Online takeaway giant Just Eat's share price climbed this morning, despite a warning to investors that efforts to fight off rivals Deliveroo and Uber Eats would take a chunk out of the company's profits.
Branching out into markets in Latin America, investing in its own delivery network and acquisitions are likely to weigh on earnings, the FTSE 100 firm announced in its third quarter trading update today.
Earnings before interest, tax, depreciation and amortisation is now expected to fall to within the £165m to £185m range, showing just marginal year-on-year growth against £164m in 2017.
But Just Eat upped revenue guidance towards the top end of a £740m to £770m range after revenue grew 41 per cent in the same period, thanks to its successful aggressive growth strategy, with its purchase of rival Hungryhouse in January part of a £300m buying spree.
That led to a record 29.7m orders on its UK website in the first quarter, an annual rise of nearly 25 per cent.
Overall, revenues for the whole year are likely to exceed expectations, Just Eat said.
Shares bounced up 6.06 per cent following the news, as analysts expect the company's investment strategies to result in positive performance in the long run.
But challenges lie ahead for Just Eat, which distinguishes itself from its main competitors by having restaurants deliver their own food orders, instead of employing a delivery force.
Earlier this year the firm admitted this might have to change, saying it would invest £50m into setting up its own delivery network to match the demand of restaurants struggling to keep up with orders.
Russ Mould, investment director at AJ Bell, said: "Investors didn’t like Just Eat’s big spending plans earlier this year, causing its share price to wobble, even though strategically it had no choice but to make this investment. Just Eat has also had to spend money in Latin America to stay competitive.
"Just Eat is essentially spending money now to make more money in the future. That’s fine to a point, yet the bigger concern is whether its rivals have deeper pockets to do the same to a greater degree.
“Deliveroo is the key one to watch as it is seen to have the financial capacity to achieve greater market share gains through heavy spending. Uber Eats is also eager for a slice of the pie and is presenting another competitive challenge to Just Eat."