Investors are responding to a potential competitive threat to deliveries firm Just Eat (JE.) from US online behemoth Amazon’s investment in rival operator Deliveroo.

The shares are marked down 7.1% to 629.9p on the news Amazon was the biggest investor in Deliveroo’s latest round of fundraising which booked the equivalent of £450m.

Combined with the challenge posed by Uber Eats, investors are apparently becoming increasingly concerned about Just Eat’s competitive position. Its shares have now retreated 15% in the last two months.

Source: Just Eat

The company is also facing pressure on its returns as it invests in more costly delivery services alongside its historic focus on simply being an online platform for takeaways.

READ MORE ON JUST EAT HERE

AJ Bell investment director Russ Mould says: ‘The curse of Amazon strikes again. The online giant is now so dominant the mere mention of its entry into a new industry can leave incumbent companies and their shareholders quaking with fear.’

‘Given its financial firepower it is little wonder that Amazon effectively parking its tanks on Just Eat’s lawn is spooking investors.’

ARE INVESTORS WORRYING UNDULY?

Liberum reckons such concerns are overdone. ‘In our view, these fears are overblown and all this move changes in the food delivery space is that it is underpinning Deliveroo's valuation for an IPO (Deliveroo's valuation under the funding was reported to be $3bn to $4bn) or a sale.

‘The reason why we are so unconcerned is… the food delivery portals model is similar to other classified portals business such as Rightmove (RMV) and AutoTrader (AUTO) where market leadership is disproportionately important as it creates a virtuous circle of the more advertisers attracting more customers which attract more advertisers etc.’

‘Just Eat is number one in its markets and, in the UK, it has an estimated three or four times greater share than Uber Eats and Deliveroo combined and, crucially, 60%-plus of its customers are in small towns where it is effectively the only option for restaurants and where the Uber Eats / Deliveroo model just doesn't work because of the economics.’

Peel Hunt is less relaxed: ‘While Deliveroo is still in its pre-profit (strategically loss making) phase, as it invests for growth, if any company knows about the benefit of that strategy it is Amazon.’

‘After Uber’s IPO last week that raised $8.1bn and now Amazon’s investment today – both in aid of the more expensive delivery side of the takeaway market – these two FAANG(U)s will put more pressure on Just Eat which has only recently started out on that journey.’


Issue Date: 17 May 2019