Delivery Hero SE

XETRA:DHER

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to the Delivery Hero SE Q3 2018 Trading Update and Sales Call. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Mr. Östberg, who will lead through this conference. Please go ahead, sir.

[L. Niklas Östberg, Co]

Hey, everyone, and welcome to our Q3 '18 trading update. As you all have seen, we have had a great quarter and I'm happy to share that we continue to increase the new customers coming to our platform. They sort of order more frequently but we've also increased the number of restaurants available to our users. And as a consequence, increased our leadership in the markets where we operate. On the back of this, we also feel confident that we can raise our guidance for the full year on the revenue side, and I'll come back to this later.Comment on our vision. I, again, like to highlight our clear focus on customer experience. This being -- means the best food selection and exceptional ease in personalized ordering experience and also getting it delivered fast. Our focus on customer experience is the core part of our DNA and our culture, and I personally believe this is a key for the long term as we're taking on a trillion-dollar food industry.So now to our Q3 highlights. We sent 102 million orders in Q3. This was up 45% on a year-on-year basis. Our gross merchandise value was up 48% on a constant-currency basis to EUR 1.3 billion. Out of all KPIs, I consider GMV the most relevant for defining our size and long-term EBITDA generation. From an GMV to revenue, we see the take rate for our marketplace business, converting to similar levels in different countries over time. GMV also values the delivery business equal to our marketplace business which, I think, this is a fairer long-term assumption. Then speaking on the revenue and revenue generation. We grew revenue 66% (sic) [ 62% ] on a constant-currency basis to EUR 202 million. If you now look on a quarterly track record of growth, we will see the predictability of our business. This is, of course, nothing surprising for people familiar with our cohorts. Nevertheless, pretty nice graph to look at. So pretty happy with what we saw in Q3. We kept or marginally increased our year-on-year growth in Q3. And even if we are confident on our business, I hope you don't get spoiled about seeing these growth numbers. It looks very easy, but we push ourselves every single day to deliver these numbers. So it's a lot of hard work behind it.On the key part -- one of the key parts, which is the opportunity and some leadership position, we continue to see our market expand, and we believe to be at the very early stage in most markets and also got a longer runway of growth than our peers for that reason. There are a number of trends helping our growth here. I don't think I have to go into detail there. You are well aware already.On delivery side. We are excited to have built clear leadership in this area. Today, we deliver 6 million orders per month in over 200 cities with our own fleet. If you look outside of our core or our clear #2 markets being in Korea and Canada, we now deliver 2x as many orders as all our competitors combined in our markets. This includes Uber, this includes Deliveroo, this includes Takeaway, Just Eat, Grab and so on. So -- and I should also add, this doesn't include the holdings where we hold a stake being Rappi and Glovo. So even excluding those, we are 2x larger than any of other delivery players out there combined.We have been also focused a lot on efficiency. I have to believe this gives us a competitive edge in the mid- to long term. We have now almost the same profit contribution per order when we deliver versus what we see in the marketplace. We achieve this by operational scale and the size that we have, but also thanks to our hybrid model. And as mentioned, we see this as a competitive edge, that we can make a profit contribution even in very competitive markets. I think this will make life very tough for our competitors as soon as they try to turn a profit. And I personally think they never will.We now also offer delivery to other items in selected markets. So we leverage delivery fleets and delivery capabilities we have for other markets in selected places. So if some of our competitors claim to be second generation, I believe that our product and delivery efficiency would rather make us a third generation in that case. So I think on the delivery side, we are very happy with the development and feel very strong where we stand there.Now I think the part that you've been waiting for, which is investment opportunities, and we did announced in Q2 update. Here, we have seen a lot of good opportunities with good attractive returns as we enter Q3 and as we continue now in Q4. We are on track to deploy the full EUR 80 million by the end of the year. And we're very happy with the results that we've been seeing. In addition, our minority investments like Rappi, [ Barongo ], Glovo, amongst others, have now a combined portfolio value of EUR 284 million at this point.We've also increased our leadership position globally. Again, if I exclude Korea and Canada, we process more than 30 million orders per month in our marketplace and on delivery combined. And this is 3x more than all our competitors combined in our countries. So this includes, then again, Takeaway, UberEats, Zomato, Deliveroo, Grab and so on and all the local players. So we are -- again, we are 3x larger than all of them combined in our markets. In some markets, we're equally large. In some markets, we're 5x larger. But on an aggregate basis, 3x larger. And I think this gives you an idea about our leadership positions in our global space.We also have significantly increased our leadership position in competitive markets such as Singapore and UAE. And we have overtaken leadership position in markets like Norway and Romania. In the example of Norway, we've only been operating for about 3 years. So we're pretty happy and proud about what we can deliver and drive there in a very short time.In terms of global partnership, we have leveraged our size and scale again to win many of the global brands and big chains. And here, as an example, in the Middle East, we have now won all key accounts out there. Often, these accounts also want to work exclusively with us, and of course, they're fine to do so.Lastly, our investments have also led to improved operational efficiency, with several platform migrations, rollout, the personal recommendation, restaurants solutions, tools and so on. So I think we have both a very strong global platform for our business that is having the scale and the scale we operate on.Now I'd like to hand over to Emmanuel to go through the numbers so to give you a deep dive there.

[Emmanuel Thomassin, CFO & Member of the Management Board]

