Lockdown takeaway boom aids Just Eat

Takeaway delivery firm expands at lightning pace, but costs spiral.

Its full-year 2020 results show that lockdowns have given delivery company Just Eat Takeaway (LSE:JET) the perfect tailwind, and the company has responded by expanding at a lightning pace.

Quite apart from the initial acquisition of Just Eat by Takeaway.com to form the current business, the further acquisition of Grubhub in an all-share deal amounting to €6 billion (£5.14 billion) will give the company access to the US market.

This underpins the company’s global presence and Just Eat Takeaway intends to ramp up its investment in the overall business to consolidate its gains thus far.

In the meantime, combined revenues grew by 54% over the period, with order growth of 42%. The largest market in which the company operates is the UK, which accounts for 30% of both revenues and orders. Momentum has continued into this year’s trading, with UK orders having grown by 88% over the course of January and February.

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Order numbers are huge, as could be expected from what will be the world’s largest food delivery firm outside of China, with 588 million orders processed during the year, 60 million active consumers and access to 244,000 restaurants.

However, the breakneck speed of growth has inevitably seen costs spiral. Courier costs increased tenfold to €712 million, order processing fivefold to €193 million and general staff costs quadrupled to €464 million. At the same time, the company continued to plough ahead with a costly marketing campaign, and these factors contributed to a widening pre-tax loss of €147 million versus €88 million the previous year.

As such, there are a number of potential clouds on the horizon which has capped the share price of late. The pace of acquisitions comes with integration risk, while the shares are extremely highly valued.

Competition in the space is intense and, in the post-pandemic world, it is impossible to guarantee that its business model will continue to generate such strong growth as the easing of lockdown restrictions allow the global population to visit restaurants in person once more.

The share price has reflected both the initial surge of optimism as well as a more detached approach of late. Between March and October last year the share price rose by 69% but has fallen back since, despite another brief peak at the beginning of the current lockdown.

The net result is that the shares have added 9% over the last year, as compared to a gain of 13% for the wider FTSE 100.

Despite the challenges which the company will face as it continues its development, investors are very much giving the company the benefit of the doubt for now, with the market consensus of the shares coming in at a strong ‘buy’.