Just Eat commits to increased spending: investors don’t like it, but we do
Online food order and delivery service Just Eat reported full year figures for 2017 this week. They demonstrated a strong underlying business, coming in ahead of analysts’ expectations – but the stock price fell by 8.5% on the day. Why? Because the company has some big plans for 2018 – and they won’t come cheap.
Despite an initial drop, Just Eat’s share price is still up by 42% over 12 months
Source: Yahoo Finance
Just Eat has said that it will spend as much as an additional £50 million ($69 million) to fight off rivals in what is becoming an increasingly contested marketplace. Competitors include Uber Eats and Deliveroo, big names that the company can’t afford to take lightly. New CEO, Peter Plumb, explained where some of that money might go, saying:
“There is a large and complementary opportunity to offer delivery services to certain markets. And at the same time we will develop our apps, brands, and the technology we will provide to restaurants to further grow our core marketplace by increasing awareness of the brand and improving the customer experience.”
Investors – and some analysts – expressed concern at the scale of Just Eat’s impending spend. But the company’s actual figures were strong: revenue rose by 45% against the previous year, and core earnings rose by 42% over the same period. On both cases, the company beat the Street’s estimates.
Fred Baccanello, Investment Manager of Dominion’s Global Trends Ecommerce Fund, said he viewed “the move to offering more delivery in core markets as a necessary and positive step.” He also noted that the investment could increase Just Eat’s “Quick Service Restaurant” business (fast food chains like KFC, with whom the company works in the UK) – and that could be a significant driver of growth:
“According to Just Eat, in the territories in which it operates, the Quick Serve Market is worth £18 billion. This compares to £23 billion of the marketplace business, so offers a significant growth upside – though margin will be lower due to delivery costs, especially as they have to get up to scale.”
Ultimately, he said, “some pullback is not entirely surprising” given the stock’s strong performance over the last 12 months. But, for long-term investors, the case for holding Just Eat remains the same.
Dominion holds Just Eat in its Global Trends Ecommerce Fund.
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