Thank you, Niklas, and good morning, ladies and gentlemen. I also welcome you to our trading update for Q3 '18. And there, as you've seen from Niklas there, Delivery Hero is continuing a strong path of growth, following the exceeding performance in the first quarter of 2018. And as usual, I'd like to start to highlight some major key developments in this quarter. While the first one will be our performance this quarter exceeded expectation. We've accelerated group orders growth at 45% year-on-year and our group revenue growth at 62% in Q3 on the constant-currency basis. So moreover, we reached milestones in terms of orders and revenues. This is the first quarter ever for our company that we reach more than 100 million orders in the quarter and more than EUR 200 million revenues in the quarter. So this is our clearly a testament for our success story. And then #2, we had good traction with our additional investments across all segments. We are very pleased with the investments we deployed in Q3. And these customers they will continue to return to our platform each month. And as I said, we expect this to see good return in the future.And the third point that I want to highlight. We excelled in rolling out our own delivery capacity. As you know, since Q2 '17, we're especially succeed increasing our investments on delivery in MENA, but also in America. And then we see great traction from development of own delivery services. And this again our competitive advantage as well as our expanding global market opportunities here.And specifically, on this point, I'd like to highlight 3 milestones. The first, we delivered 60 million orders of own delivery capacity in Q3. This is about 15.9% of our total orders. So 60 million orders delivered only 1 quarter. And then since Q3 '17, MENA scaled up own delivery to 14.4% of orders. In MENA, we now see that we will reach profit contribution of own-delivery orders, similar to marketplace, by the end of the year. This is also, as we mentioned, on the last call.Also since Q3 '17, Americas scaled up delivery to 18.6%, and Asia to 25.7% of the orders. Europe has scale there delivery capacity for much longer and reached the profit contribution on order basis similar to marketplace as we already outlined in IPO.So given the early stage of many of these markets in the Americas and Asia, we will be continue to invest into delivery accessibility. We will target either slightly negative or breakeven contribution for the region, for the benefit of their -- of the momentum.And finally, before I start with our group financials and information that we are executing on the divestments with the liquidations of the entities in France, in Netherlands and Australia and we have successfully sold our Italy to Glovo.So now I'd like to start with our group financials. In general, you can see that the accelerated growth of our business performance is coming from a very high vantage. Our orders increased by 45% in Q3 '18 to 102 million in one single quarter. And although our brand investments usually take time to materialize into customers acquisitions, and therefore, additional orders, the growth seen this quarter is definitely linked to the fall investments we have done in the last month. Our GMV amounts EUR 1.3 billion in Q3. This is a growth of 48% year-on-year on constant currency and adjusted EBITDA. The revenue were strongly as well, with a year-on-year growth over 62% on constant currency, to EUR 202 million. So here again a record for a quarter, over EUR 200 million revenues in this one. The revenue growth is driven by external growth in MENA region, where we were above 100%. I will come to this later on. Our revenues for our group level have been in this quarter significantly impacted by the application of the so-called IAS 29 regulation from the IFRS. This is their link to their hyper-inflation accounting of our Argentinean operation that came into action for the first time this quarter. I will come also to this point a little bit later on that time. And both metrics, GMV and Revenues have been impacted by strong headwinds, The FX that we seen also in the past mainly from MENA and Americas segments.The group take rate is now 15.4% for this quarter compared to 13.7% the third quarter of 2017. And as mentioned already in the previous call, this improvement is driven by their increase of commissions, the growth of the noncommissioned revenues such as premium placement, for example, and obviously also the delivery fees from our increased rollout in own-delivery services. The group take rate, if you exclude the delivery operations, was at 11.3% for this quarter.So now let's look at the performance for the 4 segments. And this time, I'd like to start with the biggest one, MENA. The strong order growth in MENA is continuing. MENA now generates 49 million orders in Q3. This is a growth of 54% year-on-year. And there -- these are -- this other growth of the year, the growth of the orders is not fully reflecting our GMV due to their -- the strength of the euro currency. GMV grew by 50% in Q3 compared to the previous years. And on constant currency, the growth would have been 65%.So as we announced previously, we invested significantly in our own delivery activities over the last 12 months. And you can see the great returns in both investments. And we plan to continue to invest for growth in the coming months as well. As a consequence for these investments. The take rate is increasing to a 15.5% from 11.4% from the same period of time in 2017. The revenues are scaling at a record growth rate of 11 -- 118% in constant currency to 85 million. And this dramatic increase is a consequence of the rollout of own delivery as well as our city expansion strategy. So while -- the MENA performance on the nonconstant-currency basis, unfortunately, is impacted by the FX volatility also in this region. I don't have to mention lira, for example. The underlying business in the region is, however, prospering. And although MENA now generates 36% of the group revenues in this quarter.So now let's move to the next segment and Europe. Europe generated 22 million orders in Q3. This is a growth of 30% compared to our Q3 '17 while our GMV grew by 25% on constant-currency basis. Europe revenues grew by 22%. This is a slight lower revenue growth than the GMV growth. And this is mainly driven by 2 factors: the first one is market mix effect, given that we have numbers of fast-growing early stage markets in Europe; and the second point is our delivery affordability campaign where we have lowered the delivery fee and also the minimum order value. The take rate right now cumulative for Europe is now at 16.1% in Q3. And overall, Europe is now generating 29% of the group revenue by Q3 '18.So now let's move to Asia. In Asia, the orders increased by 51% in Q3 '18 compared to the same period of time last year. And this on adjusted basis and generates almost 22 million orders. GMV increased by 50% on reported currency to 317 million. And their GMV grew slightly lower than orders due to the launch of our affordability campaign in our own delivery market and also in some markets with the decrease of the minimum order value. I mentioned this before. The revenue reached EUR 51 million for Q3, growing at 61% compared to Q3 '17 on an adjusted constant-currency basis. And this is ahead of our GMV. The take rate for the segment Asia is now at 16% versus 14.8% in Q3 '17. And we managed to increase the take rate despite the affordability measures that I just mentioned in own delivery market. So overall, Asia generated 28% of the group revenue in Q3.And I will now turn to Americas. As you know, we start out to deploy our own delivery activities in Q2 '17. And we furthered our investment during '17 and we continue to do so in '18, and this will create success. Today -- or in Q3 Americas generate 10 million orders, which represent the growth of 33% year-on-year compared to the same period last time -- last year. The GMV grew by 15% in our reported currency. And on constant currency, GMV grew -- growth would have been even faster than orders by 53%. And they are now amount EUR 108 million for the GMV. Obviously, FX headwinds from the region are impacting our reported results in Europe and for Americas. The revenues grew by 4% in Q3 and amounted now to EUR 13 million boosted by the investment on delivery capacities. And on constant currency the revenue growth amounted to 12%. And here, as mentioned before, the revenues for America have been impacted by the application of this IAS 29, this is the hyperinflation accounting for our Argentinean operation that came, for the first time, into action in this quarter. The impact of considering this country, Argentina, as a hyperinflationary country was negative by EUR 4 million in Q3. So again, our revenues impacted by EUR 4 million due to our -- in this quarter due to this measure.Just to give you some more details. So to be in accordance with our IAS 29, the restated IFRS package is displayed from local currency into Europe using closing date of the FX rate of September '18 for Q3. Due to the significant iteration of the Argentine peso compared to euro during in '18 has led to a significant decrease in Europe of the P&L items amount, including revenues, which is our only partly offset by the increase of the inflation. So overall Americas generate 7% of the group revenue in Q3, and with this -- all these milestones that reassure us that we are on the right path to exceed the growth rate that we have reported today. And we will continue to invest in '18 in order to push our delivery affordability through lower delivery fee, lower minimum basket size and also new delivery areas, we will continue to rollout our delivery capacities. So this -- an end experience for their -- for the customers will allow us to expand our customer base, previous trends on cohorts and drive additional order rate frequency.So now I'll hand it over to Niklas for the guidance for Q4 2018.

