Ticker Symbol: JTKWY, AMZN
Amazon struck a deal with JustEatTakeaway.com unit Grubhub this morning, taking a stake in the food delivery business and offering the service to its U.S. Amazon Prime members at no additional cost for one year. Shares of Just Eat were up over 15% in morning trading, while Amazon shares were trading flat.
The deal comes at a fortuitous time for Just Eat, after the company’s shares hit an all-time low yesterday, down over 65% on a year-to-date basis. As a part of the deal, Amazon would offer its Prime subscribers free Grubhub delivery for one year and receive options for 2% of the subsidiary company. Amazon would also receive warrants to increase its holding in Grubhub to 15%.
The warrants vest based on a predetermined formula that measures the performance of the partnership and new customers added to both platforms. The monetary conditions of the deal, i.e., how much Amazon paid for options and warrants, were not disclosed. Just Eat had been considering selling its Grubhub unit which it bought last year for $7.3 billion. Bloomberg reported last month that the unit had received preliminary interest from Apollo Global and other private equity groups.
The company has also been under internal pressure after its Chairman of the Board stepped down abruptly in May, and its Chief Operating Officer came under scrutiny for personal conduct. Just Eat’s management also revealed in a statement in April that the Grubhub unit was losing customers across its key markets due to increased competition, from the likes of Uber Eats, Postmates, and DoorDash, and reopening which caused diners to shift from ordering delivery to eating out more often.
Chief Executive Officer of Just Eat, Jitse Groen, has been trying to revive the top line at the company while managing costs. The company pared its growth projections for 2022 and said gross transaction value would only grow by mid-single digits, down from an earlier estimate of mid-teens growth. The Dutch company also said that total orders on the platform in the first quarter only rose to 264 million, missing the average Wall Street estimate of 287 million orders placed. Management said it doesn’t expect earnings before interest, taxes, and depreciation to turn positive until at least 2023.
Amazon, meanwhile, gets to add yet another service to its Amazon Prime subscription, which could help boost its value proposition to customers considering canceling their membership. High global inflation has caused consumers to consider their subscription packages more carefully and to be more selective in the services they cut and those they keep. Grubhub has the third-largest market share of all meal delivery companies in the U.S. behind DoorDash and Uber Eats.
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