Shares of DoorDash (DASH 2.77%) were falling 7.5% at 11:07 a.m. on Wednesday after rival Grubhub partnered with Amazon (AMZN 0.64%) to offer members of its Prime loyalty program a year's worth of food delivery free of charge.
In addition to giving Prime members a one-year membership to Grubhub+, the e-commerce giant can take a 2% stake in Grubhub and boost that by an additional 13% if it hits targets related to new-user growth.
Not only are DoorDash shares falling, but Uber Technologies stock also is down 4% as well.
After Grubhub was acquired by Netherlands-based Just Eat Takeaway.com (TKAY.F -4.71%) (JTKWY -1.29%) in 2021, its performance continued to falter, leading some activist investors to call for Just Eat Takeaway to just get rid of the food delivery business.
It's clear there is speculation a partnership with Amazon could help boost the business, though it's a big question mark whether customers will pony up the $10 a month that a Grubhub+ membership would cost after the free trial runs out.
While food delivery services got a tremendous boost from the lockdown phase of the pandemic, a reopened economy has weighed on the performance of all such gig economy stocks. Just Eat Takeaway.com has lost 82% of its value over the past year, DoorDash is down 62%, and Uber if off 58%.
Even though DoorDash continues to add new monthly active users and sees its order volume growing, its stock still might not be a buy despite getting discounted further. It's still generating consistent losses, and amid an economy struggling under the weight of rampant inflation and elevated gas prices, it could have trouble adding new customers or making a profit anytime soon.
Yet Grubhub's partnership with Amazon isn't a reason to sell, either. The food delivery service faces the same challenges as DoorDash and Uber, and although consumers might be exposed to Grubhub, they still might not believe it's worth the cost when the freebie ends.
Moreover, the free-delivery offer through Amazon still requires orders over $12, and although that might not be a particularly high threshold in this inflated cost environment, Grubhub has been and continues to be a faltering business.
Without much real differentiation among any of the services, there's a shake-out that still needs to occur.