Stock prices are rising rapidly, but is trouble ahead?

Just Eat beat market expectations with its half-year results and announced a share buyback worth up to 150 million euros (126 million pounds).

The market reacted well: the take-away giant's share price rose by over eight percent on Wednesday.

Although the Amsterdam-based company's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 42 percent, this was largely due to lower-than-expected cost reductions and lower order fulfillment.

These two factors could cause problems for the company in the long run.

“The company hasn't performed poorly – but we don't see any reason for additional optimism in this update,” said Sean Kealy, analyst at Panmure Liberum.

“We see a risk here that they will weaken sales by making too deep cuts, as they did in southern Europe and Australia,” he said, adding that the results in southern Europe and Australia amounted to a “car crash.”

In Southern Europe, sales fell by 14 percent, “due to … markets with high competitive pressure and challenging developments in Israel,” the company said.

Overall, Just Eat's pre-tax loss increased from €317 million (£267 million) to €363 million (£306 million).

The total number of orders fell by 4.9 percent from €469 million (£395 million) to €446 million (£376 million) and the gross transaction value decreased by one percent from €13.4 million (£11.3 million) to €13.2 million (£11.1 million).

Limit investments and reduce costs

Given current interest rates, Just Eat has “quickly tried to break even… they have had to limit their investments to [do it] outside Europe,” said Kealy.

Southern Europe and Australia reported adjusted EBITDA of minus €49 million (£41 million) in the first half of 2024, compared with minus €55 million (£46 million) in 2023.

The number improved “despite declining orders due to a focus on cost efficiencies, including technology-enabled customer services, cost reductions and optimized marketing spend,” the company said.

However, if the company wants to increase sales in its problem areas, an investment is necessary.

“In southern Europe and Australia it is very difficult to reverse the trend without investment… [and] I don’t think they have the money for it,” Kealy said.

If the situation does not improve, there is a risk that Just Eat will withdraw from other countries to concentrate on the more profitable businesses in Germany, the Netherlands and the UK. The company has already withdrawn from New Zealand.

Just Eat has been trying to sell its American arm Grub Hub for two years. Grubhub has operated as a subsidiary of Just Eat since 2021, but its North American business has been faltering as strong competition in the market has led to rivals eating into its market share.

The story continues

Just Eat is moving closer to its competitors’ business models in Great Britain

In the UK and Ireland, things are very different: Adjusted EBITDA in these countries increased by 64 percent, which CEO Jitse Groen says is due to a different type of cost-cutting: an internal delivery platform (and a less rosy decline in orders).

While performance in both countries still fell short of market expectations, this was largely “due to reinvestment in the segment,” Deutsche Bank analysts said.

Order fulfillment costs fell 13 percent in the six months to June 30, from €263 million to €228 million. “This is mainly due to the decline in orders and the closure of our employee delivery model in the UK, which reduced spending on vehicles and workwear,” the company said.

“The delivery costs per order have improved significantly [in the first half of] 2024 compared to 2023, made possible by simplifying our operations… We completed the transition of all UK logistics orders to our own delivery platform in July 2024,” the company added.

In the past, Just Eat has used several delivery models, including self-delivery by restaurants and (at times) the use of employed drivers – ‘Scoober’ – but a large number of orders were sent to food delivery company Stuart for delivery.

This increased the costs of the take-away service: “Logisticians who operate their own delivery networks were unable [make money] “Just Eat couldn’t do that,” said Kealy.

Just Eat has been gradually ending its partnership with Stuart this year to focus on its own delivery platform.

This cost optimisation strategy is expected to continue in the future as Just Eat focuses on its profitable areas.

However, the Northern Europe segment only accounts for 30 percent of Just Eat Takeaway.com's total orders, the company said in its results.

If developments in other regions such as Southern Europe and North America do not accelerate, Just Eat could find itself in a difficult position.