Just Eat Takeaway (NASDAQ: GRUB) - European food delivery platform. With the purchase of GrubHub, the company gained a significant presence in the US and a chance to turn a profit in the uncertain future.. But the dynamics in the industry and in the labor market play against the company.
What do they earn
This is a food delivery service from the Netherlands.. The company just this year took over a similar American company, GrubHub., so there is some difficulty in calculating, which half of the company how much revenue does: a unified annual report has not yet been released.
So I decided to do this – take the GrubHub and Just Eat reports for 2020 and submit, what would the combined company look like in terms of the results of 2020 in terms of the geographical section of revenue. Important, that GrubHub's revenue was calculated in dollars, and Just Eat - in euros, therefore everything is calculated in euros at the exchange rate for 31 December 2020 - 1 $ = 0,8185 €. Here's what happened:
- USA - 38,22%.
- United Kingdom — 18,67%.
- Germany - 9,63%.
- Canada - 13,26%.
- Netherlands - 4,48%.
- Other, unnamed countries - 15,74%.
Both companies were unprofitable individually - and remained unprofitable together.
Number of restaurants on the Just Eat Takeaway platform, in thousands of pieces
| 1п2018 | 209 |
| 1п2019 | 285 |
| 1п2020 | 426 |
| 1п2021 | 588 |
209
Arguments in favor of the company
Just growth, just promising. If you forget for a while about the chronic unprofitability of this business, the company has a high revenue. Even in her reporting, she skillfully juggles numbers and terms.: "Adjusted EBITDA", "high level of customer confidence" and other internal metrics. And due to this mathematics, Just Eat, in principle, can successfully pretend to be a promising business., who has room to grow.
The company is favored by the socio-political landscape of the “post-pandemic” era with periodic introductions of quarantines, when restaurant visits are drastically reduced and this increases the demand for delivery services.
Investors continue to show interest in this area: over the past few years, private investors have invested as much as $ 7 billion in an even crazier idea - 10-minute delivery from supermarkets. That fact, that people are ready to invest large sums even in such projects, where the probability of profit remains illusory, talks about, that, in principle, the delivery sector still has considerable attractiveness in the eyes of investors. This, in theory, could contribute to the further growth of Just Eat shares..
As the largest delivery service in the world, Just Eat can still remain attractive for investment, despite the highly questionable future of the business model. P / S u Just Eat is located in the area 4, which is about 4 times less, than its competitors from DoorDash.
Also, a plus can be considered, that Just Eat is the market leader in Europe. This is where the virtues of Just Eat end..
Just Eat Takeaway Target Audience Reached by Country
| Covered target audience from the general population | Population of the country from 15 years, million | |
|---|---|---|
| Netherlands | 40% | 15 |
| United Kingdom | 32% | 55 |
| Germany | 19% | 72 |
| Australia | 19% | 21 |
| Canada | 18% | 32 |
| USA | 12% | 270 |
| Estonia | 6% | 40 |
| Italy | 5% | 52 |
| Share in these countries as a whole | 14% | 723 |
What can get in the way
Sisyphus as Employee of the Month. The company declares, that its delivery is already profitable in Canada and close to profitability in Germany. But it still needs to be checked., it's very likely, that the company considered all this as “adjusted EBITDA” and there is no real profit there.
The food delivery market is extremely competitive, and Just Eat does not show a significant advantage over competitors in such an important metric, how is the delivery time of the order. And this is a very important parameter., which attracts customers, - investments in maintaining even the existing level will devour the profits of Just Eat.
Let the company be the leader in Europe, but in the most important US market, it is inferior to DoorDash and Uber.
Meanwhile, in the labor market in the US and the UK - and these are the main markets of Just Eat - an unfavorable situation is developing for delivery services.: increasing employment and competition for workers. The entire courier business is based on the low-paid work of couriers.. But when better companies suffer from a shortage of employees, competition for the available pool of labor intensifies.
The most skilled of couriers can, for example, go to waiters, where there are good chances of getting a decent tip. Strictly speaking, the increase in the number of voluntary layoffs in restaurants in the United States does not mean, that soon Just Eat will receive many cheap couriers, a about, that these people go to promotion in a more interesting industry, and the competition for couriers will soon intensify.
