Why Are These Food Delivery Stocks Falling?

Food delivery stocks had a hey-day during the Covid-19 pandemic. People were forced to stay at home but they still wanted to enjoy – and support – their favorite restaurants. And they could, particularly after receiving economic stimulus checks that were pretty much designed for that purpose.

But those days are over, and food delivery stocks are now fraught with peril. The Federal Reserve appears it will raise interest rates even quicker than first envisioned in an effort to combat record inflation. A tighter monetary policy means less money on the streets. It will be tougher for people to spend the extra money to order out when they have to stretch their paychecks further.

Several food delivery stocks had bad periods this week:

• DoorDash (DASH) is down more than 10%.
• Uber Technologies (UBER) which operates a ridesharing service as well as Uber Eats for online food deliveries, is down 2%.
• Grab Holdings (GRAB), which operates in southeast Asia, lost 6%.
• Just Eat Takeaway.com (JTKWY) the owner of Grubhub, lost 8%.

Here’s a look at top food service stocks.

DoorDash 

San Francisco-based DoorDash grew tremendously during the Covid-1-19 pandemic, increasing its headcount by more than 50% to over 8,600 people. And its still growing, but not as fast. DoorDash announced that in an effort to control spending, it would slow hiring to expand by just 10% to 15% this year. 

It also announced at partnership with Albertsons Companies (ACI) to offer grocery delivery in less than 30 minutes in 20 U.S. cities.

And it agreed to buy a hospitality-technology startup, Bbot, which offers a platform for digital orders and payments.

Priced at roughly $92 now, DASH stock is far below its 52-week range of $257. Citi analyst Ronald Josey recently initiated coverage of DASH stock with a “buy” rating and a price target of $155.

Josey said DoorDash is one of his top picks in the internet sector, which he considers to be “healthy” as consumer engagement grows online.

Uber Technologies

Uber was launched as a ride-sharing service, but in 2014 also began Uber Eats in an attempt to diversify its portfolio. While DoorDash has an estimated 56% of the U.S. meal delivery market, Uber Eats is a strong second with 23%.

On the plus side, Uber’s broader reach gives it more space to grow. If the food delivery services goes down, Uber shareholders can still profit from the ridesharing side.

And that could be a good thing for UBER stock right now. The company recently increased its first-quarter outlook, saying that its ridesharing business is quickly returning from the disastrous fourth quarter 2021 when the pandemic’s resurgence cut into profits.

Uber also recently made a huge deal in New York City that allows it to list all taxis in the city on its app, and to get a portion of taxi profits from rides hailed on the Uber app.

Those two items, together, explain why UBER stock hasn’t been hit as hard this week as other food delivery stocks.

Uber is expected to report first-quarter earnings on May 4.

Grab Holdings

Grab is a penny stock right now, but it has huge aspirations. Company founder Anthony Tan has said he wants the company to dominate e-commerce in Southeast Asia with a “super-app” that offers a variety of services, including food delivery, fintech and ridesharing. 

Grab Holdings went public late last year through a special purpose acquisition company (SPAC) deal with Altimeter Growth. While it opened at $6 per share, you can get GRAB stock now for less than $3.

For the fourth quarter, Grab reported revenue of $122 million, which was a drop of 44% from a year earlier. Grab attributed the drop to pre-emptive hires to meeting expected demand. The company reported a loss for the quarter of $1.1 billion.

However, the company still maintained its rosy outlook.

“Southeast Asians are relying more and more on the Grab superapp for a multitude of daily needs,” Tan said in a statement. “Fifty-six percent of our users are now using two or more Grab services and the average user spend on our platform in 2021 grew 31% year over year. We expect 2022 to be another watershed year for Grab, as we get ready to launch our digibank in Singapore, and continue to pursue the massive opportunities in deliveries to outserve consumers with more options and better convenience.”

Bernstein analyst Venugopal Garre initiated coverage of GRAB stock this week with a “market perform” rating. He said he likes the prospect of Grab’s super-app and sees little downside risk.

Just Eat Takeaway.com

Just Eat Takeaway is based in the Netherlands, but you can buy the stock in the U.S. on the over-the-counter markets. In addition to Grubhub in the U.S., Just Eat Takeaway operates SkipTheDishes, Takeaway.com, Just Eat and Menulog.

The company says it has more than 634,000 restaurant partners operating in 23 countries. In the last 12 months, it served more than 1 billion orders.

But the relationship may not last for long. Just a year after buying Grubhub, Just Eat Takeaway disclosed this week that it’s considering selling its asset. The board “confirms its alignment with shareholders in wanting to both create and realize value from the Company’s highly attractive portfolio of assets. As such, management is currently, together with its advisers, actively exploring the introduction of a strategic partner into and/or the partial or full sale of Grubhub.”

Just Eat Takeaway paid $7.3 billion for Grubhub in 2021, beating out both Uber and a German company, Delivery Hero. But Just Eat Takeaway has lost more than two-thirds of its market value in the last 12 months. Activist investor Cat Rock Capital, which owns 6.5% of the company, has advocated refocusing the business on Europe and dropping Grubhub.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article.