July 21, 2024


Than a Food Fitter

Food delivery is now a $150 billion business, but uncertainty and lack of profit continue to loom

4 min read


As the two biggest app-based delivery platforms in the U.S. report earnings this week, investors are still looking for the answer to a question they’ve asked throughout the COVID-19 pandemic: How will food delivery fare once there are no more lockdowns or restrictions?

Analysts’ research and information from Uber Technologies Inc.
and DoorDash Inc.
suggest consumers have become accustomed to delivery, which more than doubled during the first year of the pandemic. McKinsey says food delivery is now a $150 billion business globally, albeit an unprofitable one.

Uber’s release of its financial results Wednesday and DoorDash’s on Thursday will give further insight into the inroads delivery has made, and what comes next — especially now that pandemic-related restrictions have been lifted almost everywhere in the U.S., their biggest market.

“Delivery has performed surprisingly well in the post-omicron environment, with Uber’s U.S. bookings trending up sequentially throughout 1Q,” BTIG analyst Jake Fuller wrote in a recent note.

Based on results of a UBS survey, another analyst also expressed surprise in a recent note.

“We came away pleasantly surprised on the outlook for the food-delivery space in the U.S. despite difficult comparisons and questions around the consumer outlook,” UBS analyst Lloyd Walmsley wrote.

According to the UBS survey conducted in February, 68% of U.S. residents surveyed said they would likely order delivery in the next 12 months, compared with 65% who said the same in 2020 and 66% last year. Globally, those numbers were 77% this year, unchanged from last year and higher than the 74% in 2020.

Delivery remains largely unprofitable, and companies facing pressure to turn a profit may have to raise fees that customers pay. In Uber’s case, it already has added a fuel surcharge for each delivery (and ride). Add to that the growing cost of food because of inflation, and some analysts are thinking about how consumers may react.

The UBS survey, which had more than 11,000 participants in 11 countries, including the U.S., found some sensitivity to hypothetical delivery-price increases of $3 and higher.

“We think a critical element to understanding the profitability of food delivery is how consumers perceive/react to price increases,” UBS analysts wrote. They noted that over the past three years, consumer sensitivity to price increases had decreased. But this year, they said there was an uptick in sensitivity.

What to expect from Uber

Earnings: According to FactSet, analysts on average expect Uber to post an adjusted loss of 27 cents a share. Estimize, which gathers estimates from analysts, hedge-fund managers, executives and others, expects the company to post a loss of 6 cents a share.

Revenue: Analysts on average expect revenue of $6.08 billion, according to FactSet. Estimize is guiding for $6.27 billion.

Stock movement: Uber stock has fallen after reporting earnings in two of the past four quarters, and six of the 12 reports it has made since going public. Uber shares are down 28% so far this year through Monday’s session, while the S&P 500 index
 has fallen almost 13%.

What to expect from DoorDash

Earnings: Analysts surveyed by FactSet on average expect DoorDash to post a loss of 21 cents a share. The average expectation as gathered by Estimize is a loss of 19 cents a share.

Revenue: Analysts on average expect revenue of $1.38 billion, according to FactSet. Estimize is guiding for about the same.

Stock movement: DoorDash shares have decreased about 45% this year through Monday’s session. Shares have risen each of the five times after the company reported earnings since going public.

What analysts are saying

Analysts said DoorDash and Uber Eats continued to lead the industry, with Grubhub continuing a “down trend,” according to UBS. (Just Eat Takeaway.com
recently announced it is putting Grubhub on the market after buying it a year ago.) UBS analysts also said the two largest delivery platforms saw “a little bit of share loss in the last year (likely to smaller, quick-delivery players).”

On DoorDash vs. Uber Eats, Fuller of BTIG wrote that transactional data showed month-to-month growth in U.S. delivery bookings through the first quarter, but that DoorDash appeared to be growing faster. He did say, though, that he saw Uber “as well-positioned as delivery consolidation unfolds” because the ride-hailing giant can leverage its broader platform.

Morgan Stanley analyst Brian Nowak wrote that he was bullish on DoorDash’s “leading U.S. restaurant supply and courier network, large high-frequency DashPass member base and industry-leading food-delivery unit economics.”

Nowak did mention a possible risk, though, saying he believes food delivery “remains a largely discretionary purchase with ample, cheaper substitutes.”


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