Image source: GrubHub.
The race is on to bring dinner to your door, and a model mauler's presence is spooking investors in niche leader GrubHub (GRUB +0.00%). Shares of GrubHub surrendered 10% of their value this week after Amazon.com (AMZN +0.26%) broadened its food delivery business.
GrubHub is a rising star in the gig economy. Companies including Uber, Lyft and GrubHub are giving folks with idle cars and time the ability to make some money on the side by running errands. In GrubHub's case, these gigs involve picking up takeout orders from local restaurants and delivering them to hungry patrons.
However, now we have Amazon expanding its similar takeout delivery platform. The leading online retailer announced on Tuesday that Amazon Restaurants is now offering eatery delivery in Dallas and Manhattan. Amazon Prime customers can have meals delivered within an hour, and the key GrubHub shot here is that Amazon isn't charging anything for the service. Customers get the exact pricing offered at the restaurant. There are no service charges or hidden fees. GrubHub is free for takeout orders, but folks seeking the food sent to them have to pay whatever the restaurant charges for home delivery.
Amazon's approach is disruptive when it comes to delivery, but this isn't a surprise. It's usually a bad sign for existing players when Amazon enters a market given its scale and its penchant to overlook near-term profitability for the sake of market share. From e-tail to web services, the worst thing that a niche's top dog can ever hear is that Amazon is pondering an entry into its market. Amazon will flop from time to time. I'm looking at you Fire phone. However, if Amazon is jumping in and leaning on its tens of millions of Prime subscribers it's hard to justify charging more than the online retailer.
GrubHub's still growing. Revenue climbed 27% to $112.2 million in its latest quarter when pitted against the prior year. Earnings and adjusted earnings didn't grow as quickly, but that's just the nature of both the competitive climate and the investments GrubHub is making for near-term growth. It has seen its count of active diners rise 24% over the past year to 6.97 million. It was less than 4 million active diners when GrubHub went public two years ago.
The one thing that isn't growing is GrubHub's stock. It went public at $28 in the springtime of 2014, peaking at $47.95 a year later. It has gone on to give all of those gains back. It kicked off last week barely above its IPO price and Amazon's news turned into the latest broken IPO.
The silver lining for GrubHub investors is that they have time. Amazon seems to be taking a calculated approach to expanding Amazon Restaurants since it needs to build out a fleet of local drivers. However, with that steering wheel-gripping army already in place through a growing number of major cities via Amazon Prime Now, a showdown with GrubHub is inevitable. There are dot-com darlings that have lived to tell the tale of standing up to Amazon. Soon, we'll find out if GrubHub has the stomach for it.
