Just Eat (LSE: JET) shares are down over 20% in 2021 so far. And the stock has fallen by almost 30% in the past 12 months. But the online food delivery company released its interim results yesterday and the market received the news positively.
So should I buy Just Eat shares now? Well, I’ve placed the stock on my watch list. While the numbers looked promising, I have some concerns.
Top-line
Total revenue increased by 52% to €2.6bn in the first six months of 2021, compared with €1.8bn in 2020, on a constant currency basis. And that includes the contribution from the acquisition of Grubhub.
Let’s not forget, Just Eat purchased its rival to gain entry to the US food delivery market. But even without Grubhub’s sales, combined revenue improved by 63%. That’s still pretty impressive.
What’s also encouraging is that growth was delivered across all its geographical regions. In particular, sales from the UK and Germany saw stellar growth. Needless to say, these two countries also delivered a strong rise in the number of customer orders.
Profitability
But it wasn’t so rosy in terms of profitability. Adjusted EBITDA fell significantly in the UK and the US. Increased marketing spend and the continuation of trying to improve online market share hit profits in the UK business.
Just Eat had to grapple with increased courier costs in the US. According to the company, this was higher due to “temporary factors” including tight labour markets and high demand after the distribution of government stimulus payments, which led to a short-term courier supply imbalance.
In a nutshell, overall adjusted EBITDA fell to a loss of €190m in the six months, compared to a profit of €205m in the previous year. I find it somewhat worrying that while the firm is growing at a top-line level, the investment splurge and costs are eating into profits.
Competition
My other concern with Just Eat shares is that the business is facing fierce competition. It has to contend with the likes of Uber Eats and the recently-listed Deliveroo. And Just Eat will have to distinguish itself from its competitors, otherwise consumers will go for the cheapest deal.
I recently commented on how German rival Delivery Hero took a 5% stake in Deliveroo. It has a small investment in Just Eat too. The food delivery sector could be consolidating, which means that the FTSE 100 company could be subject to a takeover. But of course, this is just me speculating.
iFood
The Board has confirmed that it intends to sell its 33% stake in iFood, the Brazilian online food delivery business. Just Eat said that the highest bid to date has been for €2.3bn, but this fell short of management expectations.
It’s still up for sale and Just Eat is looking for an appropriate offer reflecting the size and strength of its asset. For now, I know that Just Eat wants at least €2.3bn for it. If it does find a buyer, this cash would boost the balance sheet.
Should I buy?
I’m not a buyer of Just Eat shares yet. Profits have been hit and I’d like to see if profitability improves when it next reports. Hence I’ll only be watching the stock for now.
