Europe’s largest food delivery business Just Eat Takeaway.com (JET) saw 2020 losses balloon as it stuck to its plans to prioritise market share gains over profit.
The London and Amsterdam-listed business saw delivery orders jump 42% to 588 million in 2020 on 54% higher revenues at €2.4 billion, with growth accelerating as the year went on because of lockdowns across Europe.
UK orders were up 260% in the second half, a fast growth theme that has continued into 2021, with UK orders 88% ahead in the first two months.
The FTSE 100 firm said that its delivery orders market share now stands at 26% across the UK, Germany, Netherlands and Canadian markets in which it operates, up from 18% in 2019.
Just Eat Takeaway.com is set to add the US to its delivery roster later this year with the company in the process of acquiring US-listed Grubhub, a deal which is expected to close in the first half of 2021.
THE PRICE OF GROWTH
But the company’s rapid expansion came at the cost of soaring losses. In the year to 31 December 2020, pre-tax losses ballooned 67% to €147 million despite lower fulfilment costs with delivery fees staying rooted to the floor.
Adjusted earnings before interest, taxes, depreciation and amortisation margins fell from 42% to 30%.
The company remains unfazed by the pressure on profitability, saying ‘only clear market leadership positions will lead to sufficient scale, high order density, and network effects which enable healthy delivery margins in the long-run.’
For the time being investors appear to be willing to give management the benefit of the doubt. Just Eat Takeaway.com stock jumped nearly 4% to £70.98, although this did coincide with the wider market’s growth rally.
But the pressure is building with rival Deliveroo set to join the London market.
COMPETITION SCREW TIGHTENING
‘It’s a good job its latest annual results delivered in much the way you might have expected given the boost to ordering in at home created by the pandemic,’ said Russ Mould, investment director at platform AJ Bell. The reported £5 million paid to rapper Snoop Dogg to appear in its TV adverts indicates just what a competitive landscape it operates in, with Uber Eats and Deliveroo battling Just Eat Takeaway.com for our fast food delivery spend.
‘This means heavy marketing costs across the board and investment in increasing its in-house delivery capabilities, wiping out any profit the company might have made during its bumper year,’ said Mould. While that investment ‘appears to be paying off,’ said Mould, achieving the dominance needed to crank up margins and start growing meaningful profits will not be easy.
‘After all, Deliveroo has backing from Amazon, albeit with some constraints from the competition authorities. What if Amazon decides to go it alone or another new entrant with deep pockets comes into the market?’ posed the AJ Bell analyst rhetorically.
‘Just Eat Takeaway.com could see a souped-up version of the marketing war it already faces with significant implications for its future profitability.’