Grubhub has hired financial advisors and is “considering strategic options including a possible sale” according to a report published by the Wall Street Journal yesterday.
The news comes on the heels of a rough few months for Grubhub that started when the third party delivery service reported lackluster Q3 results in October of 2019 and posted a fourth-quarter forecast well below Wall Street expectations. The company cited competition from other players like Uber Eats and DoorDash as one of the main reasons for its slowed growth. Shares nosedived more than 40 percent after the earnings call.
Grubhub went public about six years ago and was a pioneer in on-demand restaurant food delivery. But with the seemingly unstoppable demand for off-premises orders and the rise of competing companies trying to see this demand, Grubhub has seen its worth erode over time by billions of dollars.
Yesterday’s news sent the beleaguered company’s value up 12.5 percent, to about $54 per share according to CNBC. CNBC also noted that Uber shares “also spiked on the news, as investors bet consolidation in the crowded food-delivery industry would help the company.” Uber is no stranger to lackluster earnings calls: the company posted billions in losses on its most recent earnings call, and its Uber Eats delivery business is said to be hemorrhaging money.
Grubhub merging with Uber Eats, Postmates, or DoorDash is an obvious possibility, and today’s news won’t be the last time we hear the word “consolidation” when it comes to discussing the third-party food delivery market. Consumer loyalty with any one service isn’t high, with users preferring to hop from one app to the next in search of the best deals and perks. Investors, however, aren’t as excited about the free delivery, rides to restaurants, and other perks third-party services are doling out like after-dinner mints. Of late, investors have instead been urging these companies to focus less on attracting customers and more on actual profitability — something no third-party delivery service has yet achieved.
A consolidation of the market could help. Across the Atlantic, it’s already happening with the Just Eat-Takeaway.com deal (which is still moving ahead despite recent counter offers). Amazon, too, could be a potential player when it comes to mergers and acquisitions, though much of its future involvement could depend on how its controversial investment in Deliveroo shakes out, at least in Europe.
In the U.S., Some experts in the field say there isn’t room for more than two companies in the third-party delivery space.
DoorDash will probably be one of those companies. The service has built a food delivery empire by adopting the “out-raise and out-subsidize” approach when it comes to the competition. It is one of the fastest-growing brands in the U.S., and despite controversies around its tipping policies, the service is currently valued at over $12 billion. It grabbed the top spot among major food delivery services away from Grubhub in 2019.
Grubhub joining forces with any one of its main competitors could boost margins for these companies — though they still have yet to prove to investors that the third-party delivery model can even become profitable.