Grubhub (GRUB) Could be on Sale: Is Amazon a Potential Buyer?

Grubhub’s GRUB shares surged 12.6% to close at $54.75 on Jan 8, following reports of the company looking for strategic options, including a potential sale.

MarketWatch cited The Wall Street Journal report, which stated that the struggling food-delivery company has appointed financial advisors to discuss the strategic options.

Notably, Bloomberg Intelligence analyst, Mandeep Singh, expects that Grubhub “will likely be acquired by a larger competitor such as Uber or DoorDash,” or it could be taken private “given its bleak sales growth and margin view for 2020.”

Apart from these, we expect Amazon AMZN and Alphabet GOOGL division Google to be potential suitors for Grubhub.

Grubhub Hurt by Competition

Notably, Grubhub had a terrible 2019, negatively impacted by increasing competition from the likes of DoorDash and Uber UBER arm UBER EATS.

The company is trailing DoorDash in terms of market share. Per the latest report by analytics firm Second Measure, Grubhub’s share of the U.S. consumers’ meal delivery sales in November was 30%, lower than DoorDash’s 37%. Moreover, Uber Eats earned 20% of the U.S. meal delivery spending in the same month.

Moreover, Grubhub stated that stiff competition and lower frequency as well as retention rates of new diners hurt third-quarter 2019 overall results by more than 300 basis points (bps).

Further, increasing expenses due to planned expansion into new delivery markets and higher investments in marketing and advertisements continued to keep the company’s margins under pressure.

Shares of Grubhub have declined 32.4% in the past year against the industry’s growth of 13.7%.

One-Year Price Performance

Why Should Amazon, Google be Interested?

Amazon’s interest in food delivery is evident from its investment in the U.K.-based Deliveroo. Per Forbes data, the online food delivery market is estimated to be worth $200 billion globally by 2025, and it is not surprising that Amazon is eyeing it.

Amazon’s strong retail and cloud computing footprint provides it a steady source of revenues and profits. Moreover, Grubhub’s acquisition will spare the need for immediate investments as the e-commerce giant will get a well-established food delivery network and an expanding restaurant partner base.

Notably, Grubhub’s partner base now includes the likes of Yum Brands!, Shake Shack, Blue Apron, Dunkin’ Brands Group, Yelp, Dine Brands, the parent company of Applebee's Neighborhood Grill + Bar and IHOP restaurants, McDonald’s, and Panera Bread.

The combination of Amazon’s distribution strength with Grubhub’s expanding partner base can challenge the growing dominance of DoorDash and UBER in the U.S. food delivery space.

Moreover, Google has already forayed into this market with its delivery arm, Wing, and food delivery apps. Notably, Wing has received permission from the Civil Aviation Safety Authority in Australia and launched the food delivery service through drones in the country, the first of its kind in the world. Currently, the service is available in Canberra, which delivers food, coffee and medicines.

Zacks Rank

While Google parent Alphabet currently has a Zacks Rank #2 (Buy), Grubhub, UBER and Amazon have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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