[L. Niklas Östberg, Co]

Thank you, Emmanuel. So coming to 2018 guidance, which I will do as a bridge for the revenue side. Starting off with updated performance. Third quarter was above our expectations and we see this is about continuing in Q4. We see overperformance in our business with about EUR 27 million. This is driven partially by better returns than expected from additional investment but also less competition in some markets and in many markets also positive effect from competition. However, the EUR 27 million positive overperformance in business is also contoured a little bit by FX movements in Q3. This accounts for about EUR 15 million. This combined then puts our updated revenue guidance to EUR 780 million to EUR 785 million.In regards to EBITDA guidance, we remain in line with our previous guidance here. So no change in what we previously have stated. Both revenue and EBITDA guidance is order including the divestment of Foodora and noncore assets as announced at our last reporting. The impact of this was EUR 20 million in revenue for the first 9 months and EUR 30 million for the expected full year that those businesses would have driven.In terms of trading to date, we have continued to seek good opportunities across our business and had a good start in Q4, which is then also reflected in our guidance.With that, I'd like to thank you for your tremendous support in the last quarter. Yes, I'm obviously incredibly proud and pleased to be part of this amazing company. And I believe we have never been stronger as a company ever before. So thank you, everyone.I would like to hand over to operator, please, for questions.

[Operator]

We received the first question from Ms. Silvia Cuneo, Deutsche Bank.

[Silvia Cuneo, Research Analyst]

It's Silvia from Deutsche Bank, and I have 3 questions, please. The first is on the 2018 guidance. Can you please clarify the EBITDA guidance that you are reiterating? Based on the first half results statement, you expect the EBITDA margin to remain on the same level of 2017. So that's negative 17%. Should we apply this percentage to the midpoint of the new guidance you updated today? Second question is on the return on investments. Given the larger performance than expected in Q3, I was wondering if you want to give an update on your expectations for the revenue benefit of these new investments in 2019? And then finally, can you talk a little bit about the characteristics of the new cohort of users you are attracting with the new investments, like are they as loyal as the previous ones? Or maybe are they being more opportunistic to exploit discounts and promotions?

[L. Niklas Östberg, Co]

Thank you very much. So on the EBITDA guidance, I think the last thing we said was 5% to 8% plus EUR 80 million investment. I do not have the exact translation into the EBITDA on a total basis there, so you'll have to make that math. In terms of the investments and the benefits for '19, as I said, we are very happy with the performance here in '18. And that we have good returns. I'd like to still stay on the previous statement for '19. We do not know how these opportunities will develop. We are happy that we can deploy the full amount now and we feel confident that we can deploy the full amount next year as well. But I would not want to give an increase in hope there on increased return also for next year. This year is very good, but let's stick to the previous promise that we gave there. In terms of cohorts and loyalty and for the new investments. Here, we see actually pretty good cohort development in part because we don't really do discounts on our service. We see our competitors doing that a lot in many places, in particular, the newcomers coming on board, doing that a lot and kind of subsidize the business on a non-economical basis. So that's why I don't believe they will all make a profit. As soon as they try to turn this as a profit contribution, I think, they will struggle. And this is also why we work so hard on efficiency. So whenever can actually take affordability measures like delivery fees and so on down, we can still actually turn a profit contribution on those orders. So I think we are standing very strong there, but it also means that our cores are actually slightly better from the investments that we've done because we have also improved the product experience connected here. In terms of the pure market investment, you see roughly the similar cohort behavior of these investments as we did in the past. But I think on an average basis, slightly improving cohorts with this investment. I hope that answers.

[Operator]

The next question is from Mr. Mike Joyce, Goldman Sachs.

[Robert Joyce, Equity Analyst]

It's Rob Joyce at Goldman Sachs. So I've got 3 sort of areas for me. So firstly, just a follow-on from the last one. In terms of the EUR 80 million additional investments, can you say how much of that you've now invested? Where it's been invested? And maybe give us a bit of context around the returns you're seeing? Just some numbers would be helpful. The second one is on the relative market share data you gave. I was wondering if you could say sort of what percentage of your order base is now in markets where you have at least 5x the scale of your nearest competitors? And just on the markets where you said you gained the #1 position, can you say where relatively you were 3 years ago in those markets? And what you have done to go from #2 or #3 in those markets to become the #1 player? And then finally, just on your comments, just could you clarify. Were you saying you believe that the operators, you only have a logistics model sort of a Deliveroo, UberEats side. Do you think they will never be able to make profits running the models as they are? Is that what you're saying?

[L. Niklas Östberg, Co]

Thanks. So a number of questions. Hey there, Rob. Great to hear from you. From the EUR 80 million, we don't disclose how much has been invested but I think it's fair to assume that it's not a fair equal split. You should also not assume there is a 70-30 or something or -- well, in this case, EUR 60 million - EUR 20 million or so. It's more a fair equal split here so -- between the quarters, obviously. Then in terms of relative order basis, so how much is coming from markets where we are 5x larger? So I don't now have that in front of me. It's a large proportion. I think at IPO we said 60% is coming from there. I think it hasn't declined. It's probably rather increased, if anything. So I would say it's around a 60% mark we've got 5x or so larger. Then I think there's now 20-or-so percent where we are larger, but not materially. And then you still have 20-percent-or-so business where we're not yet leader, but that's my best estimate also today. Markets where we've taken leadership. And as I mentioned -- or we mentioned, Norway and Romania. If you look at those 3 years back, as I mentioned Norway was nothing. So we came from 0% market share to now being a leader. Romania, we had operations there, but we still have been continuously gaining share. And I think in particular last quarter was a very strong quarter for Romania. And some of these markets are almost committed to doubling of the business in almost no time here. So those are growing very fast. We'll see how the markets where we have deployed a little bit more capital and growth really, really fast. But then of course, what drives this? I think prior experience has been very strong and inspiring in those markets. This means by delivery experience. It means that we can get things faster. I think that worked in the brand. It worked on -- also on city expansions and so on. We have done a combination of marketplace and delivery, so this hybrid model is a very effective way of catering for both type of customers. In terms of the last question, this was around logistics, and my belief that they will not make profit. And here, I would like to be clear. They will not make profit the way they operate today. And as soon as they pull back, I think their growth will also be significantly hammered by it. So I think this is very cheap growth they're getting here. And it's very easy to make $0.80 when you give a penny -- or $0.80 when you give a dollar. And I think that's what you see in many cases. And as soon as they try to return this to a profit contribution, and in particular, a sizable profit contribution in order to cover millions of overhead cost that you have in many of these businesses, you will struggle to grow. And growth will not be in the hundreds but rather in the teens. And I think many players will see this challenge as they get there. So that's my view. As they change the business, growth will come down significantly.

