Just Eat’s (JE.) prospects got a little darker last week, after food delivery service Deliveroo announced Amazon (US: AMZN) would lead it in a $575m (£444m) fundraising round, potentially strengthening one of Just Eat’s most prominent rivals at a time when its business model is coming under increasing pressure.
The UK-listed food delivery group has faced stiffening competition in recent years, as Deliveroo and Uber Eats have each bid to become the market’s dominant player. Uber (US: UBER) has raised $8bn through its - admittedly somewhat disappointing - initial public offering, and this latest fundraising from Deliveroo will give both companies ample capital to invest.
Deliveroo is planning to plough part of the money raised into its delivery-only “super kitchens”, while Uber Founder Travis Kalanick recently acquired a UK start-up that operates “dark kitchens” - also delivery only. Broker Peel Hunt says Just Eat is currently unable to invest in the format itself without bringing on further investment.
Shares in Just Eat were down 8 per cent following the announcement, having already fallen by close to a tenth since the group’s trading update for the three months to March revealed order growth that was below consensus during the period.
The threat from Uber and Deliveroo formed the basis of Peel Hunt’s decision to take its recommendation for Just Eat’s share from a buy to a sell in October last year. However, broker Liberum believes fears for the company are overdone, pointing out that Just Eat is the number one player in its markets, with its UK market share an estimated three to four times larger than Deliveroo's and Uber's combined. Instead, it argues Just Eat and overseas rivals Delivery Hero and Takeaway.com “are likely to become [acquisition] targets with several possible buyers.
Indeed, the group has come under pressure from Cat Rock Capital, an activist investor, to consider a merger to boost growth and take on its ascendant rivals. Management released a statement following Deliveroo’s announcement, arguing that it “highlights the opportunity for Just Eat’s board to create value for all shareholders by participating in global consolidation”.
