The Food Delivery Business Won The Pandemic But Uncertainty Lies Ahead

Food delivery was a rare place of major activity in a year shaped by the global pandemic, with stay-in-place orders helping fuel demand for at-home dining. Consolidation has been a major trend among these companies in an effort to capture additional market share and serve more geographies. With their latest earnings reports, Uber Technologies Inc UBER and GrubHub Inc GRUB showed that food deliveries are still going strong despite eased restrictions. This week, DoorDash Inc DASH is expected to also provide reassurance that this positive trend will last once customers are no longer homebound and restaurants have reopened.

Uber's Q1 Results Showed Food Delivery's Strength

The hunger for its thriving food delivery business during the lockdowns actually helped Uber reduce its losses. This segment once again helped ease the blow from a slow quarter for ride-hailing bookings, enabling the giant to report better-than-expected earnings in its first quarter of 2021, despite reporting its ride bookings were flat from the previous quarter and had decreased YoY.

Uber's delivery segment, which includes its Uber Eats restaurant delivery business, saw its revenue more than triple from last year and grow 28% from last quarter as it brought $1.7 billion to the table. In an investor presentation last Wednesday, Uber showed delivery booking in Sydney and New York increased as those cities were reopening, confirming the loyalty of its customers.

To position itself for continued growth in a post-pandemic world, the company intertwined its ride-hailing app with its delivery business. In a nutshell, it introduced a feature that enables passengers to book and pick up meals while reaching their destination in an Uber. As passengers go back to requesting trips from airports, the app also asks them whether they would like food delivered through the Eats app to wherever they are headed.

Even before these last week's changes, the ride app drove more first-time users to the food app than all of Uber's paid channels combined. Therefore, Mr. Khosrowshahi is confident that the company will benefit from the complementary nature of two of its large core opportunities even after COVID-19 stops shaping our everyday life.

Despite Strong Revenue Growth, GrubHub Reported Surprising Quarterly Loss Due To Fee Caps

Although it brought in more money in the first quarter than in the same period a year ago, the company also lost more money too while being in the final stages of being digested by JustEat Takeaway.com TKAYY. The $7.3 billion merger is expected to be completed in the first half of the year, and it will create the largest food delivery service outside of China.

GrubHub posted 52% revenue growth YoY in Q1 2021 with revenues of $551 million, thanks to all that pandemic-driven demand for delivery. Gross food sales grew 60% YoY to $2.6 billion, up from $1.6 billion in the first quarter of 2020, along with high-single-digit YoY growth in orders. Revenue grew between 41% and 53% in each of GrubHub's past four quarters, marking the best gains for the company since 2018. So-called active diners, or unique GrubHub user accounts, jumped 38% to 33 million in the quarter, exceeding the expectation of 31 million.

But restaurant fee caps hit the company hard. GrubHub reported a net loss of $75.5 million, or 81 cents per diluted share, up from a $33.4 million loss YoY. First-quarter 2021 negative adjusted earnings before interest, taxes, depreciation and amortization was $9.3 million or 14 cents per order compared to $31 million and 52 cents per order in the fourth quarter. Besides the "temporary restaurant fee caps," which it opposes, the bottom line was also harmed by increased delivery driver costs caused by short-term driver supply imbalances from surging demand, extreme winter weather in several locations and to some extent, the issuance of stimulus payments that led some drivers to temporarily reduce their hours in March.

Bloomberg consensus estimates show Wall Street expects Q2 revenue to slow down to 16% YoY increase, the slowest rate in more than a year, but GrubHub has downplayed these concerns.

According to Matt Maloney, GrubHub founder and CEO, first-quarter results showed strong execution, easily hitting records for all its key business metrics.

A Crowded Space

GrubHub's competitors have captured a greater share of the lucrative U.S. market. Data from Second Measure showed orders from the online and mobile food ordering and delivery marketplace and its subsidiaries, Seamless and Eat24, comprised 17% of U.S. meal delivery sales this March, which is below UberEats' 22% and DoorDash's 55%.

Outlook

These companies are proud of their role in helping restaurants grow their businesses and supporting them during a global pandemic that put the whole world on pause and companies across the globe out of business. But the balance of the business will inevitably change as people come out of the pandemic and Wall Street was already bracing for a slowdown in sales with vaccinated individuals eager to return to in-person dining.

As a vaccinated public begins traveling and going to restaurants again, these companies limited visibility into how their delivery business would fare in the coming months. Year-over-year comparisons have become tougher and food delivery services are now dealing with great uncertainty in predicting post-reopening consumer behavior.

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