The Deliveroo (LON: ROO) share price is a touchy subject for many investors. Its Initial Public Offering on 31 March last year was described by one banker as ‘the worst IPO in London’s history. The company closed at 276p, wiping £2 billion from its opening £7.6 billion market cap.

Sinking to 233p a month later, Deliveroo shares then rose to a high of 386p by 13 August. But they had collapsed to 169p at the end of last week. And while the share price has now risen to 175p, it seems the food delivery company has several hills to climb before a full recovery can be achieved.

Deliveroo share price: Q4 results

CEO and Founder Will Shu believes that ‘despite a challenging backdrop, we continued to strengthen our customer proposition, widen our customer base and execute against our strategy.’

And overall, this seems a fair analysis. Full-year gross transaction value (GTV) is at the top end of the company’s guidance, up 70% year-over-year to £6.63 billion on a constant currency basis. And Q4’s GTV growth is up 36% year-over-year to £1.73 billion, against a ‘Q4 2020 comparison base that included lockdown restrictions in many markets.’ Moreover, the company expects to maintain its gross profit margin at 7.5-7.75%.

Monthly active users are up 37%, and orders up 42% year-over-year. And while its average order value fell 5% to £21.40, this was to be expected as they continue ‘to revert to pre-covid levels.’

But Q4 orders are up 154% to 49 million, compared to pre-pandemic levels. And with 40.4 million of these orders in Deliveroo’s home markets of the UK and Ireland, the company now reaches 77% of the UK’s population, up from 53% a year ago. Accordingly, it now has an 8-million-strong customer base, up 123% on pre-pandemic levels.

An uphill struggle for Deliveroo?

Today’s results are positive for Deliveroo. However, the company is contending with both intrinsic and extrinsic headwinds.

At its IPO launch, Shu insisted on a dual-class share structure for the first three years of public trading. This allows him to retain control of the company’s strategy and makes a hostile takeover nigh-on impossible. However, it was also a key reason why the IPO flopped, with FTSE 100 stalwart and institutional investor Legal & General explaining ‘we believe in the active ownership of the companies in which we invest.’

In addition, the structure prevents the company from being listed on the FTSE 100, which would provide significant share price support. Of course, when the dual-structure ends, Deliveroo shares could become significantly more attractive.

Then there’s the legal grey area regarding the employment status of its contractors. Deliveroo currently classes all riders as self-employed, and they do not qualify for the minimum wage, holiday or sickness pay. This position was confirmed as legally permissible by the UK Court of Appeal in June last year.

However, fellow gig operator Uber has now lost two employment lawsuits. In February 2021, it lost a Supreme Court appeal against an employment tribunal that its drivers should be classed as employees. And last month, the High Court ruled that Uber must contract directly with passengers, rather than act as the middle-man connecting Uber drivers with potential customers. In the wake of this decision, further legal challenges to Deliveroo’s business structure seem likely.

It will also be facing slowing demand for on-demand grocery services, which now represent 8% of GTV. While it’s added 1,000 grocery stores to the app over the past year, Aldi has just ended its partnership with consumers returning to their normal shopping habits. This may be a sign of things to come. All UK coronavirus restrictions are due to end next week, and customers are likely to become more confident in visiting restaurants in person.

And while Deliveroo increased its global restaurant partners by 13,000 to 148,000 during Q4, UK Hospitality CEO Kate Nicholls believes that the financial damage caused by last month’s Christmas restrictions mean many restaurants ‘will simply not survive.’ This could be a hammer blow, as ‘restaurant selection is an important part of Deliveroo’s consumer value proposition.’ More importantly, with inflation running at 5.4% amidst an escalating cost-of-living crisis, takeaways may soon become an unaffordable luxury for many households.

As its many cyclists struggle uphill, so may the Deliveroo share price.

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*Based on revenue excluding FX (published financial statements, June 2020).