Analysts: Amazon's Exit From Restaurant Delivery Implies Less Competition For Grubhub

E-commerce giant Amazon.com, Inc. AMZN is terminating its U.S. restaurant delivery service June 24, which implies an easier competitive environment for food delivery companies like GrubHub Inc GRUB.

The Analysts

Bank of America Merrill Lynch's Nat Schindler maintained a Buy rating on Grubhub with an unchanged $108 price target.

Wedbush's Ygal Arounian maintained at Outperform with an unchanged $100 price target.

BofA: Grubhub Well-Positioned 

Amazon launched a restaurant delivery service in 2015 that later expanded to 20 U.S. markets, Schindler said in a Tuesday note. The decision to enter the space was likely consistent with management's philosophy of testing and learning new markets — and funding only those that can build on the company's long-term competitive advantages, the analyst said. 

Grubhub stands to benefit now that it no longer faces competition from Amazon, Schindler said. The food delivery company continues to boast the largest portfolio of restaurants on its platform, with more than 105,000 locations in the U.S., he said. 

This makes GrubHub uniquely positioned to navigate a "large, fragmented and rapidly evolving" sector, the analyst said. 

Despite the large stream of new capital in the food delivery space, Grubhub is among the few companies positioned for consistent profitability, party due to its first-mover advantage, according to BofA. 

Wedbush: Rationality 'Setting In'

Amazon's exposure to the restaurant and food delivery market was small, but its departure serves as proof that "rationality is setting in," Arounian said in a Tuesday note.

Investors are demonstrating "less tolerance" for losses and aggressive discounting, the analyst said, adding that private rivals DoorDash and Postmates are "taking notice" of this scrutiny, the analyst said. 

The shift in investor sentiment bodes well for Grubhub, since it is the only U.S.-based third-party food delivery company that is both profitable and selective about who is added to its platform, he said.

The company is best-positioned to maintain its advantage and regain some lost market share, Arounian said. 

Price Action

Grubhub shares were trading down by 0.74% at $69.54 at the time of publication Wednesday. 

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Photo courtesy of Grubhub.