The online takeaway marketplace Just Eat PLC (LON:JE.) saw hundreds of millions wiped off of its market value on Tuesday, despite posting a year-on-year rise in orders.
The London-based group saw like-for-like orders increase by more than a third (36%) in 2016, but the disappointment from shareholders is based on its performance trend over the past three years.
In 2014 – the year in which Just Eat listed – the company posted like-for-like order growth of 50%. That then slowed to 46% in 2015, before the downward pattern continued into 2016.
Although the numbers remain impressive, they do show that Just Eat’s growth isn’t exponential. Indeed, ever since it listed back in the Spring of 2014, Just Eat’s order growth has only ever slowed.
It’s nigh on impossible to keep growing upwards of 50% every year and eventually you will reach that point where you simply can’t grow anymore.
That’s what investors fear is happening to Just Eat – it’s slowly reaching that crux whereby there are fewer restaurants it can sign up to its platform, and fewer customers downloading its app.
The slowdown has, without a doubt, been brought on more quickly by the increased competition.
Back in the late noughties and early 2010s, Just Eat was as good as the Lone Ranger in a field that very few thought would be as mainstream as it is now.
Deliveroo wasn’t started until 2013, while it took another year or so for UberEATS to catch on to the idea. Amazon was even later, announcing its offering only last year.
Nowadays, those listed above, plus a few more smaller players, are all taking small bites out of Just Eat’s market share.
Like Just Eat back in 2001, these firms are still in their infancy and are expected to expand and grow considerably in the coming years.
As much as chief executive David Buttress claims that its competitors are at the “upper-end” of the online delivery market, he can’t deny the correlation between increased competition and order growth slowing.
To try and protect itself, the company has been on a spending spree, snapping up one of its major UK rivals Hungry House, as well as taking out other businesses outside of the UK.
While some analysts expect this strategy to “provide a catalyst” for the company and its share price, investors might have to get used to not having the booming growth and never-ending upgrades they were once used to.
The valuation and share price is another thing that has got investors a bit twitchy, with the stock not too far off all-time highs.
Assuming revenues grow roughly in line with orders (as they did in 2015), Just Eat is on track to generate around £340mln in revenues for the year just gone.
Given its market capitalisation of £3.7bn, Just Eat is trading on a multiple of around 11x sales. That’s a fairly punchy figure and one which seems to be pricing in much future growth.
Those with a few quid in the company won’t want to see the order growth downtrend continue for fear of a falling share price.
That being said, Michael Stewart at Panmure Gordon is more bullish, explaining that Just Eat is undervalued if anything.
“The stock trades on a similar valuation multiple to other leading aggregator models despite generating a significantly higher rate of sales growth,” says Stewart.
“Thus the stock appears undervalued on a growth-adjusted basis [and] our analysis shows the shares to be worth 734p.”
Perhaps the best summary of Just Eat’s update was from City broker Jefferies, which said that the slowing growth was “just a reality check as the guidance upgrade conveyor belt comes to a stop”.
Shares in Just Eat were down 7% to 545p on Tuesday.