KeyBanc Initiates On Gig Economy: Likes Ridesharing, Waits On GrubHub

The gig economy continues to expand, and the transportation-based marketplace is adding innovative services. But KeyBanc’s eye is on some of the earliest movers.

The Ratings

KeyBanc analysts Edward Yruma and Matthew DeGulis initiated coverage on:

• GrubHub Inc GRUB with a Sector Weight rating;
• Lyft Inc LYFT with an Overweight rating and $55 price target; and
• Uber Technologies Inc UBER with an Overweight rating and $48 target.

The Theses

Considering take rates, which KeyBanc considers the strongest indicator of subsector health, the analysts are bullish on ridesharing and ambivalent about food delivery.

The latter posts stable take rates with significant room for growth.

“GRUB likely has the most absolute upside potential in our coverage, and we await a more benign promotional environment before looking to adopt a more constructive stance,” the analysts wrote in a note.

Meanwhile, take rates in ridesharing appear to have an upward trajectory amid industry consolidation, contributing to stable secular growth around 15%.

“We believe that a more benign competitive environment and internal initiatives at both companies in Ridesharing put them at the early stages of an upward earnings revision cycle,” they wrote.

However, they expect autonomous vehicles are needed to cut costs and prices and encourage commuters to substitute ride sharing for car ownership.

Altogether, the analysts are most bullish on ridesharing but expect the greatest long-term upside in food delivery.

“We believe that profitability growth, not revenue growth, will be the driver of stock performance in the Marketplaces category and align our views on our subsectors and new coverage accordingly,” the analysts wrote.

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