[Robert Joyce, Equity Analyst]

Just one quick follow-up. Just on the where you -- could you say where you've invested the -- part of the EUR 80 million or so, so far, where that's been invested?

[L. Niklas Östberg, Co]

We have invested roughly, as we said before, a lot of investments have been in, say, affordability, product experience, but also some has been in the marketing. And of course, that's the larger lever we had on expanding in such a short term. We said that we will do that in some of the very early-stage markets where we see that we are a leader, but we are still very small in comparison to the opportunity at hand. And here we have examples as a little bit mentioned where we almost doubled the business in a quarter. So some tremendous growth in some of those markets. Then we also deployed a little bit more in some of our competitive markets to making sure that we actually gain market shares here. And I think we saw some good traction here as well as we did so.

[Operator]

The next question is from Jerry Barnet-Lamb, Crédit Suisse.

[Joseph Barnet-Lamb]

It's Joe Barnet-Lamb from Credit Suisse. So 3 for me at this point. Firstly, with regards to the strong contribution to the top line from your investment thus far and you're saying you're getting better returns than you were expecting. Could you give us any early expectations through into 2020 with regards to investments? Because obviously, you've increased this year, you're increasing again next year, but any early ideas with regards to your expectations in 2020 and your appetite for further investment? Point two, with regards to takeaway, you obviously printed very good numbers in 3Q in Germany. Can give us some detail on -- with regards to your German performance in 3Q and how you're seeing the market evolve? And then thirdly, so you're up to 15.9% of the orders from logistics. At IPO, you stated you didn't expect it to increase that materially from where you were, which was about 12%. More recently, you discussed it nudging up. Can you talk a bit about where you expect -- now where you expect that number to go on a 3- to 5-year view because it feels like your opinion is evolving little bit.

[L. Niklas Östberg, Co]

Hey. Thanks, Joe. Yes, so the better return, of course, encouraged us to continue to invest. I think, we said last time when -- before we start investing here, we said that this will give us roughly EUR 25 million in 2019, so the investment we do in '18 will contribute with EUR 25 million in the next year. While EUR 9 million will actually happen already in the first 2 quarters. So that means you can now deploy EUR 160 million next year. So then in that space. Then you will have 25 plus what you actually see in that year. As I said for the half year was 9, you will be a little bit more, of course, for the other portion. But that's kind of the EUR 9 million comes from an instant effect and the EUR 25 million comes from a full year effect, which you would then also expect when you go into '20, '21, '22 and so on that it will continue to have that basis coming every year. In addition, then as I said, or as we expect it, we continue to make this investment also in '20 and in '21. But of course, you will have more revenue expected coming out of it. Kind of added relative to what we do. We don't forecast. We don't give guidance to how we're going to invest in 2020. We'll have to see. You should also keep in mind that we are adding a lot of profit contribution every year. So as we grow larger, we get even more scale, we get more firepower to invest also organically from that growth. So we'll see if we need it or not incremental investments or not. We will discuss that more over the next year probably. In terms of Q3 Germany and disclosure from takeaway and the positive development. We were also very pleased with Q3 in Germany. We grew -- in that sense, we grew 13% with our main brand which is Lieferheld which is by far the largest brand that we have. So that grew 13% versus 8%. That gives you an indication that we grew 5% larger or faster on our core brand versus our closest competitor. So it was a very, very good quarter for us. I think, in general, we feel very happy with Germany. We don't disclose numbers, but from a revenue basis you know that we are significantly larger. If you look on a restaurant basis, we have 13,000 restaurants of Lieferheld alone and then an additional 2,000 restaurants in our premium brand. Our premium brand Foodora also continues to do really well. We operate now in 37 cities with that premium versus our closest competitor being Deliveroo, in the premium segment, which has now retrade and is only operating in 5 cities. So I think we have one best 5 again to add to the list of victories. In terms of GMV and orders, we don't disclose market shares because I expect that's also coming as a question. I think, in a larger city, we are significantly larger. In smaller cities, we are significantly smaller. On aggregated basis, which is pretty relevant, we're probably on a similar size. So -- but I think overall we feel very happy with the growth and that we actually have a strong growth direction. We see that investments we do are paying off. We still feel that we can invest more in the market given the returns that we are seeing. And we're still have a big lead until the investment levels of our closest competitor. But I think in next year, we plan to match the spending of our closest competitor. And that should give us a big boost in growth. Then on the delivery.So as we correctly said, we said at IPO that we expect it to increase marginally our delivery in the short to the midterm going towards the 50%. I think we have correctly said we have now grown to slightly above 50% in that period in that 1.5-year period. And I believe it will continue to grow. It's very hard to break it into the 3 to 5 years, but you will see in the 20%, 25% in the short to midterm, that's what I expect. And where it lands in the long term, I do not want to give a prediction there, like I didn't want to do at IPO either. I hope that answers your question.

[Operator]

The next question is Giles Thorne, Jefferies.

