As Amazon Exits Restaurant Deliveries, Grubhub Gets Attention Again

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Being in the food delivery business has been a tough road. Besides justifying fees and tips on top of your normal meal ordering, there has been an increase in competition from service providers who wanted to make a buck off of your lunch and dinner order-outs. It seems that even the biggest and best in the country might have decided that the field is just too competitive.

Amazon.com Inc. (NASDAQ: AMZN) has announced that it is exiting its delivery service from restaurants in the United States. The company plans to end its services on June 24, giving just two weeks notice to customers.

While the shutdown can be debated, the reality is that this is a huge gift to companies like Grubhub Inc. (NASDAQ: GRUB), DoorDash and even the Uber Technologies Inc. (NYSE: UBER) service Uber Eats.

This move comes after more than three years of delivery in an effort to keep Amazon Prime members that much more service. It first launched in Seattle back in 2015 and was expanded to 20 U.S. cities thereafter. Amazon ended its similar service in London late in 2018, but this may not be a total end to Amazon’s food delivery ambitions after making other investments.

The initiative is too small to even matter at this point for Amazon shareholders. That said, Grubhub shares surged on the news that a key competitor was exiting the restaurant delivery business. Grubhub was last seen up over 8% at $70.01, and more than 3.8 million shares had traded hands with more than two hours until those close (150% of a normal day’s trading volume).

Having one less competitor is likely to benefit Grubhub. Its sales rose from $361.8 million in 2015 to $49.3 million in 2016, $683 million in 2017 and $1.007 billion in 2018. After that its growth petered out under a flurry of competition. Refinitiv shows a consensus analyst target of $1.37 billion in 2019 revenues and then $1.74 billion in 2020 revenues.

Where a better impact may be seen is in earnings. Grubhub’s $1.66 in earnings per share in 2018 are expected to fall to $1.44 per share in 2019 and then to jump back up to $2.20 per share in 2020.

Here is the real rub for Grubhub investors. Even with shares up 8% at $70.05, and with a $6.4 billion market cap on Tuesday, the 52-week range of $60.20 to $149.35 shows how much this darling has fallen from grace.

Now that one big analyst upgrade from April isn’t looking quite as controversial. Also on April 26, Grubhub was reiterated as Outperform with a $100 target price (versus a $69.78 close) at Wedbush Securities, with the firm noting that the earnings prove the sky isn’t falling and that investors should focus on the company’s reach and differentiation from competitors. Those calls might get more attention on Wednesday.


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