Shares of Just Eat Takeaway (OTC: JTKWY:) are up more than 20% on the Euronext Amsterdam stock exchange Wednesday after Amazon agreed to buy a 2% stake in the company’s U.S. food delivery business Grubhub.
Amazon to the Rescue?
Under the terms of the deal, the e-commerce giant will provide its Prime members access to the delivery service for a year. The move comes amid a critical period for Just Eat Takeaway, the largest meal ordering and delivery company in Europe, which has seen its stock plummet nearly 70% year-to-date.
The company has been facing pressure over recent months from its shareholders, who have urged its leadership to seek a partnership or sell Grubhub. Just Eat Takeaway acquired Grubhub in 2021 for $5.8 billion in an all-share deal.
The Amsterdam-based delivery giant said it will continue exploring “the partial of full sale of Grubhub”, though there are no guarantees it will strike a deal.
JPMorgan analysts shared their positive view on the deal with Amazon, saying it would likely attract new customers and reinforce Grubhub’s position in the U.S. market.
“While Grubhub is now only a smaller part of Just Eat Takeaaway’s portfolio, representing about 20% of estimated 2023 revenues, this step improves JET’s position in potentially selling (Grubhub),” they said.
The deal is expected to recover some traffic for Grubhub, which has been losing its market share to rivals Doordash and Uber Eats. Moreover, Amazon customers will have free delivery on orders of more than $12 across 4,000 cities where Grubhub provides its services.
Under the terms of the agreement, Amazon will acquire warrants representing 2% of Grubhub’s stock, as well as an additional 13% of the stock if the deal brings enough customers.
Investor Concerns Mounting
A few days ago, Just Eat’s shares plunged to an all-time low as investors were concerned about whether the company would manage to offload its Grubhub business and if it will be able to reach profitability without raising fresh funds.
Just Eat shares plummeted over 20% to 14.68 euros after a sharp sell-off, after which Bereberg analysts rated the stock as Sell and questioned Just Eat’s ability to sell Grubhub at a reasonable price compared to the $5.8 billion it paid to acquire the business.
Despite its stock hitting an all-time low, the European meal delivery company said it has not altered Grubhub’s business strategy, adding it was “actively exploring …a strategic partnership and/or the sale of Grubhub, in whole or in part.”
“Just Eat Takeaway has a strong cash base to finance its business plan.”
Just Eat’s CEO Jitse Groen has been criticized for the Grubhub acquisition by the company’s investors including the second-largest stakeholder Cat Rock. Groen, who also founded the company, said in April he was exploring different strategic alternatives for the business, including a sale.
Analysts at Berengerg said last week Just Eat would have to secure about $1 billion in fresh funding “to achieve free cash flow break-even” if the company does not offload Grubhub or other assets.
“We estimate that the disposal of Grubhub could bring in a net $400 million … but this still means a need for over 500 million euros in new funding,” they wrote.
Just Eat reported a loss of over 1 billion euros last year, but Groen said the company was due to reach operational profitability in 2023, adding its debt was “well-aligned” with the forecasted profitability targets.
The company also said Grubhub’s gross assets were valued at around 6.5 billion euros ($6.67 billion) at the end of the last year, and that the unit saw a pretax loss of 403 million euros in that year.
Just Eat shares have finally turned higher after Amazon acquired a 2% stake in the company’s U.S. delivery business Grubhub. Amazon could opt to increase its stake to 13% while it offers free shipping for its Prime members for a year.