Yesterday Betaville publishes on their website that “the London-listed online food delivery company is at the center of takeover speculation, noting that ‘Uber may be circling the company.’ The conclusion seems to be that ‘JET is rumored to be bought out by PE or Uber’. Of course, this is all speculation. But if a website like Betaville posts this speculation it is no longer speculation based on logic, but speculation based on market insiders, people who know stuff. And when a rumor is leaked it is probably to pressure management to take action.
I have written extensively about JET (GRUB), noting that the company is significantly undervalued partially due to its multibillion-dollar iFood stake and profitable Western Europe platforms. At the end of January I came out with a blunt article: ‘A Takeover Bid Is A High Probability Event’ in which I said:
‘I believe that the high strategic value of its food delivery platforms, the strong underlying profitability of the marketplaces, combined with its incredibly low valuation makes a takeover bid a very legitimate probability – and in my opinion, nearly a CERTAINTY if the stock price stays where it is. ‘
Some people thought it was ‘wishful thinking’ but at the time I put down three high probability candidates: Amazon (NASDAQ: AMZN), Uber and PE. Here we are …
What does this mean? What is going on? And why do I believe this to be true?
Clearly, the rumor seems to start with Uber Technologies (UBER). Later I will elaborate on why PE is kind of a consequence of Uber’s interests. I can explain again why Uber must acquire JET, but I will not because in my previous article I put it down perfectly:
‘By acquiring JET Uber can consolidate food delivery and same-day delivery in a significant amount of its core regions. Uber’s stock will be significantly derisked which I believe will lead to an appreciation of the stock. Uber Eats will become the strong market leader in Oceania, Canada and most European countries where previously it was either a strong competitor but most often a suboptimal competitor. And most importantly in the US Uber Eats will be a strong competitor against DoorDash. Uber needs to acquire JET to gain confidence from its shareholders. Uber Eats is hitting adjusted EBITDA breakeven in delivery – I note Uber is publicly focusing on profitability. But in this metric, I believe Uber deducts voucher costs from adjusted EBITDA and uses the entire revenue which includes the voucher. Which is an absolute joke. My point is. Compared to JET Uber is much further away from profitability, JET’s marketplace revenues in Western Europe are serious high EBITDA margin revenues. I see only one way for Uber to deliver on its promises of profitability in delivery … ‘
Now that the stock market focuses on profitability, why not merge with the most profitable food delivery platforms on earth? Just Eat Takeaway operates marketplaces in Western Europe with high EBITDA margins and high market shares. And let’s not forget Just Eat and iFood both have high margin marketplace revenues and high market shares too.
After my article, I continued to follow Uber’s actions and I slowly started to realize what was going on. When JET was announcing its annual results Uber stole the show. The evening before in Bloomberg Uber announced they would significantly ramp up investments in Germany. Germany is JET’s core profit pool and makes up the majority of the Northern Europe segment with 4% adjusted EBITDA margins or gross merchandise value. Clearly this led to another decline in the stock price.
Uber will never make a penny in Germany. But it can significantly hamper JET’s profitability in the short term. The reality is that Uber has a profitable rides segment and can use these profits for long periods to fight competition. Is that a good investment? No, but it controls the narrative and makes JET shareholders scared.
Uber management has been better at controlling the narrative around JET’s stock price than around their own stock price … JET’s market cap has dwindled over the last year to crazy levels and Uber acquired lots of potential premium. The decline of the euro to the dollar only helps. The market does not seem to realize a majority of JET’s revenues come from non-euro markets … At the lowest stock price, Takeaway had an enterprise value of 6 bn + euro mostly made up of the valuable iFood stake, Skip The Dishes and the Northern Europe segment at discounted valuations.
Why the rumors are probably true
That a reputable source like Betaville has different sources saying there’s interest from Uber or Private Equity makes so much sense to me. Uber probably approached management with stock for stock bid, one so high that JET can not refuse. JET management – especially the CEO – does not like Uber and is probably searching for alternative private equity offers. That’s why to me it makes so much sense that independent sources are saying that Uber is interested or that PE is interested in a full takeover. What is the chance that these rumors probably from different sources – that are clearly connected – show up randomly at the same time?
Most JET shareholders are probably fine with a bid that values the stock somewhere around 80-100 Euro, a significant discount to its true value, and truly a super deal for any acquirer. JET shareholders are rational. JET shareholders can use the free-ed up capital to invest in the other discounted growth stocks.
So that’s that, I just wanted to share my thoughts about what was going on with Uber and JET. I did not discuss any valuations since I have done that more than enough in my previous 8 articles.
I want to end with a short message to any investment banker working for Uber. JET shareholders are rational, but if Uber makes a bid on JET – it better be a bid that reasonably reflects the value of JET’s platforms. Uber may be controlling the narrative right now but the reality is that Uber has a tiny market share in Germany – a market that has seen Deliveroo and DH leaves multiple times – while JET has a 20% + breakeven market share in the US.
An example of a reasonable bid is 0.6 times GTV plus 4bn for iFood which is equivalent to 20 billion euros market cap and approximately a 95 euro stock price. I think any acquirer will acquire great returns from this price. I still think it undervalues the company significantly but the reality also exists that Uber has significant capital leverage, unless JET partners with Amazon of course.