The Just Eat Takeaway (LSE:JET) share price has had a rough year so far. Since the start of 2021, the stock is down by over 30%. And just last week, it continued its downward trajectory by a further 9% following the release of its second-quarter trading update. What’s going on? And is this recent fall an opportunity to snap up some shares at a discount for my portfolio?
The business during the pandemic
As a reminder, the firm provides an online storefront for restaurants and food retailers. Merchants can add themselves to the platform, and customers can then find and order takeout food directly through the website.
Given that restaurants were forced to stop in-house dining last year due to the pandemic, the demand for the food delivery platform surged. That created a pretty favourable operating environment for Just Eat Takeaway and its share price. Even today, now that restaurants have started reopening, the number of online orders remains high. Total orders in the last six months have increased by a further 51%. As a result, gross transaction volume (GTV) for the whole of 2021 is expected to lie between €28bn and €30bn. Needless to say, this is quite positive. So why did the share price fall on the news?
The falling Just Eat Takeaway share price
Despite the impressive overall performance, there were a few disappointing results stemming from its newly acquired US operations. Meanwhile, as lockdown restrictions slowly continue to ease, demand for Just Eat’s services may begin to fall. Given the firm makes its money by charging fees for each order placed, a subsequent drop will adversely impact its gross income.
However, something else that gives me pause is the firm’s profitability. Or rather, the lack of it. The management team didn’t provide an exact figure in the latest update as to where the losses lie. But, the note stating that losses have peaked suggests that they are higher than they were a year ago. On the other hand, it also implies that the firm should now be heading positively towards profitability. How long it will take before the business returns to the green is anyone’s best guess right now. Therefore, I can understand why the Just Eat share price has fallen based on this unknown factor.
The bottom line
The poor state of the firm’s profitability is likely linked to the management team’s current focus on acquiring market share. This seems like a prudent strategy. However, there’s the risk that this growth may not actually lead to value creation over the long term. Profits do eventually matter, after all.
All things considered, I believe the share price can continue to rise even after the pandemic comes to an end. However, I’m personally not tempted to add it to my portfolio until a clearer picture forms regarding how the business intends to return to profitability. Therefore, I’m keeping the stock on my watchlist for now.
