City broker Peel Hunt thinks Just Eat PLC’s (LON:JE.) move into delivery might be too little, too late in the face of growing competition from its loaded and more innovative rivals.
The online food marketplace has historically connected consumers with takeaway food restaurants, leaving the restaurants themselves to deal with the delivery side of things.
But it has recently branched out to include delivery, boosting its addressable market from £16bn to £57bn as it takes the fight to Uber Eats and Deliveroo, both of which already offer this service.
Should have moved sooner
Although they call it a “sensible” move, Peel Hunt analysts think Just Eat might have missed the boat.
They argue that it should have snapped up a Deliveroo comparator called Take Eat Easy back in 2016, back when the delivery market was in its infancy and TEE was looking for investment.
“Despite hitting its one-millionth order the week before, [Take Eat Easy] had to cease trading because there were no takers [willing to invest], most likely due to the fear of Deliveroo’s big pockets,” noted Peel Hunt.
“Had Just Eat acquired it, we may be in a different position today.”
READ: Just Eat off the menu on Deliveroo-Uber merger reports
Importantly, the belated move into delivery will hit Just Eat’s margins at a time when its rivals’ will be improving as their prior investments begin to pay off.
Even if it does make a decent fist of things at first, Peel Hunt said it would expect Deliveroo and Uber Eats to just ‘out-invest’ Just Eat and blow it out of the water.
That’s the big problem for Just Eat right now; not only is it playing catch-up, but it lacks the kind of innovation and deep pockets which its two major rivals are famed for.
Uber and Deliveroo more innovative
At the moment, a real sticking point for the industry is only being able to deliver food to a set address (i.e. 10 Downing Street).
The impulsive nature of a takeaway means that any company which could deliver food to a park, for example, could open up a new and lucrative market.
“We have stronger confidence in ‘Uberoo’ fixing this problem, with Uber already doing that within its taxis app,” read the analysts’ note to clients.
On top of that, the number crunchers also highlight Deliveroo’s Editions concept as another example of innovation, while the Uber Eats app is now more popular than Just Eat’s on Apple’s UK App Store.
Uber can push food offering to customers
Part of the reason for Uber Eats’ popularity is that it is riding on the coattails of its parent company, Uber, which is consistently one of the most downloaded apps in the UK and around the world.
Given that us Brits consume an unhealthy amount of takeaway food after a night out, Peel Hunt suggests that Uber could start pushing its Eats offering to customers during their trip home.
It describes this as “monetisation of a very captive audience and something that Just Eat cannot do”.
The analysts don’t expect Deliveroo to be left behind though, claiming its huge investments – it spent an extra £102mln on its product last year – will make sure it keeps pace.
Deliveroo’s move into the high-margin marketplace model, Just Eat’s bread and butter, should boost profitability, allowing it to invest even more into its offering. Uber is also entering this space, crowding the market even further.
The end for Just Eat?
Last month, speculation was rife that Uber was looking to take out Deliveroo and use it to beef up its own platform which would really take the fight to Just Eat.
Uber boss Dara Khosrowshahi has refused to pour cold water on those claims as well. When asked last week if he was planning on making a move for Deliveroo, he told journalists: “Who knows?”
Should a deal manage to get done – and you’d think competition regulators might have something to say about it – Peel Hunt’s number crunchers reckon it could spell the end for Just Eat.
Heck, they’re not convinced the FTSE 100 group will be even if a merger doesn’t happen.
“Prompted by rumours surrounding Uber and Deliveroo, we postulate that the two of them (merged or otherwise, let’s call them Uberoo), around the world, could create an Uberoo-esque wave that eventually sees the demise of Just Eat,” the analysts concluded.
“Both are capable of out-investing Just Eat in delivery and are entering the more lucrative marketplace sector.”
Just Eat now a ‘sell’
Having been a long-time bull of the stock, Peel Hunt has reversed its view entirely, sticking a ‘sell’ recommendation on Just Eat and slashing its target price to 520p from 950p previously.
The analysts have also chopped their forecasts, lowering its revenue estimates for the next three years by around 6% and underlying earnings (EBITDA) estimates over the same timeframe by roughly 9%.
Just Eat shares are down 3.7% to 579.6p in mid-morning trade on Monday.