Just Eat Takeaway weighs Grubhub sale as pandemic boost fades

Hargreaves Lansdown Select fund manager Steve Clayton said investors welcomed the fact a sale of Grubhub could herald a focus on profitability rather than "expansion at any price." Investor sentiment towards online food companies has soured amid expectation that some customers who switched to home deliveries during the pandemic will return to restaurants.

Europe's biggest meal delivery company Just Eat Takeaway.com is looking at selling its U.S. arm Grubhub less than a year after buying it, under pressure from investors to revive its shares amid stiff competition and a fading pandemic boost.

In an abrupt turnaround, CEO Jitse Groen said Takeaway had hired banks to explore a possible sale of Grubhub - alongside potential partnership options it was already exploring - and that buyers had expressed more than casual interest. "We are in talks with people around this (a sale), but I need to caution that doesn't automatically lead to a transaction," Groen told reporters.

The takeaway, which paid $7.3 billion for Grubhub in 2021 while racking up a billion-euro loss, has been hit as investors reappraise valuations for loss-making technology companies and stocks seen as big beneficiaries of the pandemic. The company's shares, which have lost two-thirds of their value since an October 2020 peak above 100 euros, were up 7.6% to 28.08 euros at 1055 GMT, but remain not far above their 2016 IPO price of 23 euros.

At current levels, Takeaway's market value of 5.3 billion euros ($5.8 billion) is less than it paid for Grubhub. Hargreaves Lansdown Select fund manager Steve Clayton said investors welcomed the fact a sale of Grubhub could herald a focus on profitability rather than "expansion at any price."

Investor sentiment toward online food companies has soured amid the expectation that some customers who switched to home deliveries during the pandemic will return to restaurants. In a trading update, Takeaway said orders had fallen by 1% in the first quarter and that it now expected "mid-single-digit growth" in Gross Transaction Value (GTV) this year, instead of the "mid-teens" predicted in January.

GTV measures the total value of food ordered and delivered. Takeaway handled 264.1 million orders in the first quarter, compared with an estimate of 286 million by JPMorgan analysts.

CATALYSTS The downgrade to Takeaway's outlook follows a warning by British rival Deliveroo last week that consumer spending could slow this year amid a cost-of-living squeeze.

Takeaway and Deliveroo have been striking deals with supermarkets to add on-demand grocery delivery to their offerings to try to stave off competition from "fast grocery" startups such as Gorillas of Germany and Getir of Turkey. Groen said his operational focus would be on growing average order sizes and cutting costs. "We expect profitability to gradually improve throughout the year, and to return to positive adjusted EBITDA (core earnings) in 2023," he said.

Major shareholders including Cat Rock, the company's second-largest with a 6.88% stake, publicly criticized the purchase of Grubhub and have called on Groen to sell it. Grubhub has strong positions in East Coast cities, notably New York, but its profitability was hit by caps on the commissions it can charge restaurants in the pandemic.

It competes against Doordash and Uber Eats, among others. The takeaway is challenging the legality of the fee caps, which it says are costing the company around 200 million euros annually in lost operating profit.

"We fully accept this story is messy operationally ... but valuation is heavily discounted," Barclays' analysts said of Takeaway. "There are still potential catalysts to unlock this with the process on Grubhub ongoing, a sale of (Takeaway's stake in Brazilian business) iFood possible, legal cases around fee caps ongoing in the U.S., and the AGM upcoming."

Last week, hedge fund Lucerne Capital Management, with around 600,000 shares, said it would vote against the reappointment of the company's finance chief at the AGM in May to protest over alleged poor communication and the weak share performance. ($1=0.9262 euros)