Grubhub's (NYSE: GRUB) stock recently stumbled after Uber revealed Uber Eats' growth metrics in its IPO filing. It stated that Uber Eats offers deliveries from 220,000 restaurants in over 500 cities globally, compared to Grubhub's 105,000 U.S. partners.
Uber Eats' gross bookings, which are comparable to Grubhub's gross food sales, surged more than 500% in 2017 and another 164% to $7.9 billion in 2018. Grubhub's gross food sales rose 34% to $5.1 billion in 2018. Those numbers look alarming for Grubhub, but I think investors are overreacting and glossing over some key facts.
Image source: Grubhub.
Different markets and business models
Uber's IPO filing makes Uber Eats seem bigger than Grubhub, but Uber Eats operates overseas, while Grubhub only operates in the U.S., where it remains the market leader.
According to Second Measure, Uber Eats' share of the U.S. market only rose slightly from 24% to 26% between January 2018 and January 2019. During the same period, Grubhub's share fell from 61% to 43%, while DoorDash's share surged from 16% to 31%. This indicates that DoorDash, not Uber Eats, is Grubhub's biggest U.S. rival.
A comparison of the three services' year-over-year monthly sales growth in the U.S. supports that argument. Grubhub and Uber Eats faced decelerating sales growth in the second half of 2018, while DoorDash's growth accelerated.
YOY sales growth (Aug. 2018)
YOY sales growth (Jan. 2019)
YOY = Year-over-year. Source: Second Measure. All monthly sales indexed to Grubhub's sales in Jan. 2017.
Uber's business model also isn't directly comparable to Grubhub's or DoorDash's. Uber generated $11.5 billion in gross bookings from its core ride-sharing business during the fourth quarter of 2018, compared to $2.6 billion in bookings at Uber Eats. Grubhub and DoorDash only focus on the food delivery market.
This means that Uber is waging battles in two unprofitable markets, ride-sharing and food deliveries, against tough competitors. Uber is already losing ground in the U.S. ride-sharing market to Lyft (NASDAQ: LYFT), with its market share plunging from 93% to 67% between Feb. 2015 and Feb. 2019 according to Second Measure. During the same period, Lyft's share surged from 7% to 30%.
Uber already warned that it might never achieve profitability in its S-1 filing, and its losses could widen as it tries to gain ground in the ride-sharing and food delivery markets. As a public company, Uber might decide that countering Lyft in the ride-sharing market matters more than chasing Grubhub and DoorDash in food deliveries.
A higher take rate and an expanding ecosystem
An e-commerce platform's road to profitability is measured by its "take rate", or the percentage of a total transaction it retains as revenues. A higher take rate indicates that a company has a stronger competitive position than its rivals.
Uber Eats had a take rate of 18% in 2018, but Wedbush analyst Ygal Arounian noted that that figure declined by "roughly" 200 basis points annually over the past two years. This can likely be attributed to Uber Eats' expansion into overseas markets with lower delivery fees.
Image source: Grubhub.
Meanwhile, Grubhub finished 2018 with a take rate of 20%, compared to 18% in 2017. It also expanded its ecosystem with Grubhub for Restaurants, an all-in-one platform that bundles loyalty, payment, and analytics services with its delivery platform. These moves, which make Grubhub more of a competitor to Square than Uber, could boost its revenue per customer and take rate over the long term.
Why I'm sticking with Grubhub
I own shares of Grubhub, and the past year was certainly tough, due to both the company's decelerating sales growth and its widening losses. The growth of Uber Eats and DoorDash also raised concerns about its long-term prospects.
However, I believe Grubhub's ongoing investments in new marketing campaigns, logistics upgrades, and the expansion of its digital ecosystem should eventually pay off. This will reinforce its position as the leader of the U.S. food delivery market. Grubhub can also still expand overseas by gobbling up smaller regional food delivery platforms.
Therefore investors shouldn't be spooked by a few impressive growth metrics from Uber's IPO filing. Uber Eats and DoorDash will likely remain Grubhub's primary competitors, but all three market leaders could still have room to run in this $19.4 billion (and growing) food delivery market.
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