Shares in FTSE 100 takeaway platform Just Eat PLC (LON:JE.) turned sour on Friday after news that tech giant Amazon Inc (NASDAQ:AMZN) had led a US$575mln (£450mln) funding round for rival Deliveroo.
The funding round, which also included existing Deliveroo investors T. Rowe Price, Fidelity Management and Research Company, and Greenoaks, takes the total amount raised by the firm to US$1.53bn.
READ: Just Eat double-downgraded to ‘underweight’ as JP Morgan sounds alarm on UK order growth
The extra funding would be used to grow the company’s engineering team, expand its offering to new customers and develop new products, Deliveroo said in a statement.
Amazon’s investment followed rumours that the group had previously approached Deliveroo with a view to buying it outright after its own food delivery offering flopped and was pulled out of the UK last year.
Will Shu, Deliveroo’s founder and chief executive, said the company looked forward to working with “a customer-obsessed organisation” like Amazon.
Just Eat’s investors, however, were less enthused at the prospect of increased competition and sent the shares sliding 7.7% to 625.6p in lunchtime trading.
In a note, analysts at Liberum said Amazon’s investment in Deliveroo would raise concerns over Just Eat’s business model.
However, the broker reiterated its ‘buy’ rating and 1,360p target price on the stock, saying these concerns were “overdone” as despite Amazon’s backing for Deliveroo, Just Eat’s dominant market position would be “incredibly difficult to overcome, especially given its strength in smaller towns”.
“Just Eat is #1 in its markets and, in the UK, it has an estimated x3-4 greater share than Uber Eats and Deliveroo combined and, crucially, 60%+ of its customers are in small towns where it is effectively the only option for restaurants and where the Uber Eats / Deliveroo model just doesn't work because of the economics.”
What Liberum did think was more likely was that Just Eat and other competitors would be acquired by bigger players including ride-hailing firm Uber Technologies Inc (NYSE:UBER), which is currently trying to compete with its own UberEats platform, as well as other US food groups such as GrubHub and DoorDash, which are looking to expand internationally.
Peel Hunt, meanwhile, was less optimistic and reiterated their ‘sell’ rating and 520p target price for Just Eat, saying Amazon’s investment in “the more expensive delivery side of the takeaway market” would put pressure on the company as it had not developed its own delivery offering as fully as its competitors.
“Curse of Amazon” strikes again
Russ Mould, investment director at AJ Bell, said that the share price reaction at Just Eat was another indicator that Amazon was now “so dominant” that the mere mention of its name was enough to leave shareholders “quaking with fear”.
“Given its financial firepower it is little wonder that Amazon effectively parking its tanks on Just Eat’s lawn is spooking investors”, Mould said, adding that the news was likely to ramp up the pressure on the company’s management to increasingly reshape the business to offer delivery services alongside its takeaway ordering platform.
He also echoed Liberum’s view that the downward push on the share price could leave the company vulnerable to being “swallowed up” by a larger peer.
--Adds analyst comment and updates share price--