The Just Eat Takeaway (LSE: JET) share price spiked 30% Friday morning, after the food delivery company reported a disposal. Just Eat has agreed to sell its 33% stake in the iFood joint venture to Prosus NV for a total of up to a €1.8bn.
Shareholders clearly think this is a good deal. And I think so too. But what are the details?
Just Eat will receive an initial cash sum of €1.5bn. Up to €300m more will then follow depending on performance over the next 12 months.
Just Eat reckons the sale represents a five-fold gain, and that alone is reason for cheer. But I think it’s more important than that.
Expansion
The very competitive takeaway delivery business has been characterised so far by a race for market share. That’s involved big spending on expansion, takeovers and mergers, and growing transaction volumes… but precious little in the way of profits.
In full-year 2021, Just Eat reported a 33% rise in revenue, to €5.3bn. But it also recorded a €350m adjusted EBITDA loss.
The company did say its EBITDA losses peaked in the first half. And it added that it “is now rapidly progressing towards profitability.”
Focus
That surely must be the focus now. I think companies in this sector need to concentrate on their balance sheets, and make liquidity and profitability their key targets. Jam tomorrow is no good if you don’t have enough bread for today.
That’s where Just Eat’s latest disposal should pay off. The company says it “remains focused on improving its profitability and on a disciplined allocation of capital.“
It added that it “will retain the transaction proceeds to maintain its balance sheet strength and to service repayments of its upcoming debt maturities.”
Maturity
The fast food delivery business has progressed the way many developing new business sectors have in the past. The barriers to entry were relatively low at the beginning, and that led to a rapid expansion as competing companies tried to sign up as many food outlets as possible.
That we’d see takeovers, acquisitions and consolidation in the sector was pretty much inevitable. The companies are now focusing on their key profitability rather than going all out for market expansion.
There’ll be more similar transactions, almost certainly. Even with this latest news, Just Eat says it “continues to actively explore the partial or full sale of Grubhub.”
Outlook
Just Eat hasn’t changed its guidance from interim results a couple of weeks ago. It expects gross transaction value to grow “by mid-single digit year-on-year in 2022.”
And adjusted EBITDA margin should be in the range of minus 0.5% to minus 0.7%. So it expects no profit just yet. But it says it expects positive EBITDA in 2023.
The sector is maturing. The long-term players are emerging. And I think the firm is likely to become one of the profitable ones.
I won’t buy any Just Eat Takeaway shares, though. I just don’t invest in anything where I can’t yet measure the profits.
