Amazon.com, Uber Threaten GrubHub In Food Delivery, Analyst Says
Analysts are cautious about food-delivery firm GrubHub ( GRUB ) and its outlook in 2016, saying the sector has become intensely competitive as startups and publicly traded companies vie for diner dollars. Despite strong Q4 earnings posted early Thursday, GrubHub was downgraded by Oppenheimer analyst Jason Helfstein to perform from outperform due to concerns over growing competition. In a research note Friday, he specifically cited e-commerce juggernaut Amazon.com ( AMZN ) and ride-booking app Uber. Helfstein says that both firms will cut into GrubHub’s revenue and profitability in the next 12 to 18 months. “As Amazon and Uber aggressively pursue food delivery, we believe GrubHub will see margin compression on reduced order rates, more expensive customer-acquisition costs and lower commission rates,” he wrote. He noted that the number of Amazon shoppers dwarfs GrubHub’s customer base of about 6.7 million active diners — Amazon’s customer loyalty program Amazon Prime alone has more than 50 million members, according to estimates. Meanwhile, Uber is growing rapidly, Helfstein noted, and now is valued at over $60 billion. Online review website Yelp ( YELP ) also entered the food delivery market last year with its acquisition of Eat24 for about $134 million. And payments processor Square ( SQ ), which recently had its IPO , owns food delivery app Caviar. GrubHub stock was down 2% in late-afternoon trading in the stock market today , near 21. The company has an IBD Composite rating of 68, where 99 is the highest. GrubHub stock rose 13% Thursday after its Q4 beat. It held its IPO in April 2014, pricing shares at 26 and raising $192 million. RBC Capital Markets analyst Rohit Kulkarni, in a research note Friday, called GrubHub’s Q4 “solid” and said its 2016 guidance was better than expected. But Kulkarni wrote that he’d “prefer to remain on the sidelines” because of unfavorable trends. The analyst lowered his price target on GrubHub stock to 26 from 27, saying he sees no clear route to acquiring more diners and finds a lack of evidence of “stable delivery economics.” “We don’t believe GrubHub shares can fundamentally outperform,” Kulkarni wrote.