[Giles Thorne, Equity Analyst]

I have 3 questions please. Starting with Germany, it feels like you're gradually or increasingly coalescing around the Lieferheld brand. We've had Foodora cross listing for a while and pizza.de isn't getting any of the bump in the line of marketing, any digital spend. So my question is do you envision a future where the personalization and recommendation engines you're working on are going to be good enough that you could segment the German market within a single brand, within an app experience rather than using the current multibrand approach? Second question was on multi-vertical marketplaces, delivering things other than food. It'd be interesting to hear you define the tipping point, which you would choose to move to control of Glovo or Rappi and start to explore that technology around the group rather than build the capability out organically? What are you looking for to make that switch? And then lastly, the Talabat COO has had an interview that Talabat is looking at regional expansion, which seems to cut across most of your M&A today. So it'd be interesting to get your commentary here.

[L. Niklas Östberg, Co]

Perfect. To start then with Germany. So you're correct that we are investing more on the top of minus 1, and on the main brand which is Lieferheld and on the premium on Foodora. While we only do kind of the very efficient marketing standing on the pizza.de brand. So, yes, having a position in the app store, making sure that we get the organic free traffic that we don't have to pay for and so on. And that's why -- but I'd rather keep just efficient spending there but actually more the brand as long it's more of a clear investment into Lieferheld brand. I think I said also in probably 3, 4 quarters ago that I believe that in the long term, our recommendation engine is so good that potentially could cater for both segments. I think that still holds valid. And I think we are getting much better on the recommendation side and so on. It doesn't necessarily mean that even if you can cater for multiple segment in a brand, you might still want to do 2 brands just for the fact that it get on a cheaper marketing spending and return there. So I keep that open. But I think for right now, we are operating on a clear core brand strategy where we'll only do the very efficient marketing spending where we have a very high return on the other part. On the multi-vertical, we want to control these other -- here we actually took the decision to actually build out those capabilities ourselves. And I think in many places, we are already ahead of most other players. And obviously, we know very well what they're doing and we partner a lot on that so we learned a lot. But I think here on the multi-vertical, in places like Argentina, we are the best multi-vertical platform out there, end of period, stop. Full end. And we will be the best multi-vertical platform in markets like [Foreign Language] brand. We also have strong multi-vertical in [indiscernible] building multi-vertical in the Latin America -- sorry, Middle Eastern market based on the experience in the global product we build on in multi-vertical. So I already think that we have what is needed there. And this is, of course, very much news for investors, that we have those capabilities. But this is something that's seen now for over a year. We have been exploring these opportunities and looked the possibility of this happening and have been developing our multi-vertical as one for quite some time now. So I think we have a strong set up here and little need for acquiring that. In terms of -- having said that, we do selectively this. In some markets, this works and in some markets it doesn't. Or the unit economics doesn't. Maybe the consumer does but the unit economics won't and therefore we are very pragmatic on where we can actually make profit -- long-term profit and not merely boost our top line growth because that's pretty relevant if we can't turn it into a profit in the long term. Then on the regional expansion on the Talabat. I think what he is referring to here is that we are actually moving that platform, it's a core platform of ours. And therefore, we're building also our deep -- the de platform is actually migrating into the Talabat platform. This is more an expansion -- a technology expansion rather than market expansion that we see there. We do not plan at the moment for any further expansions than that.

[Giles Thorne, Equity Analyst]

Very good. And just a brief follow-up and it's a closed question, so I'm not hogging the floor too much. But where you do overlap with Glovo and Rappi geographically, is it fair to say you won't build an organic ability in multi-vertical?

[L. Niklas Östberg, Co]

We're building organic capabilities. So in overlap -- so for example you have those players in some of the Latin America markets and we have built capabilities and we believe that with our organic capabilities and the product experience that we've seen now in markets where previously we weren't operating is already ahead of our competitors. We have better shades, we have better brands, we have better selections, we have way more orders on the verticals than they have. So I think on this end, we are already ahead of the game. And that is already organically set up in those.

[Operator]

The next question is from Sarah Simon of Berenberg.

[Sarah Simon, Analyst]

Three questions from me. First one is on a comment earlier in the presentation where there was some comment about holding EBITDA flat in one of the segments, I just didn't catch what was said there. Second was on delivery. Niklas, you mentioned in a couple of different geographies, you're already delivering the same contribution. Can you -- for delivery as marketplace, can you just give us an indication of how many orders or deliveries per hour you are doing in order to hit that breakeven? And the third question was just on cloud kitchens. You've talked before quite enthusiastically about that, but said you weren't actually investing in them yourself. Are you still of the view that you don't need to build them and you can leave it to other people to do that?

[L. Niklas Östberg, Co]

Thanks a lot. The first question -- I'm sorry, the first question, I didn't get exactly. You mentioned the holding EBITDA in some segment? I'm not sure.

[Sarah Simon, Analyst]

There was a comment certain -- much earlier on in the presentation about EBITDA being held flat or breakeven or something for one of the geographies.

[L. Niklas Östberg, Co]

I -- that must be...

[Sarah Simon, Analyst]

It's okay. I'll get it from the transcript later.

[L. Niklas Östberg, Co]

And then, on the delivery, so I should point out we're almost at the same level now on per order basis. And then the question, what efficiencies do we need or what utilization or throughput do we need for getting there. We actually don't disclose -- I think when we at IPO, we said that we would need to go to 2 or 2.2 or so on, it's a little bit different by segment, regions and so on. Also the possibility of increasing utilization is also very regional differences that they have there. As we worked harder on affordability, we also work harder on efficiency utilization. So that number is now higher. But we do not disclose at the time like what level do we need to be in order to make a profit contribution, but it needs to be higher with the push for more affordability, meaning lower delivery fees. And I think we are at levels where our competitors will struggle as they don't have the scale that we do. In terms of cloud kitchens, I think what I said in the past is that there will be a change in the business. We see that more restaurants will build pure take-away kitchens and rather than restaurants. And we are a core part of driving that change. We also have quite a large number of them that are involved in one or another way. What I said in the past is that we like to avoid becoming kitchen operators to the largest degree possible, because what we are good at is on the data side, what we're good at is on the user experience side, and the other people are better at the cooking side than us. And so therefore, we try to avoid it to the degree possible and find other ways so that we can actually influence this industry in our advantage without having to go into the operation line where they're operating out of 10,000, 20,000 kitchens because that's what's needed in order to actually make a difference. Building 100 kitchens is useless, or even 200 when you already have a few hundred restaurants on our platform. So in order for us to make any difference it needs to be 20,000, 30,000 restaurants. And of course, you have a lot of operational nightmare if you do it yourself. So I think we have some very good solutions for you. But we'll wait with more details on how we think about this.

