Food order and delivery platform saw its share price jump last week, as a potential threat exited the market. Last Monday, ecommerce giant Amazon announced that it was shuttering Amazon Restaurants on June 24. This takeaway-facing arm of Amazon’s business was operational in 20 US cities, and launched in the UK late last year. Amazon hasn’t necessarily gone for good – it is interested in acquisitions in the space, and has a few investments already – but the fact that one of the biggest boys in the business world has pulled out sent Grubhub’s share price up last week.
Grubhub’s share price has risen by 10% over the last month
Source: Yahoo Finance
According to a statement from Amazon: “a small fraction of Amazon employees are affected by this decision, and many of those affected have already found new roles at Amazon. Employees will be offered personalized support to find a new role within, or outside of, the company.” Amazon remains active in the industry with a stake in UK-based food delivery service Deliveroo.
This is a positive for Grubhub, which Jeremy Scott, a Mizuho Group analyst who focuses on the restaurant industry, sees as a “comparatively cheaper” acquisition target than some of its peers. According to Scott, Amazon “remains some commitment to the space” and Amazon Restaurant was “not a reflection of what they’re aiming to do.” This news both eliminates the “existential threat of Amazon” in the here and now, while potentially setting up a lucrative acquisition “down the road, should they want to take a leap step into the market.”
Speaking about Grubhub’s soon-to-be defunct competitor, he added: “The move is not terribly surprising given Restaurants never appeared to be a major priority for [Amazon]. In several years of operation, Restaurants had mixed traction, capturing single-digit market share in most markets.”
Disclosure
Dominion holds Grubhub in its Global Trends Ecommerce Fund.
Author: Theo Leworthy
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