potential fine of over €400 million in connection with this investigation and has increased its provision accordingly. While this move should prevent a direct immediate hit to the company’s balance sheet, the final amount could still affect its 2025 profit margins and, more critically, its cash flow. Interestingly, the company reclassified this provision from non-current to current liabilities, suggesting that a resolution could arrive within the next year.
Beyond the financial impact, Delivery Hero also faces the prospect of follow-on damage claims in Europe and, perhaps even more significantly, reputational damage. Both factors could put additional pressure on the company’s stock price.
Worker Reclassification and VAT Risks
A second major legal provision relates to the reclassification of workers and associated VAT liabilities. In Spain, Glovo had previously classified its riders as self-employed contractors, but regulatory actions forced the company to reclassify them as employees. Delivery Hero has set aside €492 million to cover potential fines, retroactive social security contributions, and unpaid VAT obligations.
This reclassification is expected to have a long-lasting negative impact on the company’s bottom line, affecting profitability for years to come.
Note for Investors
Delivery Hero’s legal provisions underscore the seriousness of the risks the company faces. It is worth noting that companies do not always set aside provisions for antitrust fines, particularly when they intend to appeal.
While the company recently changed its risk classification from “high” to “moderate,” this adjustment reflects reduced uncertainty regarding the size of the fine—not a lower probability of it being imposed.
The timing of any cash outflows will ultimately depend on the resolution of these proceedings. However, given Delivery Hero’s current levered free cash flow of €499 million and potential combined penalties totaling €892 million, the company faces a highly uncertain financial outlook for 2025.
Conclusion
While the broader European food delivery sector shows signs of recovery, Delivery Hero’s position is increasingly precarious. Slower projected growth, major unresolved legal risks, and financial strain could leave the company at a disadvantage compared to its peers. Investors should watch closely how these legal proceedings unfold over the coming months, as their outcome could significantly influence Delivery Hero’s strategic options and valuation.
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