[Operator]

We'll proceed to our next question from Mr. Marcus Diebel, JPMorgan.

[Marcus Diebel, Research Analyst]

It's Marcus Diebel, JPMorgan. Three questions from us as well. And the first one is again on Norway. You answered the previous question what the market share developments and why you became the #1 player now. Could you elaborate this a bit more what will happen? Is that really a function of tech, is it a better user experience, is it because of tech your deliveries are faster? Or is it because you bring other restaurants? Any more color on that would be quite helpful actually. And secondly, you talked a lot about the profitability in delivery. And then you used some of the gains and the efficiencies that you got here to be able to give lower fees or lower affordability. How far do you think is that going to go in terms of like bringing fees down? And also, what is your early learning in terms of how elastic the market actually is? How elastic is the consumer when it comes to cuts in delivery fees? And then thirdly, very quickly on France. If you could give us maybe a short comment why you left the market? And what the dynamics actually are in that market.

[L. Niklas Östberg, Co]

Perfect. So in Norway, I think here, it was that we came in with a very different offering from the existing player. We did do own deliveries and we saw that as necessary for that market. And on top of that, we also then build the marketplace while our competitor was probably a little bit hesitant to build delivery. I think they start changing their view there. But they were slow to adopt to the changing environment, where we actually control user experience in a much better way, you can add better restaurants and so on. And I think that's something that we started investing in 3, 4 years ago. And where we're building our capabilities such that we wouldn't give the space for someone years to come, with a bursting for a delivery solution and take that much market share. So I think the core there was that we could build a better user experience and better restaurant selection actually because we had delivery as a portion of our business. And now we combine that with the marketplace which stands as a hybrid model, which we believe is by far the strongest. In terms of profitability per delivery and elasticity. Well, we are -- we tried to prepare ourselves for where there is no delivery fee and make -- still try to make a profit contribution on that. But I think, in some markets it's possible, in other markets it's probably going to be very hard. But that's where we try to operate as much as we can so that we can charge the lowest fee possible and if we make a profit contribution per order and we are more efficient, then we know that our competitors won't. So therefore, it comes back to the point and we want to make us so efficient that no one can make profit in our markets if they want to keep up with our efforts and affordability as well. The elasticity is a little bit different market by market as well. Some markets are a little bit more elastic than others. But yes there's -- it's a little bit market by market there. I think -- yes. So that is probably what I can say. In terms of France. We think in general being a delivery only is very tough, the economics is very tough. And we are not strong advocates of being that. And this is particularly true in markets with high regulation. Low income disparity, high delivery cost. Yes. And again, particularly highly regulated market I think it is very tough and very difficult to make a long-term sustainable business model around it. And then, on top of that, if you are a clear or distant player to the market leader, it makes a very unattractive proposition because you don't have the scale of actually building efficiencies, you don't have the scale to have the user and brand recognition and it's just a very unattractive proposition to be a #2 and delivery only. So that's why we left nothing, we will see other players doing the same over time as the delivery economics is not very attractive there.

[Operator]

We received our next question from Miriam Adisa, Morgan Stanley.

[Miriam Anuoluwapo Adisa, Equity Analyst]

Three questions for me. Firstly on Argentina. So I understand the underlying business is developing well, but to see hyperinflation impact change your strategy or your thoughts around capital deployment. And secondly, on the take rate, excluding delivery, so you're still only around 11%. Given the fact that you have extended your leadership position in some of your markets, do you perhaps feel that you could be more aggressive now on the marketplace commission? And how should we think about that over the medium term? And then, thirdly, if you could just share with us the percentage of restaurants where you have exclusive contracts?

[L. Niklas Östberg, Co]

I think -- do you want to take the first one?

[Emmanuel Thomassin, CFO & Member of the Management Board]

Yes. The first one is on Argentina obviously, I would say a technical measure that we took like the IAS 29, we have to follow this. I don't think this has direct -- it doesn't have any impact on our strategy on the country. We will continue to invest. As Niklas I mentioned before, we're looking also to add a new vertical to Argentina. We are successful there. So their hyperinflation is something that is taking place for the next -- for the last 2 years, but we continue to invest in these countries. We remain confident.

[L. Niklas Östberg, Co]

I think in general, when we do investments, we do calculate on an expected lifetime value and we will look at our customer acquisition cost as one. So of course, that is daily changing and we have to apply different risk profile starting in January. We're very happy with Argentina. We feel like we're in a very strong position. We feel like it's a very strong business. It also means hyperinflation also means that our costs also get adjusted. So I agree with Emmanuel there. On the take rate, yes, we are still very low, but we also feel like we're very early in the stage in our market. So I think in markets where we feel like we are a little bit more developed, so speaking about the Nordics, we are close to the 18% take rate without delivery. But then, as we said, in a group we're 11% or 11.6% or so for the group. And we still feel like when you're such a small part of an opportunity, your focus -- or our focus, at least, is way more on making sure we get the best accounts in our platform, make sure of the user experience, making sure that we actually grow and can keep our growth rate at the 45%, 50%, 60% because that is a larger impact. And of course, it's very nice to know that we have a take rate that we always have some margin for the future. But I think right now the focus is more on other aspects. So this is more on the 5 and the 10 years kind of positive tailwind that we will have. In terms of percentage exclusive, it's very hard to say. I think in general we don't think of exclusive, we don't really necessarily work that way. We have recognized a lot of accounts rather prefer to work exclusively with us. And that's kind of how I like it, we want to give a good service and therefore they choose to work exclusively with us. I think in Middle East, that's very common, also partially because we have so much more scale. I think in other places, less so. But that also goes by the way. We don't know any other company who has an exclusive that actually is against us. So other people spoke about McDonalds and so on but we have McDonalds in every market, so -- or close to at least. So that also goes by the way, that there is no one is exclusive against us. There are a number of accounts that choose to be exclusive with us. But I cannot give you a percentage here.

[Operator]

Our next question is from Jurgen Kolb, Kepler Cheuvreux.

[Jurgen Kolb, Analyst]

Most of my questions have been answered. But Niklas, I think in your prepared words, you said -- you talked about, in some markets, you're seeing competition coming down a bit. Was that just exclusively with respect to Norway and Romania, where you have taken market share or market leadership? Or were you referring to other markets as well? And here specifically, maybe some comments on what you're seeing in Korea currently in terms of market developments? And maybe also the other way around where have you been seeing market competition increasing in fact?

