Just Eat Promises Are Hard to Swallow

Just Eat Promises Are Hard to Swallow

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When top executives sell shares in the companies they run, it isn’t always a red flag. It’s a definite worry though when they sell a big chunk just days after dismissing doubts about their business model as gripes from people who simply don’t get it. That’s what happened at…

When top executives sell shares in the companies they run, it isn't always a red flag. It's a definite worry though when they sell a big chunk just days after dismissing doubts about their business model as gripes from people who simply don't get it.

That's what happened at Britain's biggest Internet takeout provider Just Eat, which competes with Rocket Internet-backed Hungry House and venture-capital funded Deliveroo, and faces the not entirely happy prospect of Amazon and Uber entering the market too.

CEO David Buttress disclosed on Friday night that he'd sold 3.19 million shares, leaving him with a 0.07 percent stake in a company that went public in March 2014. Finance director Mike Wroe sold 1.7 million shares, leaving him with 0.05 percent. To put it in context, Buttress jettisoned about 60 percent of his shares, while Wroe got rid of 55 percent.

A Just Eat spokesman said the sales were done now because the executives have limited windows when they can sell; for example, they couldn't sell in the six months before annual results since they're considered as having inside knowledge.

Yet it's precisely that assumption -- that Buttress and Wroe know more than most about Just Eat's prospects -- that makes the share sales troubling. The online takeout market is hugely competitive and will only get more so as U.S. tech giants Uber and Amazon experiment with food delivery. Short-sellers are starting to see Just Eat as a target.

Buttress has bet the farm on an asset-light approach that relies on restaurants themselves to do the deliveries, meaning they can't track orders as closely as Deliveroo, which has its own fleet of bike and scooter-riders. This allows Just Eat to keep more profit, but leaves questions about how well the business can be defended from richer rivals.

The approach also means that Just Eat is pitched more to the mass market, featuring cheaper food such as kebabs, burgers and pizzas and charging restaurants a lower commission.

One of Just Eat's original backers, venture capital fund Index Ventures, has also been selling down: it got rid of 3.7 percent in November, leaving it with 56 million shares, or 8.3 percent of the capital. Meanwhile, Index in July increased its bet on rival Deliveroo as part of a $70 million investment round.

Buttress said last week he was confident that Just Eat's strategy was the right one, and that the company could see off any competitors from Deliveroo to Uber. If that's the case, why isn't he holding on to more shares? His promise to keep improving profit margins (see chart below) means the shares trade at a generous 38 times the next 12 months' estimated earnings, so perception is important.

In fairness, Just Eat shares have risen 50 percent since their April 2014 IPO. Revenue and profit have increased, and it has consistently beaten its own estimates before raising them, a formula beloved by investors.

That's more than can be said for another listed participant in food delivery, Germany's Rocket Internet, which has backed Delivery Hero and Food Panda. Rocket's shares have fallen 40 percent since their October 2014 flotation because of concerns about its start-up incubator model and opaque manner of valuing disparate holdings.

Comparing oneself to Rocket, though, is too low a bar to set. Just Eat's two top managers will have to work hard to counter the idea that they've not exactly put their money where their mouths are.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

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