Just Eat Takeaway: Amazon deal is less appetising than it appears

Adding ecommerce star Amazon to food delivery group Just Eat Takeaway’s corporate CV looks tantalising. A US commercial deal means Amazon will end up with a 2 per cent stake in JET’s US subsidiary Grubhub. JET’s share price shot up over 20 per cent in morning trading. But the deal is less substantial than JET investors might hope.

For starters, food delivery is a tough business in the US — though rival DoorDash already generates positive group ebitda. JET’s boom in orders during lockdown has not translated into profits. Its $7.3bn acquisition of Grubhub, completed in 2021, has attracted the rancour of activists unhappy with the 66 per cent collapse in its share price this year. They want JET to chuck out Grubhub and return any cash to investors.

That would explain why Amazon did not reach into its pocket for a small stake. The deal comes in the form of warrants awarded to the ecommerce group. If certain performance targets are met, Amazon can receive more warrants worth up to another 13 per cent of Grubhub. Amazon is presumably wary of risking any more capital in food delivery after splashing out on Deliveroo in a deal agreed in 2020. Since Deliveroo’s London listing in March 2021, Amazon’s 12 per cent holding has plummeted 75 per cent.

But the arrangement could boost Amazon’s Prime membership numbers. It has offered its Prime customers free food delivery via JET’s Grubhub+ service for one year. That will save members some money given the premium service normally costs $9.99 per month. Amazon can point to this as partly justifying its recent 17 per cent jump for Prime annual subscription.

JET will have to spend money on more drivers and other logistics to prepare for extra orders it receives from Amazon Prime members. The arrangement is seen as “neutral” to earnings and cash flow this year. It should welcome any boost. JET has €550mn in bank loans and convertible bonds maturing by January 2024 and no positive free cash flow forecast before 2024, says Sarah Simon at Berenberg.

Perhaps Amazon’s powerful logistics technology can turn Grubhub into a winner. But the ecommerce giant has yet to succeed on food delivery so far. Its deal with Grubhub does not do enough to justify Just Eat Takeaway’s investment.