The dotcom darlings – eBay, Google, and Amazon – what fantastic investments they would have been! We all wish we’d had the foresight to get in on the technology greats on day one. Maybe you did?
Of course, it took bottle to invest in these businesses at the initial (profit-free) stages. Many of us now feel we’ve missed out.
And so it’s little wonder that today investors are said to be clamouring to get in on the latest dotcom darling. A business that’s right in the web’s sweet spot.
Just Eat, the go-to website for online takeaway meals, is about to be floated right here in London. As tends to be the fashion these days, the public won’t be let in on the offer – it’s institutions-only here thank you very much.
Why don’t they want your money? Well, as I lamented on Wednesday, it’s another own goal for the regulators. If you make it too tricky to offer shares to an unsuspecting public, then don’t be surprised if the industry just bypasses them.
Now, as it happens, you’re not missing out on anything at all. Just Eat is no eBay; nor is it Amazon; and it’s certainly not Google.
In fact, Google is what you should be buying at this stage. Yes, it’s true. You may have missed out on Google’s early-day gains, but, as we’ll see, there’s still plenty more to come. And anyway, why on earth would you want to invest in a business that Google is likely to take apart?
Takeaways are 33% of our food budget
Undoubtedly, Just Eat is a company doing very well. It’s purported to take about half the UK online takeaway market, bringing in £96m last year.
The company is essentially a directory for takeaway foods; it allows customers to view menus, order and pay for food. It’s a good service and is said to have made a profit of about £14m last year. And that’s great going. In fact, I wish I’d started the business myself. After all, the start-up costs would have been small, and it’s in a great and growing market segment.
Just this week research revealed that we’re now spending about a third of our food budget on takeaways – 12 a month on average!
These sorts of online businesses can generate fantastic returns with barely an employee in sight. The business is eminently scalable and is already operating in 13 countries across the globe.
But before we get too excited, we have to look very closely at the nature of the business model. The fact that it’s scalable is brilliant. And sure, it’s profitable. But the next thing that we always look for is key: is there a barrier to entry? Can the competition come in and replicate this business? Is there what Warren Buffet calls an ‘economic moat’?
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Just Eat is living on borrowed time
Now, I would suggest there most certainly is no moat. Not only is the moat dry, but the enemy is already within. This Yellow Pages of the online takeaway’s business’s days are numbered.
Ebay’s moat is the very nature of its business. Any auction house lives and dies on the number of customers. If you want to run a decent auction, you need a deep market of sellers and, more importantly, buyers. Who wants to sell to an empty room? This makes ebay’s head start pretty difficult to assail.
Amazon is a bit different. Scale is the business’s economic moat. The sheer volume of trade allows Amazon to buy cheaply. It gives them great leverage when it comes to negotiating cheap delivery terms, and drives economies in the fulfillment service. It would be very difficult to replicate, especially given the wafer-thin profit margin Amazon is dealing with.
In fact, as I’ve made clear before, I think the only real source of competition here in the UK is Tesco.
Just Eat is nothing but a directory service. Anyone can come in and replicate it. The insurmountable problem here is that anyone isn’t just anyone, it’s Google.
Google will do the job better
Exactly how is it that Just Eat can claim half of the UK online delivery market? Now, while I don’t know for sure, I’m pretty certain it’s because the business has got its online marketing strategy right. And in today’s world, that means it’s got its Google strategy right: Just Eat is top of the pops because Google allows it to be.
And when Google decides that it’s time to chuck its tenant out of the building, it will. In this situation, the tenant has no rights. Google will take over the business. And to my mind, they’ll make a better job of it too.
Google already controls most internet searches. It’s got a wonderful maps application that dovetails perfectly with an online takeaway directory. Flipping heck, with the proliferation of mobile devices running on Google software, these boys can bring in a takeaway offer that will blow Just Eat out of the water.
Google is sitting back, watching, waiting and salivating over this type of business. The minute they want to, they’ll toss the likes of Just Eat out the door and change the locks.
Not very fair? Absolutely. But this is business.
Just Eat has been given a window of opportunity. And quite rightly, the owners of the business are selling it on to a crazed investing public just at a time when it’s right to do so. When the fish are hungry, you feed them – it’s known as bait!
Just Eat may well have a successful IPO. The company may continue to do well, for a while. But be under no illusions: when Google wants to crack on in the takeaway market, it will do so. And Just Eat will have very little to say about it.
Google is a far wiser and safer investment option (in my opinion). Here’s how I’m playing it.
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