Domino's stock jumps on partnership with Uber Eats

Domino’s stock (DPZ) jumped nearly 16% on Wednesday at the market open and now is trading up roughly up 11% in midday trading after the pizza chain announced plans to offer its products on the delivery apps Uber Eats (UBER) and Postmates.

The initial test will begin in the fall for US consumers in four pilot markets and is expected to reach markets across the country by the end of 2023.

In a release, CEO Russell Weiner said, "Now that aggregators are at scale, the next logical marketplace for us to enter is order aggregation."

However, he is not straying away from Domino’s position as a delivery company, with its own services to continue. Weiner said the company is a "leader in the delivery and carryout pizza marketplaces in the US" and added that "Domino's sells more food on its digital platform than any pizza company in America."

The implications could be even larger, especially for Uber, if the rollout expands internationally. "This agreement has the potential for incremental orders from Uber Eats to 70% of Domino's stores around the world, including the US." Both have 27 international markets in common.

Shares of Domino’s are up nearly 12% year to date, and while shares of Uber are mostly flat on Wednesday, year-to-date shares are up nearly 79%.

Wall Street has been anticipating this move, but some didn't see it coming this soon.

Andrew Charles of Cowen said it was "sooner than we expected" and estimates the results of the partnership to have a relatively small impact.

In a note to clients, he said, "Based on other native delivery concepts that have added third-party delivery this will result in a low-single-digit percent lift to same-store sales. We estimate every 1% annualized lift to U.S. same store sales equates to $0.17 of 2024E EPS."

In a note to investors, BTIG Analyst Peter Saleh, who has a Buy rating, said the stock's rally was expected. "We expect shares will rally materially on this deal, as the partnership will likely boost Domino's struggling domestic delivery sales and improve franchisee economics."

Jon Tower of Citi, who has a Neutral rating on that stock, has a few questions about this partnership, including whether Domino's will receive royalties from the total check or the food portion, if the company will collect a digital transaction fee, if third-party delivery fees will be included in same-store sales numbers, and how franchisees will perceive this mega partnership.

Domino's Pizza is set to report second quarter earnings in a few weeks before the market open on July 24.

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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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