Amazon-Grubhub deal disrupts thinking around the online food delivery sector

hapabapa

Amazon (AMZN) traded 1.69% higher on Thursday as investors continue to digest the e-commerce giant's decision to enter into a commercial agreement with Just Eat Takeaway.com N.V. (OTCPK:TKAYF) in the U.S. in which Amazon Prime members can sign up for a free, one-year Grubhub+ membership and access free delivery from restaurants on Grubhub. Amazon also lands warrants in the deal valued at over 2% of Grubhub with upside to 15% if certain performance conditions are met.

Morgan Stanley noted the Grubhub deal follows an agreement between Deliveroo and Amazon in the UK giving Prime Members a free Deliveroo Plus membership for a year.

"By adding access to free food delivery for Prime members, AMZN is furthering the suite of prime benefits beyond free shipping, video, music, etc. which we view as particularly important as AMZN looks to retain its Prime Subs and Prime spending as we enter a period of potentially slowing consumer spend," analyst Brian Nowak.

Morgan Stanley sees AMZN's continued push into food delivery as an incremental competitive risk to DoorDash (DASH) and Uber Technologies (UBER), but nothing resembling a death blow.

Needham analyst Bernie McTernan thinks the actual result on DASH and UBER will be dependent upon how aggressive AMZN is in marketing the partnership. He reminded that Grubhub approached AMZN from a position of weakness and Grubhub's expectation is the promo will be neutral to earnings and free cash flow is an indication of a potentially more muted impact on results for DASH and UBER.

Meanwhile, JMP Securities analyst Andrew Boone said his firm would not be surprised to see Grubhub+ lost in the myriad of benefits Amazon provides to its subscribers and Bank of America expects the Amazon/Grubhub incentive program will have little impact on DoorDash's (DASH) near-term growth or margins, with DoorDash already at nearly 60% US market share. The firm does anticipate some overhang for the stock due to the long-term potential for Amazon to re-enter the food delivery industry.

Shares of Just Eat Takeaway.com (OTCPK:TKAYF) fell 0.87% in London trading on Thursday after a big pop on Wednesday. DoorDash (DASH) gained 5.36% to cut into the loss on Wednesday following the Amazon-Just Eat deal announcement and Uber Technologies (UBER) rose 3.79%. Waitr Holdings (WTRH) is down 22.15% after speculative buying action yesterday sent shares up more than 40%.

Comments

[Value Digger]

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[Vol4Life]

Free grubhub for a year, then I probably have to "join" unless it's a permanent part of Prime. And/or I feel obligated to tip for my $ 10 meal. Just not sure how relevant this is, maybe I'm missing something or just old. Maybe there is - or should be a lhigh minimum order $$$ amount ( eg business lunches), that might help margins and make it worthwhile for everyone.

[Clark158f1]

DASH is going to have a very tuff time with a competitor like AMZN.

I'd be a seller on pops.

[charly333]

The food delivery services are unprofitable and a flawed business model. Even Amazon has some problems with high fulfillment costs. Amazon Prime is needed for customer retention.

[Evitzee]

We don't live in area that has Whole Foods or GrubHub delivery so those two benefits are of no use to us.

[Gary J is Rich on AMZN]

@Evitzee so good to know

[firsTraveler]

Don't think Grub is even in my area. There's a local company that has most of the local places.

[thumb.ai]

I grew up with an old department store that could sell you anything. Just adds a department. Bakery and deli. Music and sports event tickets. Furniture + delivery option, becoming fence for your yard + installation option. Home decorator service.

If it can be sold online, why wouldn't Amazon sell it?

You're hungry. You want food delivered. What's the next action you take? Pick up your phone and...

[vooch]

Isn’t this type of business going to get crushed in the forthcoming recession ?

[dandroidz]

Why? Amazon bought the loser of the food delivery apps which are all going to fail miserably in this inflationary environment and penny pinching by consumers.

[Crayfishkaliari]

@dandroidz you left out the main driver, energy decline

[dandroidz]

@Crayfishkaliari Yes that too, plus fed up restaurants fed up with fees. Bad news all around for food apps. Folks are waking up to the fact they are paying 30-40% premiums for luke warm fast food.
Amazon will not alleviate that issue.

[Gary J is Rich on AMZN]

@dandroidz

Amazon bought exactly nothing. Get informed.