Just Eat beat market expectations in its first-half results and announced a share buyback of up to €150m (£126m).
The market responded well: the takeaway giant’s share price rose by over eight per cent on Wednesday.
True, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) at the Amsterdam-headquartered company surged 42 per cent, but largely due to deeper-than-expected cost-cutting and a reduction in order fulfilment.
These two factors may present a headache for the company down the line.
“The company hasn’t performed badly – but we don’t see cause for additional optimism on this update,” Panmure Liberum analyst Sean Kealy said.
“We see a risk here that they cripple the top-line by cutting too deeply, in the same way, they have in Southern Europe and Australia,” he said, adding that results in Southern Europe and Australia were a “car crash”.
Revenue dropped by 14 per cent in Southern Europe, “driven by… markets with highly competitive pressure and challenging performance in Israel,” the company said.
Overall, Just Eat’s pretax loss stretched to €363m (£306m) from €317m (£267m)
Total orders declined 4.9 per cent to €446m (£376m) from €469m (£395m) and gross transaction value decreased by one per cent to €13.2m (£11.1m) from €13.4m (£11.3m).
Restricting investment and cutting costs
In current interest rates, Just Eat has been “rapidly scrambling to break even… they’ve had to restrict investment to [do it] outside Europe,” Kealy said.
Southern Europe and Australia had an adjusted EBITDA of minus €49m (£41m) in the first half of 2024 compared with minus €55m (£46m) in 2023.
The figure “improved despite declining orders due to a focus on cost efficiency including technology-enabled customer services, cost reductions and optimised marketing spend”, the company said.
However, if the company wants to boost sales in its struggling areas, it needs investment.
“In South Europe and Australia, it’s very hard to reverse the trend without investment… [and] I don’t think they’ve got the money to spend to do it,” Kealy said.
There is a risk that if the situation doesn’t improve, Just Eat will pull out of countries to focus on their more profitable businesses in Germany, the Netherlands and the UK. The company has already pulled out of New Zealand.
Just Eat has been trying to sell its American arm – Grub Hub – for the last two years. Grubhub has operated as a subsidiary of Just Eat since 2021, but its business in North America has been struggling as high competition in the market has seen rivals eat into its market share.
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Just Eat moves closer to rivals’ business models in the UK
In Britain and Ireland, it is a very different story: the countries’ adjusted EBITDA leapt by 64 per cent, which CEO Jitse Groen said followed a shift to a different kind of cost-cutting: an in-house delivery platform (as well as a less rosy drop in orders).
Both countries still performed below market expectations, but largely “thanks to reinvestment into the segment,” analysts at Deutsche said.
Order processing costs fell by 13 per cent, from €263m to €228m in the six months to June 30, “primarily driven by the decrease in orders and closing our employed delivery model in the UK, which reduced expenses related to vehicles and work attire”, the company said.
“The delivery cost per order has notably improved [in the first half of] 2024 compared with 2023, enabled through the simplification of our operations… We completed the transition of all UK logistics orders to our own delivery platform in July 2024,” the company added.
Historically, Just Eat used several delivery models, including relying on the restaurants to do self-delivery and (briefly) employee drivers – ‘Scoober’ – but a large number of orders were sent to food delivery Stuart for delivery.
This increased costs for the takeaway service: “Logistics operators who run their own delivery networks have been able to [make money] like Just Eat couldn’t,” Kealy said.
Just Eat has been phasing out its partnership with Stuart this year to focus on its own delivery platform.
Going forward, it is likely to expect a continuation of this cost-optimising strategy as Just Eat focuses on its profitable areas.
However, the Northern Europe segment only makes up 30 per cent of the total Just Eat Takeaway.com’s orders, the company said in its results.
If other areas like Southern Europe and North America do not pick up, Just Eat may find itself in a pickle.