ii view: Just Eat prioritises investment over profit

Shares for this pandemic winner are down 20% since late October. A long-term buying opportunity?

Full-year results to 31 December 2020

• Revenue up 54% to €2.4 billion
• Adjusted earnings (EBITDA) up 18% to €256 million

Chief executive Jitse Groen said:

“2020 was an exceptional year for Just Eat Takeaway.com. Right before the completion of the merger between Just Eat and Takeaway.com, the world was hit by Covid-19. This brought unprecedented challenges to our restaurants, consumers as well as to our organisation and staff, but it also created tailwinds for our business. 

In the second half of the year, we increased our investments into the legacy Just Eat business significantly, building on our position as one of the largest food delivery companies in the world. Our revenue grew 54% in 2020, and we expect a further acceleration of our order growth in 2021 compared with last year.”

ii round-up:

Founded by five Danish entrepreneurs in 2001, Just Eat Takeaway.com (LSE:JET) launched in the UK in 2006 and came to the stock market in 2014. The company gives consumers online access to a host of restaurant takeaways.

Early in 2020, Just Eat and Dutch company Takeaway.com combined. Today, core countries of operation are the UK, Germany, Canada and the Netherlands. It combines other countries under its Rest of the World segment which is made up of Australia, Austria, Belgium, Bulgaria, Denmark, France, Ireland, Israel, Italy, Luxembourg, New Zealand, Norway, Poland, Portugal, Romania, Spain and Switzerland. 

In June 2020, it launched a deal to buy US business GrubHub (NYSE:GRUB) which is currently expected to complete in the first half of 2021.

For a round-up of these latest results, please click here. 

ii view:

The technology platform for this Amsterdam headquartered company connects over 240,000 restaurants to consumers. It mainly collaborates with delivery restaurants, but also provides its delivery services to restaurants that do not deliver themselves. 

The combined Just Eat Takeaway.com competes with global rivals such as Uber Eats (NYSE:UBER), Deliveroo and Delivery Hero (XETRA:DHER). Just Eat Takeaway.com is the market leader in the UK, in terms of orders. UK orders processed over 2020 totalled 179 million, up 35% on 2019 and aided by partnerships with McDonald's (NYSE:MCD) and Greggs (LSE:GRG). Orders processed in Germany rose by 62% to 112 million while orders for its Rest of the World segment increased by 29%. Total overall orders processed during 2020 rose by 42% to 588 million.

For investors, intense competition continues to bear down on delivery fees as increased costs and ongoing investment drag on profitability. Integration risk and full clarity on Grubhub and its US strategy also overhang while vaccination rollouts and a return to some normality may well see growth slow later in 2021.  

That said, a coming together with Takeway.com and potentially Grubhub creates a food delivery company truly on the global stage. Tightening gig economy regulations in Europe are likely to hit rivals harder given Just Eat’s existing courier employment benefits, while the current emphasis on investment over profits appears to be playing the long game. For now, and while a share price fall of around 20% since late October underlines caution, an analyst’s fair value estimate of around £111 per share suggests plenty more potential long-term growth to come. 

Positives: 

• Diverse geographical markets
• A potential combination with Grubhub moves it into the USA

Negatives:

• Intensifying competition- Amazon has an interest in Deliveroo
• A pre-tax loss made for 2020

The average rating of stock market analysts:

Strong buy