Quarantine no longer interferes. If there was a new large-scale quarantine - like in spring 2020, then a wave of mass layoffs would lead to an improvement in the bargaining position of Just Eat: there would be a ready army of potential couriers. But, seems to be, the world has learned to live with the coronavirus, without damaging the economy: I see no signs of mass layoffs yet. By the way,, some large municipalities like New York make life difficult for delivery companies and pass laws, aimed at improving the situation of couriers, which clearly does not contribute to the increase in the marginality of this sector, prone to loss.
However, Just Eat and GrubHub Failed to Show Sustainable Profits Even as the Pandemic Was On, when they were practically irreplaceable. Risks are great, that even the combined company Just Eat will not be able to turn a profit. Actually, Just Eat says so: “Profit is not a priority, The most important thing is the market share. But this market, as we figured out above, pretty lame: delivery companies naturally fight over leftovers.
As if monopolists. The illusory chances of Just Eat's payback lie in the probability, that the company will capture almost the entire food and grocery delivery market in America and Europe and increase prices many times over. But the chances of success are frankly few..
Firstly, the company has major competitors: Uber Eats and DoorDash, as well as a bunch of smaller startups. Yes, Just Eat can try to buy them – but it will cost a lot of money, which will have to be taken out of the magician's hat.
Secondly, if Just Eat can become a monopoly and increase prices, another problem will appear: restaurants and consumers do not need high prices.
Everything is clear with consumers - delivery is used everywhere only because, that it is cheap. A significant increase in price devalues the value of this service for many users - in theory, this can lead to a strong drop in revenue., which is unlikely to be compensated by increasing the margins of the business.
But suppose, price increases will occur. Then other companies will start creating similar startups., who will dump. Therein, that such startups will appear in the event of an increase in prices by existing leaders in the delivery market, I have little doubt.
On both sides of the Atlantic, private foundations have accumulated a lot of money., which they can invest in the most insane adventures - and then "go into the black", organizing an IPO for these unprofitable startups. Actually, this was the case with DoorDash and Just Eat - once private funds and large investors pumped them up with money and then released them to free float on the exchange, making money selling their shares. Only new startups will increase revenue through dumping - and Just Eat will lose it. Or Just Eat will have to buy these startups, not to lose your market share.
Well, the monopolization of the Just Eat delivery market may meet resistance from regulators..
Restaurant hit. There is also a huge problem with the actual restaurants.. Already a year before the pandemic, delivery was much less profitable for restaurants, than physical dining by consumers. And the pandemic did not make delivery more profitable - just the marginality of catering as a whole fell. But rising shipping costs, which was not very marginal for restaurants anyway, very annoying for many restaurants.
In NYC, for example, restaurants have achieved restrictions on the size of the commission. There is a possibility, that the example of the Big Apple will be followed by other large municipalities of the world. But even assuming, that the administrations of large cities will allow Just Eat to raise commissions, it will only increase incentives for restaurants to create their own delivery services.
As mentioned in the GrubHub review, it is cost-effective for restaurants to create their own delivery service provided, that 25-30% of their revenue comes from orders with delivery. Given the situation with the pandemic and the growing share of online orders in the revenue structure of the American catering industry, I would expect in the future a shaft of creating delivery services at restaurants, who still use platforms like Just Eat.
Understandably, that large chains are adapted to this better than small restaurants. But even in the case of the latter, there are options.: for example, a group of small restaurants can throw on their own delivery service bypassing Just Eat for savings. All catering is maximally motivated to create its delivery platforms by a strong drop in margins as a result of the pandemic.. All of this in general can result in big problems for Just Eat..
Resume
The business model of Just Eat is a race to the bottom with other deliveries. I do not see a positive outcome of this whole adventure - so far, delivery services shares look like a losing experiment..
If you invest in Just Eat, then only with the calculation, that investors will start to exit the shares at times by the more expensive DoorDash into the shares of the "cheaper" Just Eat. Maybe even, that DoorDash will try to buy Just Eat - but in this case, opposition from antitrust regulators is possible and the deal risks not taking place. On the other hand, such news can cause an increase in Just Eat quotes, albeit not for long.
But in general, the circumstances are stacked against Just Eat: labor costs of workers will rise, and municipalities and competitors will put spokes in the wheels. So I would only invest in these stocks after a significant drop - four times like that.
