Shares in online food delivery platform Just Eat are -2.4% in mid-morning trading in spite of a seemingly positive H1 update. Group revenues are +45%, beating expectations, while orders grew 30% (below +32% in Q1 2018, but stronger than +26% in 2017). What’s not to like?

The key, as usual, lies with the outlook. Just Eat management was confident enough to raise FY revenue guidance (+12%), but left the profit outlook unchanged, suggesting lower margins for the year and leaving investors with a sour taste in the mouth.

Despite strong expected growth in revenues, Just Eat continues to spend aggressively on CAPEX investments into marketing and IT development to cope with the higher level of delivery orders, as well as on M&A, with costs related to acquisition of hungryhouse.co.uk still weighing on the company.

Positive results so far this year certainly give Just Eat enough slack to increase investments into streamlining customer and partner experience (both important for long-term growth), with CAPEX increased ~20% for the rest of the year (from £50m to £55-60m range). And the highly aggressive sector competition (from the likes of Deliveroo and Uber Eats) appears to be forcing Just Eat to keep investing in growth.

The preceding Q1 earnings report (1 May) highlighted similar issues (growing revenues and orders, but also ballooning CAPEX) and, at the time, investors rewarded Just Eat with +4% share price growth. This time, however, concerns over price competition appear to outweigh the positives. With the market focused on costs over and above aggressive order growth, will Just Eat be able to cleanse investor palate and deliver improved profits margins later in the year?

Artjom Hatsaturjants, Research Analyst, 31 July 2018