Just Eat Takeaway: Not So Deep Dive
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(We messed up the recording, so no video for this episode. You can watch a lot of our back catalog over on YouTube)
(Ryan) What they do: Just Eat Takeaway.com is a leading global online food delivery marketplace. But instead of just one app/marketplace, it’s an amalgamation of a bunch of different services based on region that all try to resonate with the “Just Eat Takeaway” brand. Most people are probably familiar with the delivery marketplace model since services like DoorDash and Uber Eats are pretty popular here. It’s a pretty similar model with a few differences.
Just Eat Takeaway is home to 60M active consumers across 24 different markets. So consumers come to the JET apps looking for food, JET has a more than 250,000 restaurants on their platforms to choose from, users select food, order, and either go to pick it up or have it delivered. The way that they deliver varies by market.
So some of their restaurant partners have their own fleets that do the delivering, some don’t, which means it’s on JET to provide the delivery. They have Scoober which is employed couriers delivering food on a branded electric bike. They have Delco, which is drivers that are independent contractors delivering food. And they have 3rd party delivery providers, so completely different businesses but they’re trying to reduce the use of these. If it’s delivery, consumers pay a delivery fee to cover the cost.
JET makes money by implementing a 14% charge of the gross order value on every order. Might vary by service. Additionally they charge an up-front cost for restaurants to join the platform.
(Ryan) History: Just Eat Takeaway is the result of 2 decades of mergers and acquisitions. Jitse Groen today is the CEO and he was the original founder of Takeaway in 2000, but it was not called Takeaway when it was first launched. It was a dutch service that I can’t pronounce. But after 7 years, Groen expanded the service into Germany and Belgium and in 2011 changed the name to Takeaway.com. From 2010 to 2020, Takeaway started to gain some funding and made several acquisitions including their entry into the B2B market.
Now just eat was a totally different company that was founded in Denmark in 2001, a year after Jitse Groen launched Takeaway in the Netherlands. Now just like Takeaway, Just Eat entered new markets over the last 20 years by acquiring the leading service in the area. By 2020, these were two large international companies and they decide to do an all-stock merger and combine the names.
Fast forward a year later, and the company took another step on its M&A journey by acquiring Grubhub for $7.3B.
Industry over $100 billion worldwide and supposed to get to $150 billion by 2023
Too long to go over all the competitors, but if you really wanted to build a database on it just do a simple google search for every country Just Eat operates in
It has been gaining market share on average. 18% to 26% in 2020 and said in latest update market share continues to climb
(Brad) Management and Ownership:
Market cap of $18.4 billion, ticker TKWY in Europe, TKAYF for pink sheets in U.S.
Going to do forward guidance because trailing will look a lot worse because it excludes Grub Hub. Also they do not disclose everything so I’m going to base things off of the historical take rate, which may or may not be the same going forward
EV/GMV of 0.56
2020 combined take rate was 18.6%. This may change with push towards delivery
That would put EV/s at 3, which is close to the NTM consensus number on Koyfin
44% gross margins in FY 2020 would imply a forward EV/GP of 6.8 (count on that number going down though)
(Ryan) Earnings: I’ll go through the 2020 numbers to give a holistic view, then talk about the first half of this year.
In 2020 Active consumers increased 23% to 60M
588M Total orders processed. That was a 42% increase YoY
AOV increased slightly
Gross merchandise value was ~$15B, up 51% YoY
Revenue grew 54% YoY to $2.8B
Adjusted EBITDA margin for the entire company was 11%
In Germany, Netherlands, and the UK, adj. EBITDA margin was north of 30%
For the first half of 2021, overall growth pretty much continued
Orders increased 61% (51% if you include grubhub)
Gross transaction volume increased 62%
GTV for the full year is expected to be between $33-$35B. At a 15% revenue cut, that’s about $5B in revenue
FY adj. EBITDA margin is expected to be between -1% and -1.5%
They are prioritizing market share gains over profitability according to the CEO
(Brad) Balance sheet and liquidity:
(Ryan) Honestly, I’ve always thought food delivery services are just solutions looking for problems. Other than during COVID.
(Brett) First impression is that Grubhub is a terrible asset. Don’t know much about the others.
Future growth opportunities:
(Ryan) Promoted placement. Allows restaurants to promote themselves on the platform. JET’s focus has been on eating market share in its respective areas. If they’re able to do that and maintain their dominance in existing areas, then that means their core value prop to restaurants is really lead gen more than anything else. With more and more market share, I imagine restaurants will feel more inclined to bid on these promoted placement slots.
(Brett) Takeaway Pay (surprise surprise). This is a digital allowance given out by employers for employees to order food. Think it can help lock in recurring customers for lunchtime orders.
Highlights and lowlights:
(Ryan) Highlights: Shown they have the ability to be profitable in their core markets. In 2019 in the UK, they had 42% adj EBITDA margins. Lowlights: I simply don’t like the market. I’m not sure there’s one winner in the end here. How many consumers have a whole bunch of these things downloaded and just pick the lowest cost provider? I still believe they have to acquire the same customer over and over. Also, I’m not a big fan of the regulatory environment here. Maybe it’s just domestic, but any benefits that these delivery providers get from scale seem anti-competitive.
(Brett) Highlights: Track record is strong, U.K. business is doing super well, and margins from marketplace can possibly give it an advantage when trying to grow delivery. Lowlights: Food delivery has gone in my “too hard” pile, and I think researching this biz it will continue to stay there. Why invest in this industry when there are dozens of others out there where companies actually generate profits?
(Ryan) Global consolidation and market share dominance. If they are the dominant player in most of their markets
(Brett) The industry eventually gets rational and they do with Grubhub in the U.S. what they previously did in the U.K.
(Ryan) The competition makes it so JET has to constantly invest and discount its offering in order to capture market share. Think about what happened in the UK. In 2019 OM were 42%, in 2020 they were 30%. They said this was because they invested heavily to gain market share. Ok that’s fine, but now what? If you cut marketing your operating margins will increase, but your customers will leave. It makes me question the operating leverage.
(Brett) The industry stays irrational and the companies that want to set money ablaze (Uber, DoorDash) continue to do so.
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Disclosure: The author and podcast guests are not your financial advisors. Ryan Henderson and Brett Schafer are general partners and portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this show.