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Stock Analyst Update

The Grubhub Partnership With Amazon Will Benefit Both Companies

Grubhub parent Just Eat is our top pick in the food delivery segment.

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On July 6, Just Eat Takeaway (TKWY) announced a business partnership with Amazon in the United States allowing Amazon Prime members to join up for a free Grubhub Plus subscription for one year (free delivery from selected restaurants plus member-only perks and rewards). The business anticipates the relationship will increase membership in Grubhub Plus while having a neutral impact on Grubhub’s profits and cash flow in fiscal 2022, and a positive impact beginning in fiscal 2023. Amazon will obtain warrants over 2% of Grubhub’s fully diluted common equity and up to an additional 13% of Grubhub’s common equity in conjunction with the commercial agreement. The second tranche of warrant vests largely depend on the number of new customers obtained as a result of this relationship, but the exercise price was not specified in the media announcement (formula-based price). We retain our EUR 126 fair value estimate and narrow moat rating for Just Eat. The share price is in 5-star territory. Just Eat is our top pick in the food delivery segment.

We believe the deal will benefit both firms. Amazon is able to add meal deliveries as an additional perk for Prime members and maintain some upside in the partnership’s performance (through warrants of up to 15% of Grubhub’s equity). In the past, Amazon attempted to enter the meal delivery market, but was generally unsuccessful in the U.S. and U.K. (Amazon Restaurants shut down in 2019). Grubhub has the ability to access a large client base (150 million-160 million Prime members in the U.S.) and work with one of the most well-known worldwide brands/retailers. Amazon has a similar deal with Deliveroo in the U.K., which resulted in Deliveroo doubling its Deliveroo Plus client base (to about 1.5 million in our estimates).

Ioannis Pontikis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.