(Bloomberg) -- Shares of Delivery Hero SE fell more than 12% on Monday, the most in five months, after the German delivery company said its decision to re-classify drivers in Spain as employees will dent profits.
Delivery Hero is moving drivers from freelancers to full-time staff for Glovo, its Spanish unit, “to avoid further legal uncertainties,” the company said in a statement on Monday. The company said the shift would shave €100 million ($105 million) off its adjusted earnings before interest, taxes and amortization in 2025.
The business model of delivery app companies, which typically relies on gig economy labor, has been the subject of fierce debate around the world for years. Spain passed Europe’s first law to turn delivery riders into employees in 2021 and a labor union in the country filed a complaint against Glovo, accusing the business of defying the spirit of the law.
Delivery Hero and its peers argued against a similar initiative at the European Union. The company also faced a formal EU antitrust probe involving Glovo, which Delivery Hero warned could bring a fine above €400 million.
“If what the company says turns out to be true, we demand transparency in its algorithmic system of work organization so that it can be audited and negotiated,” Riders x Derechos, a Spanish labor association, said in a statement.
Bloomberg Intelligence analysts Tatiana Lisitsina and Diana Gomes wrote in a note on Monday that Delivery Hero’s profit warning implies a “consensus downgrade of about 9%” in the company’s profits. They added that they expect the re-classification could bring higher fees that impact demand.
Last Friday, Delivery Hero set the initial public offering for Talabat, its Middle Eastern unit, at the top of its price range, implying a market capitalization for the business of $10.2 billion. The parent company had a valuation of €9.9 billion ($10.4 billion) after the share drop on Monday.
--With assistance from Clara Hernanz Lizarraga.
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