A number of significant events have occured since I previously wrote about Just Eat’s struggle to remain relevant in the fast-growing food delivery market. There is increased pressure from competitors in all markets, driven by capital raises and strong competitor execution.
Latin America
Just Eat has a large position (c. 33%) in iFood operating in Brazil. Cat Rock Capital has suggested that the stake in iFood could be worth as much as £650mm (Cat Rock Capital - Dec 2018) if divested. This represents c. 15% of the market cap of Just Eat.
iFood has historically been the largest marketplace and delivery player in Brazil (page 17 - JE 2018 annual report) however has recently been coming under pressure from Rappi, a delivery focussed competitor without the legacy marketplace business. Rappi operates in a similar manner to Postmates and Deliveroo - highly focussed on delivery. The Rappi app is more popular on iOS app stores than iFood in a number of Latin American markets including Brazil and Colombia (SensorTower) highlighting the rapid growth of Rappi.
SoftBank has recently invested in this growth, to the tune of US$1B, undoubtedly allowing Rappi to invest in customer growth and secure market share. It is unclear if Just Eat have the cash or shareholder support to raise capital if iFood required additional capital to compete with Rappi.
United Kingdom
Amazon recently led a US$575mm investment round in Deliveroo providing a strong vote of confidence in the business model. Various publications have suggested that the ‘Cloud Kitchen’ concept is of particular interest to Amazon as a new product opportunity, one which would have considerable synergies with Amazon’s existing stable of brands (Amazon Go, Wholefoods).
The UK is the key ‘profitable’ segment for Just Eat and this capital raise by Deliveroo places further execution pressure on Just Eat in building out a strong delivery service.
Cat Rock Capital continue to support engagement with strategic partners available to Just Eat.
Australia
Menulog is under continued pressure from Deliveroo and UberEats in key cities as reflected in the continued decrease in rankings of the Menulog app. The 2018 annual report suggested that ‘revenue [is] returning to growth as we exited FY18 following the integration of delivery and sign-up of key Branded Restaurant Groups’. The ASIC filings presented suggested revenue in 2018 period actually decreased to A$84mm from A$88mm in 2017. Only A$2mm of this revenue came from delivery services.
It will be interesting to note if Just Eat can turn this business around and support the £260mm goodwill balance for the business and avoid another write-down.
Cloud Kitchens
The two large US/EU competitors, Deliveroo and UberEats, firmly believe in the ‘Cloud Kitchen’ concept and are investing heavily into this opportunity. Travis Kalanick (Uber founder) has even started a new business in Asia focussed on this opportunity; CloudKitchen. The potential margin opportunity (rent and employee cost savings) combined with lower operating costs (better data -> better production decisions) will likely enable succesful competitors to gain significant market share in the food delivery market.
This is still an emerging opportunity, however one which could be considered for future growth by Just Eat, particularly in larger, profitable markets.
Short Interest
Oh, and short interest for Just Eat ($JE.) is at an all time high of c. 8% (ShortTracker+)