Just Eat is a cheap stock to play the future of food delivery

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Courtesy of Just Eat


Last June, as the pandemic raged and demand for food delivery services increased, Grubhub went on sale. At the time, there was a lot of speculation that

Uber Technologies

could buy Grubhub and combine it with Uber Eats, creating a beefier competitor for the market leader

DoorDash.

But the very notion of an Uber / Grubhub combination has drawn unwanted attention from members of Congress, who have raised antitrust concerns.

In a move that surprised investors and angered analysts who were hoping to see consolidation in the fiercely competitive U.S. delivery market, Grubhub instead accepted an offer of $ 7.3 billion in shares from Amsterdam.

Just eat take out.com

(ticker: GRUB), a food delivery company that itself had just been created by the 2020 merger of Takeaway and London-based Just Eat.

The acquisition of Grubhub lasted a year and finally closed this month. US investors are still finding out about the new company, which could create an opportunity for the stock. As CEO Jitse Groen told me, Just Eat Takeaway’s business is different from DoorDash (DASH) and Uber Eats in many ways. On the one hand, the company started out as a marketplace, transmitting orders to restaurants, who manage the delivery themselves, this still represents 70% of the activity. Grubhub’s Seamless unit does the same in New York. Market activity is much more profitable than having to deliver with orders.

Sometimes restaurants still need delivery, and Just Eat Takeaway and Grubhub offer that option. Another difference: in most European markets the delivery staff is made up of full-time employees. Groen says regulations in much of Europe prevent Just Eat Takeaway from using the entrepreneur-driven model that dominates the concert economy in the United States. He adds that a combination of smaller average orders and a culture of small (if any) tips for drivers makes the American approach difficult to sell in Europe.

Ultimately, the Just Eat Takeway model may be better for business. On a pro forma basis, Just Eat in 2020 generated $ 4.6 billion in revenue and $ 401 million in adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda. In contrast, DoorDash had 2020 revenue of $ 2.9 billion and adjusted EBITDA of $ 189 million. Uber (UBER) always loses money on delivery. DoorDash Sees 2021 Adjusted EBITDA Ranging From $ 0 Million To $ 200 Million; Just Eat has yet to provide guidance for 2021, but an analyst meeting is scheduled for the fall. While DoorDash is probably growing faster, Just Eat is more profitable. And here’s the thing: DoorDash is trading at around 20 times last year’s earnings, while Just Eat is trading for just four times trailing earnings. Fancy a good speculative deal? Just Eat could be the meal you are looking for.

In February, I wrote a column about Ryan Jacob, portfolio manager of the

Jacob Internet

funds (JAMFX). Up 123% last year, it added 23% more this year, although it is below year highs. In the story, Jacob highlighted a small cap marketing software company called

SharpSpring

(SHSP). “Marketing automation is all the rage,” he told me at the time. “I’m surprised no one tried to buy them.”

Well, last week SharpSpring agreed to be acquired by email marketing firm Constant Contact, which is owned by private equity firms Clearlake Capital and Siris Capital, for around $ 240 million. The deal is $ 17.10 a share, a price that disappoints Jacob, given that the stock was trading earlier this year as high as $ 26.78. Jacob notes that his funds own over 4% of the company and that he will make a profit on the position, but less than expected.

Jacob has another idea in the same space:

Global Moment

(MNTV), the new name of SVMK, the parent of Survey Monkey. Once better known as a tool for consumers and small businesses to create simple surveys, Momentive’s rebranding reflects a shift in focus towards enterprise software for tracking and measuring feedback, competing with companies like

Medallion

(MDLA) and

Qualtrics

(XM). Momentive reported revenues of $ 102 million in the March quarter, up 16%, with business revenues up 24% and 30% of the total. With a growing company and a modest valuation – seven times the company’s sales forecast for 2021 – Jacob believes Momentive could be another attractive acquisition target in a growing market.

One more update: In March, I wrote a bullish post on

Splunk

(SPLK), which sells software tools to monitor computer network performance. Splunk is in the midst of a big transition, pushing customers to cloud-based versions of its software on a subscription basis. The change has taken its toll on financial results, hiding growth and putting pressure on Splunk shares, which are down 40% from their 52-week high at $ 140 recently.

Splunk argued that the best measure of activity is annual recurring revenue, or ARR. On this basis, the company grew by 39% in the last quarter. But the messy financial reports have left investors skeptical. Barron argues that the stock is too cheap. This theory gained traction last week after Splunk announced a deal to sell $ 1 billion in convertible notes to private equity firm Silver Lake.

Bulls love the deal. “This investment represents a significant endorsement of Splunk and its technological stance,” wrote Needham’s Jack Andrews, who has a buy rating and a target of $ 198 on the stock. Splunk shares have risen slightly since our story was published. The action still looks like a rare bargain in the generally high-priced cloud software industry.

Write to Eric J. Savitz at [email protected]


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