[L. Niklas Östberg, Co]

I think maybe I should rephrase it a little bit. I don't necessarily see that it's coming down, but we probably expect tougher competition, in some cases, than actually we have seen. And tough competition doesn't necessarily mean someone investing money or not because I think there's a lot of money invested in this space. It's more that we haven't seen them operating the way we think is best practice. And therefore, we tend to feel that we're actually getting a benefit from their investments because we still have -- if we feel like we have a better product, better prior experience, better restaurants than someone investing a lot of money, that's good for us. That makes us grow faster because -- yes. So I wouldn't say that it's necessarily that they have come down. It's probably more that less than expected or a possible effect from it. In terms of Korea, yes, I think we don't feel different now than before. We have a very strong business, It's been profitable for quite some time. We see a big market, so therefore we take the profit, we increasingly reinvest that and will probably reinvested it for quite some time because we see good returns there. So -- but we see slightly different market dynamics than in other places. In terms of increased competition. Yes, I think in general, people realize that this is a big industry and a lot of people are coming in. So I think competition has been tough for the last 2 years. I think sometimes, a little bit more sometimes a little bit less. Yes. We're probably somewhere in the middle right now. Neither more nor less. I think also that the most important aspect here, by far the largest competitor, and here really by far, that's the telephone. In many markets, we are 10% of the orders and even if the competitor would be 5% of the order, it still means that the telephone has 85% market share. And that's what we fight for. And that's -- we want to take as much of that market share as we possibly can. But of course we know that others try do that, too. But I think we're in a strong position to take the larger portion of that future markets.

[Operator]

Next question is from Hubert Jeaneau, UBS.

[Hubert Jeaneau, Director and Research Analyst]

I have 3 questions as well, please. The first one, you mentioned Deliveroo retreating in some cities and obviously, you had a very good quarter in Germany as did your competitors from takeaway. So just wondering if there was a little bit of pocket of air basically from flattening growth rates from the retreat of Deliveroo? Or if you think that was a minor impact? And the second one is on -- again, on the likes of Deliveroo, which we have seen move in the U.K. and in other markets from logistics to a hybrid model. So switching to marketplace, is that a trend that you're seeing in other markets? And my last question is on cloud kitchens. Just wondering if you could give us a little bit of an idea of the current scale of those operations for you? And the capital needed to kind of grow that business.

[L. Niklas Östberg, Co]

So on the first one, if our positive quarterly development was impacted by a Deliveroo. And I think unfortunately probably not. I think their market share prior to this was in order of magnitude 1% to 2%. And, of course, the order development of those obviously, this was probably small. So I think the impact from that can by definition not be more than the size that they have. So therefore, that will be very marginal. It would be below the 1% impact there, if any. Then the question I'm not sure if I understood the second question with those can you repeat the second question.

[Emmanuel Thomassin, CFO & Member of the Management Board]

The switch from Deliveroo to marketplace.

[L. Niklas Östberg, Co]

So the switch there, I think, in general and that's where we see if you don't have a proposition that covers the full spectrum of customer preferences, there will be someone coming in and taking big market shares gain. And I think in U.K., they probably were not very protective of this, the focus on the marketplace, which might be a value strategy for actually generate EBITDA and so on. But it's not a valid strategy for keeping market share because it gives someone a lot of room to expand and grow. We took that effort, we said we'd rather make these investments and we'd rather make these investments fast and early. And therefore, we didn't have the effect of Deliveroo and so on and other markets because we already have a value proposition that was equal or better than the competitor. So therefore, we saw -- we never saw an impact in any of our markets really where we had this.

[Hubert Jeaneau, Director and Research Analyst]

Sorry just on that question, just to clarify, I was referring to Deliveroo moving from being a logistics to a marketplace player. And I so was wondering if you had seen Uber Eats for example or the likes of Grab doing the same. Sorry, about that.

[L. Niklas Östberg, Co]

Yes. I think it's also something that is -- it's actually much harder to build up that marketplace. I know it's a little bit harder and nonintuitive but it's very hard. I think if you come to Just Eat and marketplace, Just Eat will dominate it. There's no question, it's irrelevant. I am very bullish about Just Eat being the market leader in the marketplace business. They have a lot of advantages here and that's a fact; the scale, they have more orders. You cannot control the experience because you're reliant on the marketplace. And when you do 8 million, 9 million, 10 million orders, I don't have the order numbers here because I'm in the U.K. But they have a very large number of orders. They will have much better experience on the marketplace then the competitors trying to add this hybrid model. So I think, this will be a very marginal portion of their business. I think it's very hard to scale that area. And I also, don't see them really doing that in other places. Or if they have, it's rather a very, very small portion of the business. And I believe it will remain a very, very small portion of the business. Then on the cloud kitchen, sorry -- hope that answered. And then on the cloud kitchen scale, yes, in order for it to be relevant, as a -- for the marketplace, it needs to have a significant number of restaurants. That's why I said in order to actually having a scale it cannot be 100 restaurants, it's irrelevant, at least from the platform perspective. And we see, although that we see that there is some benefits on these cloud kitchen's basis, but the biggest advantage to have is, of course, to have platforms backing it. So the combination there is very critical because the biggest loss that the restaurant is doing is actually to test the new brand, maybe realize that, that brand didn't work, than building up scale. And it would take a number of months until they realize that this business model works and scale and so on from it. And of course, that is the advantage that players, like platforms like ourselves have a big advantage that we can A B test things much faster. We can help the restaurant be a bit faster, we can very quickly get them toward the volume that's necessary to breakeven. So therefore, the investment is necessarily there unless you really want to build your kitchens and hire your own chefs and so on, it's going to be very low. We try to find a way where we actually don't have to invest a lot of money but still be very relevant in this space together with the restaurants and them as partners.

[Operator]

Our next question is from Andrew Ross, Barclays.

[Andrew Geoffrey Ross, Research Analyst]

Just 2 more please, back on to Germany, I'm afraid. So just on Lieferheld, you said that it grew 13% Q-on-Q in Q3. Can you give us a sense about what that was year-on-year? And I appreciate if you don't want to give your order number or all three brands all in. But can you give us a sense about what Germany in aggregate grew year-on-year in orders? And then, follow up on Germany. Interested on what you're saying in terms spending as much as your competition next year. In a hypothetical scenario where spending as much as your competition, rolling out your personalization algorithms, putting more stuff behind Lieferheld isn't enough to stand market share loss, what happens next? Would be interested in your thoughts on that? Despite that Germany is your home market and make it win at all cost, so you start spending more? Or are there other scenarios you might explore at that point?

