Food delivery provider Deliveroo PLC has notified investors that one of its main rivals, Delivery Hero SE, had acquired 5.09% of its outstanding shares.

CNBC reported the news this morning. Deliver Hero’s investment, which is estimated to be worth about $400 million, sent shares of Deliveroo soaring about 10% at one point to their highest level since the company went public earlier this year.

Deliveroo ended today’s trading session on the London Stock Exchange up 6.4% from its last closing price. Shares of Delivery Hero declined 3.2%.

London-based Deliveroo and Berlin-based Delivery Hero are two one of the largest food delivery companies in Europe. The former company has a market capitalization of about $8.6 billion, while the latter firm is worth approximately $37 billion. Delivery Hero previously bought stakes in several other competing food delivery providers.

“Delivery Hero is always looking for new investment opportunities,” the company told Reuters in a statement. “We strongly believe in the future potential of the delivery industry as a whole and therefore decided to purchase shares in one of the companies that is at its forefront.”

Delivery Hero’s investment comes about a month after Deliveroo reported that the gross transaction value of orders made through its app jumped 81% in constant currency during the second quarter, to 1.73 billion pounds. Gross transaction value is a metric separate from revenue the company uses to measure total user spending.

The increased spending was partly attributed to a jump in the total number of orders placed during the second quarter. Orders shot up 88% year-over-year, to 78 million, Deliveroo disclosed.

Deliveroo’s strong growth in recent months was likely a key factor behind Delivery Hero’s decision to invest. Another contributor to the decision may have been the fact that Delivery Hero doesn’t have a substantial market presence in the U.K., where Deliveroo generates the bulk of its revenues. The 5.09% stake that Delivery Hero bought in the company gives it a way to capitalize more directly on the continued growth of the U.K. food delivery market.

Amazon.com Inc. had bought a 16% stake in Deliveroo last year. The online retail and cloud computing giant sold an estimated 90.87 million to 107.18 million pounds’ worth of shares when Deliveroo held its initial public offering this April but still retained a more than 10% stake after the IPO. 

Like many of the other major players in the food delivery market, Deliveroo is not yet profitable. But the company narrowed losses to 231 million pounds in the 2020 fiscal year from 317 million pounds 12 months earlier, even as revenues increased 54%, to 772 million pounds. Rival Uber Technologies Inc. is also moving closer to profitability, having told investors last week that it expects to achieve positive adjusted net income before interest, taxes, depreciation and amortization by year’s end.

Deliveroo’s losses have been narrowing even as the company continues to make major investments in driving revenue growth. “Deliveroo sees an opportunity to make further discretionary investments into growth opportunities in the second half,” the company told investors last month. Around the same time, Deliveroo announced plans to hire another 400 technology staffers to support the expansion of its grocery delivery service, the Signature order management software it provides to restaurants and other offerings. 

Photo: Deliveroo