Quick Market Analysis: Grubhub was one of the first players in the food delivery industry, incorporated in 2004 and established a large foothold of market share. In the height of its peak growth years(shown below), it merged with competitor Seamless and IPOed in 2014, and acquired Yelp24 in 2017.
Today with over 9.18 million active diners, almost 300K daily orders, 75K restaurant partners, and presence in over 1,100 cities across the US & the UK, Grub is still the biggest player in the food delivery industry. However, they have been facing recent strong competition in recent years from major rivals such as UberEATS and Doordash who have been tailored their offerings to differentiate themselves from Grub.
Some current market trends:
1. Food Offerings. Many of Grub's smaller rivals have positioned themselves by bringing onboard unique food listings with restaurants not currently on other platforms. This differentiated especially done by DoorDash has been a major reason for their recent growth success.
It is estimated its share has fallen from more than 50% to less than 40% over the last year. KeyBanc said Grubhub's diner retention fell from 59% in the first quarter to 36% in the third quarter, and competition is only likely to increase, with DoorDash fresh off a new funding round and Uber and Postmate preparing for their IPOs.
2. Declining Sustainable Competitive Advantages. Against the threat of rising competition, Grubhub is fending to retain its marketshare by increasing expenditure in marketing and other areas. Despite many restaurant partnerships and acquisition strategy, Grubhub has no true competitive advantage in the long run, which makes its valuation less attractive taking into account more uncertainty in future cashflows.
Even comparing against UberEATS case, Uber can better leverage on their existing services to better market and also their ridehailing network of drivers in many cities and countries to minimise entry costs. Moreover, UberEATS has been the most profitable area for the Giant so far. We can expect them to invest more and grow much bigger with regards to food delivery services.
TLDR: I believe Grubhub despite capable management and early market entry to have grown rapidly established its significant marketshare today, is no longer as attractive as what its once was due simply to the change in food delivery landscape. While it may be trading at significant discounts to its original price, I believe the price is reasonably justified given it is still trading 52x P/E ratios.
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