[L. Niklas Östberg, Co]

Yes. So we do not disclose any additional information and we felt that we're very generous already here. But in general, we feel very good. Our business is growing really nice, the development is good, not only because of investments, but really the focus over the last couple of years in operation, product, initiatives, retooling of platform, additional restaurant coverage, having chains like McDonald's, Domino's, Burger King. All of that is actually driving the growth. As we now, invest a little bit more, we also see that this develops really well and we've proven that we actually can grow faster than our closest competitor. We are still very far from the levels of them but as I said before, we plan to move to the same levels as our competitors, so we match what they do. And I have no doubt in my mind that we would not grow faster if we invested at the same level. I do not see why that would be the case if you're already now growing the pace that we do. So I -- there's just not a single doubt in my mind that we will grow faster if we do and therefore I don't really see why -- we don't even consider that turn of events.

[Andrew Geoffrey Ross, Research Analyst]

Just to be precise, when you guys speak of levels, level of investments, obviously?

[L. Niklas Östberg, Co]

Yes. Level of investments. So we're all moving up the investment, we're still below, but we -- that is where we plan to change them next year when we plan to move them on the same level. And then I think that makes sense based on the returns that we actually have seen in the increase we have done now, we feel comfortable that we can increase more on everything, if that makes sense. And I have no doubt that we'll grow faster. I hope that answers.

[Operator]

The next question is from John King, Merrill Lynch.

[John Peter King, Research Analyst]

Three quick questions, I hope. So firstly, maybe Emmanuel, if you can you just give us a comment roughly what kind of orders you need to get to your guidance in Q4. We're just trying to work out the mix between take rate and order growth given that the take rate was pretty strong in this quarter? Secondly, could you clarify how much money you've recouped from the divestitures of Foodora? And finally, in terms of fee, I think a follow-up from Joe's question around EUR 160 million of investment next year. So just from your answer there, should we think about that as essentially something that you grow into and there's not necessarily a step function back up again in terms of EBITDA or sort of a semi-permanent investment?

[Emmanuel Thomassin, CFO & Member of the Management Board]

So you're asking for the numbers of orders we need in Q4 according to the take rate, right, to get to our guide?

[John Peter King, Research Analyst]

What do you have baked into the midpoint of your guide in order to get to the guidance for the year, what you need in Q4 for orders?

[Emmanuel Thomassin, CFO & Member of the Management Board]

To get us to the guidance would be like for the Q4 would be 190 million orders is what we really need to get to the guidance, as we mentioned before. The second one -- second question. Sorry, what's your second question again?

[John Peter King, Research Analyst]

Just say if you could tell us what you've recouped in terms of the divestitures from Foodora. How much cash have you gotten back from that?

[L. Niklas Östberg, Co]

Well, actually as we did invest -- we sold I mean, we don't disclose the numbers the purchase price and so forth that we are -- get from Italy, as you know. I mean, we sold it to global and the rest of the company that Foodora is the investment. So in France, in Australia and Netherlands, that was the investment that we did. So we didn't get any kind of merchant price or whatever.

[John Peter King, Research Analyst]

And EUR 160 million investment for next year?

[L. Niklas Östberg, Co]

Can you clarify the question? I'm sorry for...

[John Peter King, Research Analyst]

Yes. I guess the question because when I think last quarter, you announced, I think the idea was this was kind of somewhat of a one-off or a two-off investment where you'd seen opportunities to deploy and then that would essentially be a couple of years of investment and it would come out, but I felt as though it wasn't a clear response.

[L. Niklas Östberg, Co]

No. Good. So right now, we do see that opportunity to invest more and so on. At the same time we also see in a lot of markets over time, when you start having larger penetration of the market, when you start reaching a 30% penetration or 35% penetration, that you grow so fast organically that it makes no sense in spending so much money for accelerating the growth of taking the last 65% of the market. And we would only expect there would be a few percent that always will keep on telephoning. So therefore, we see, in some markets we're actually -- market spending is actually pulled down because the efficiency and so on is actually less. So therefore, that marketing as a proportion of revenue starts moving towards a 10%, or less even in many places. But I think in the foreseeable future we see that we're so early both in the off-line to online but also the expansion of the market, the increased convenience moving us along. So therefore we think in this short, and the mid- and the foreseeable future, we will keep investing and you should expect that we will have this kind of investment around also going forward for our foreseeable future at least.

[John Peter King, Research Analyst]

I was just going to say also on the take rate comment, that also seems the same vein in the sense that no urgency to push the take rate up over the next 2 or 3 years, basically?

[L. Niklas Östberg, Co]

Correct. That is correct. That's how we see it. We think it is better long-term for our business not to pull that yet, and work on that but rather focus on other areas. I understand the market would probably love it, but we are here to build long-term shareholder value rather than the short term. That's why we would rather optimize on the business and the performance and the competitiveness of it rather than focusing now on take rate too early. Also like to highlight that the order growth there that is said, I think is consensus what is expected there? I think that is a very tough consensus that the market is putting on us here. That means that we're actually growing orders from 102 million in a quarter to 119 million. That's 17 million increase in orders in 1 quarter. Our best quarter historically has been 11 million orders increase. So just so you're aware this is aggressive. And we will have to work day and night, morning, evening, Christmas Eve to get those numbers. It's going to be tough.

[John Peter King, Research Analyst]

Good. But that's what you expect?

[L. Niklas Östberg, Co]

Expect is probably the wrong word, I think that would be a tremendous outcome.

[Operator]

We have no further questions. [Operator Instructions] As there are no further questions I will hand over to the speakers.

[L. Niklas Östberg, Co]

Then again, thank you very much for joining this call. I cannot say enough how much I appreciate the support that we get to the market and the help and the positive feedback that we're getting. As I said before I'm incredibly proud to be a part of this amazing company. I think what we're doing right now is incredibly good and it will benefit the company over the next 10, 15 years. And then, yes, I think we have never been stronger than now. So I want to thank you very much for support.