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Just Eat’s big strategic change will weigh on earnings growth in 2018
A £50m investment by food ordering expert Just Eat (JE.) will restrict earnings growth in 2018.
The company says underlying earnings before interest, tax, depreciation and amortisation (EBITDA) in 2018 will be between £165m and £185m, which is ‘materially below’ analyst expectation of £226m.
That implies a mere 7% EBITDA growth in the current year, considerably less than the 42% growth rate achieved in 2017.
The reduction in earnings guidance reflects investment in brands, developing markets and delivery services, which will also hike costs for Just Eat for staff and transportation.
Investing in delivery will be focused on the UK, Canada, Australia, New Zealand, as well as developing markets to tap into significant growth potential.
Rival operator Deliveroo used to have a competitive advantage over Just Eat because it was able to deliver food to customers’ homes. Just Eat has historically only been an ordering website; now it plans to add delivery to be more in line with rivals.
‘When facing a growing consumer choice, a business has three options: 1) increase marketing to defeat the competition; 2) acquire the competition; or 3) invest in new IP and assets within the business to generate benefits in perpetuity. We prefer door #3,’ says stockbroker Peel Hunt. (LMJ)