Just Eat, the FTSE-100 listed online food order services, says its group revenue was up 49% to £177.4m and group orders rose by nearly a third to £51.6m.

The numbers came in above analysts’ forecasts: Deutsche Bank had forecast that Just Eat would report a 31% increase in revenues and a 23% year-on-year increase in orders driven by Skip the Dishes and Developing markets.

Good on the surface – and shares have already reacted with a 4.55% increase – but this needs putting into context.

Just Eat, based in the UK with operations in 13 countries across the globe, is pursuing a fairly aggressive expansion strategy. In 2016 it bought Skip the Dishes in Canada and last year it acquired businesses in Australia and New Zealand. Both are growing markets and have brought the company significant new revenue. However, they are also weighing heavily on the Just Eat bottom line.

Just Eat acquisitions drag on the bottom line

When Just Eat reported its full year results in March the company said that although the business had mushroomed and has generated £546.3 million in revenues in 2017, Just Eat made a net loss of £103.5 million last year. Similar payments will come due in the 2018 results. For instance it is facing a deferred charge of £240 million for the acquisition of the business in Australia and New Zealand which will show on the 2018 bottom line.

Also, on Just Eat’s own admission, although the two Pacific countries are a booming market for online food delivery, they are also highly competitive with other players vying for a portion of the pie.

Just Eat had a good advantage as an early mover in the online food market but now Uber Eats and easyFood, bought by EasyJet founder Stelios Haji-Ioannou, are snapping at its heels. In this context Just Eat has bought its UK online rival Hungryhouse this January and will close it down by 22 May.

In all, the company is fairly proactive about growth. A strong promotional campaign in the UK has reaped benefits and its move to involve higher end restaurants in its delivery service has also not passed unnoticed. But the high growth numbers are fuelled by high expenditure.

“A very good start to the year for Just Eat as the momentum from last year continued. Despite the selloff in the shares following the March full year update, there is reason for investors to cheer this one still. But doubts about the heavy investment in delivery capabilities remain the big drag – those with faith that this will work could be well rewarded, but there are clear execution risks,” says Neil Wilson, chief analyst at Safecap Investments.

Hence: eat with caution.

 

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Commodities and Shares Editor
1st May 2018
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