3 Food Delivery Stocks to Watch

You might think that with reopening, delivery cos will fall out of favour, but we still believe the market and its growth potential are attractive post-pandemic.

Vikram Barhat 7 July, 2021 | 3:28AM
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 Food Delivery

Revenues of food delivery companies have seen tremendous growth over the past year, driven by the pandemic restrictions and stay-at-home orders. The U.S.-based food delivery apps clocked US$26 billion in revenue in 2020, a big jump on the US$22 billion the year before, according to data compiled by Morgan Stanley and McKinsey.

Morningstar's Ali Moghrabi says while the trend accelerated significantly in 2020 due to COVID-19, “we still believe the market and its growth potential are attractive" post-pandemic. The U.S. away-from-home market is projected to grow 4%-5% annually during the next five years. Globally, the online food delivery services market is expected to grow from US$115 billion in 2020 to US$127 billion in 2021, a 10.3% growth rate, boosted by time-starved and tech-savvy younger consumers picking convenience over conventional eating arrangements.

As the consumers and businesses resume their regular operations, the demand for takeaway food is set to continue to tick along. The three leading operators, which gobbled up 90% of the U.S. food delivery market, per JP Morgan, are well positioned to reap rich rewards. The following stocks offer a large bite of the booming food delivery market.

Just Eat Takeaway.com NV 

 

Ticker

TKWY

 

Current yield:

-

 

Forward P/E:

-

 

Price

EUR 78

 

Fair value:

EUR 152

 

Value

49% discount

 

Moat

Narrow

 

Moat Trend

Stable

 

Star rating

*****

Data as of July 02, 2021

Just Eat Takeaway (TKWY) operates an online marketplace connecting restaurants with users in Europe and North America. The company, whose largest geographical presence by revenue is in the U.K., recently boosted its U.S. presence after acquiring of Grubhub. Just Eat also garners revenue from Germany, Canada, and the Netherlands.

With close to 60 million active users on its platform, it generates revenue of about EUR 2 billion and a gross merchandise value of EUR 13 billion. “Just Eat Takeaway is the market leader in more than 90% of the markets it operates in and is well positioned to benefit from the structural trend of increasing digitization of food delivery orders,” says a Morningstar equity report. 

“Dominant market players benefit the most from a virtuous cycle of increasing choice and scale, as consumers prefer a platform with a wide variety of restaurants and relatively low transaction costs and restaurants/riders prefer a platform with more orders/customers,” says Morningstar equity analyst, Ioannis Pontikis, who puts the stock’s fair value at EUR 152.

The pandemic created a tailwind for takeaway platforms, as both penetration and usage surged to record levels. These levels “have remained elevated even during periods with no lockdowns or restrictions, an early sign of a sustained change in consumer behaviour, says Pontikis, who forecasts Just Eat to be able to support strong double-digit top-line growth as penetration and frequency of orders evolve. 

Uber Technologies Inc

 

Ticker

UBER

 

Current yield:

-

 

Forward P/E:

-

 

Price

US$51.71

 

Fair value:

US$67

 

Value

23% discount

 

Moat

Narrow

 

Moat Trend

Stable

 

Star rating

****

Data as of July 02, 2021

Global ride-sharing heavyweight, Uber Technologies (UBER) offers platforms that match riders with drivers, hungry people with restaurants and food delivery service providers, and shippers with carriers. The firm's on-demand technology platform could expand to additional products and services, including autonomous vehicles, delivery via drones, and Uber Elevate, its aerial ride-sharing platform.

Over 111 million users across over 63 countries order rides or foods at least once a month. Approximately 76% of its gross revenue comes from ride-sharing and 22% from food delivery. “Uber Eats, the firm’s food delivery service, will be one of the main revenue growth drivers for the firm as it will benefit from cross-selling to its large ride-sharing user base,” says a Morningstar equity report.

Uber's ride-sharing network effect helps the firm tap into other markets and generate additional revenue streams. “An example is the meal takeout and delivery market, in which Uber has gained traction with its Uber Eats service,” says Morningstar equity analyst Ali Mogharabi, who cites data from Second Measure to point out Uber Eats has grabbed share from Grubhub and has more than a fifth of the U.S. market.

Mogharabi pegs the stock’s fair value at US$67 and forecasts net revenue growth for Uber to average 21% annually through 2030, resulting in net revenue of US$68.6 billion, up from US$11.1 billion (equivalent to US$58 billion gross revenue) in 2020.

Uber countered pandemic weakness by squeezing costs, included cutting staff by nearly 30%, Reuters reports.

DoorDash Inc

 

Ticker

DASH

 

Current yield:

-

 

Forward P/E:

-

 

Price

US$182.91

 

Fair value:

US$142

 

Value

29% premium

 

Moat

Narrow

 

Moat Trend

Stable

 

Star rating

**

Data as of July 02, 2021

DoorDash (DASH) is an online food delivery demand aggregator where consumers can use its app to order food on-demand from merchants mainly in the U.S. In addition to restaurants, the firm provides similar service to other businesses such as grocery, retail, pet supplies, and flowers.

At the end of 2020, DoorDash had over 450,000 merchants, 20 million consumers, and over 1 million deliverers on its platform, according to a Morningstar equity report. Last year, the firm reeled in US$24.7 billion in gross order volume (up 207% year over year) and US$2.9 billion in revenue (up 226%).

DASH holds the number one position as an online food order aggregator in the U.S., ahead of Uber Eats and Grubhub. “The firm is in the early stages of trying to attract a larger piece of what could be US$1 trillion worth of goods and services by 2025 to its platform,” the report says.

Based on data from Second Measure, San Francisco-based DoorDash holds 56% of the U.S. market, above Uber’s 26% and Grubhub’s 18%. “With strengthening of the network effect, we expect DoorDash to maintain its leadership position in the U.S., where we believe there will be only one other viable player, Uber Eats, in the long run,” argues Mogharabi, who puts the stock’s fair value at US$142, and projects revenue over the next five years to grow 22% annually.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
DoorDash Inc Ordinary Shares - Class A74.35 USD9.42Rating
Just Eat Takeaway.com NV ADR2.79 USD-9.42Rating
Uber Technologies Inc22.28 USD4.40Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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