(Bloomberg) -- The Street got its first look under the hood yesterday of Uber Eats, Uber Technologies Inc.’s takeout delivery service yesterday, and it’s not looking promising for GrubHub Inc.
Uber Eats “creates a challenging competitive environment” for GrubHub, Jefferies analyst Brent Thill wrote in a note to clients after a Thursday filing ahead of Uber’s upcoming initial public offering. GrubHub shares fell as much as 5.2 percent intraday Friday, the most in more than three weeks and on course to close at the lowest since November 2017.
Uber Eat’s take rates -- or the fee charged to restaurants -- fell last year, and San Francisco-based Uber warned rates may continue to be pressured. Even though GrubHub’s rates have increased every year since the Chicago-based company went public, those pressures may hit GrubHub too, Thill cautioned. Still its not all bad news. With a total potential market size of $200 billion in the U.S., food delivery won’t be a “winner-take-all industry,” he said.
GrubHub shares have fallen 53 percent from their peak on Sept. 11, and that is making the risk-reward more attractive to Thill. However, he suggests investors continue to wait “for a better entry point or improved fundamentals” before buying hold-rated GrubHub.
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