Deliveroo trumpeted it had made “excellent progress” on the path to profitability this week. However, concerns persist in the City over its ability to turn market share into profits amid tightening consumer spending.

Posting its annual results on Thursday, the FTSE 100 delivery giant said 2022 had been “a strong year of operational and financial performance” despite a challenging environment.

It highlighted its “major achievement”: reaching adjusted EBITDA profitability in the second half of the year, with growth of £6.6m compared with an £84.6m loss in the same period last year. This was well ahead of previous guidance, which suggested the group would reach this point in the second half of 2023 or first half of 2024.

The move to half-year profitability was driven by the optimisation of consumer fees, efficiencies in its logistics network and the optimisation of marketing spend, which offset investment in its consumer proposition.

Gross transaction value grew 9% to £6.85bn in the year, while orders increased by 5% to 299.2 million, despite a a slowdown during the year that saw volumes turning negative in the fourth quarter. 

Total adjusted EBITDA loss more than halved to £45m from £100m in 2021, driven by improved profit margins from a tightening of marketing and overheads costs.

For next year, GTV growth is anticipated to be low to mid single digits, improving through the year as the comparison base eases. Adjusted EBITDA is expected to continue to improve and to be in the range of £20m-£50m, weighted to the second half.

Despite the shift to profitability, Deliveroo shares fell a further 1.9% by Thursday lunchtime to 87.8p.

AJ Bell noted the company would be challenged by households with less money in their pockets and fierce competition for disposable income.

“There’s no reason for people to be anything other than platform agnostic… The company is still burning through lots of cash and although it is attempting to signal to the market that the inflexion point, when it starts to deliver meaningful cash flow and profit, is not too far away, a more difficult economic backdrop could stymie its efforts in this regard.”

However, upgrading the stock earlier in the week, broker Bernstein commented: “The food delivery market has rationalised shifting from a state of war to the spoils of war.”

“Deliveroo is at an inflection point of EBITDA and free cashflow breakeven, which will open up the opportunity for buybacks and a potential takeover… [It] has strong and improving market positions, skews towards more affluent consumers in dense, urban environments of London and Paris and a strong balance sheet, plus the risk of Jan/Feb 2023 demand falling off a cliff has reduced.”

Deliveroo shares are down 24% year on year, and down 77% on the highs of August 2021.

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