Mena delivery app Talabat outperforms its German parent

December 4, 2024, 5:23 PM

A Talabat courier in Cairo. The Delivery Hero subsidiary also operates in Jordan, Iraq and all six GCC states

Dubai Financial Market listing next week
Valuation of $10.2bn expected
Berlin-based Delivery Hero makes a loss

When Talabat makes its debut on Dubai Financial Market next week, the food delivery app will be worth nearly as much as its parent company despite providing only about a quarter of Delivery Hero’s revenue.

This might suggest Talabat’s initial public offering (IPO) was overpriced but a closer look at both companies’ earnings shows otherwise – and helps explain why regional and international investors appear so keen on Middle East tech startups.

Delivery Hero, which bought Talabat in 2015, is selling 20 percent of its Abu Dhabi-based subsidiary – 4.66 billion shares. The stake was raised from 15 percent because of investor demand.

The IPO was priced at the top of the guided range and values Talabat at AED37.3 billion ($10.2 billion). This will provide Delivery Hero with a windfall of just over $2 billion, according to AGBI calculations.

The Berlin-based parent’s market capitalisation is €10.4 billion ($10.9 billion) and its share price has fallen 76 percent since its peak in January 2021.

So, why have Delivery Hero’s shares tanked while Talabat can command a market premium?

Talabat made a net profit of $291.6 million in the nine months to September 30 this year as revenues rose 26.7 percent. Its IPO prospectus states that it aims to pay a minimum dividend of $400 million for the 2025 financial year.

By contrast, Delivery Hero has made a net annual loss in nine of the past 10 years – 2019 was the exception. Its third-quarter results presentation says the company is on the “path to profitability”, predicting it will “track close” to breakeven in December 2024. It has yet to pay any dividends to shareholders, according to Investing.com.

In Delivery Hero’s results, the Middle East and North Africa – which includes Talabat’s operations plus Turkey – achieved the biggest year-on-year increase in Q3 revenue.

Mena’s importance to Delivery Hero is increasing. In the third quarter, it provided 27.6 percent of the company’s total revenue of $3.4 billion.

Abdullah Altamami, CEO of Merak Capital in Riyadh, told a webinar last week that there’s “more return in the Middle East, primarily GCC – Saudi and the UAE – than other places in the world when it comes to private equity, private capital in general. This is not true when it comes to all asset classes.”

He gives Talabat, which started out in Kuwait in 2004, as an example. It now operates in the UAE, Saudi Arabia, Qatar, Bahrain, Egypt, Oman, Jordan and Iraq as well – and benefits from lower wage and fuel costs than delivery businesses based in Europe, according to Altamami.

“When you put all these things together, the unit economics is much more feasible,” said Altamami. “This is not only a phenomenon in one sector.”