GrubHub Inc (NYSE:GRUB) is reported to have hired external advisors to consider strategic options that include a possible sale. After the news emanates from the Wall Street Journal, the shares of GrubHub are trading higher $55.20. Investors have put a heavyweight on the shares and now up 17%. The company is valued at $5.2 billion, considering a share price of $57.
The news comes at a difficult time for GrubHub
After reporting Q3 earnings in October 2019, the value of GrubHub declined significantly. The company lowered the outlook considering completion from startups. Its growth is slowing partly because of supply innovations and expects to report low double-digit going forward. Investors dumped their shares on weak guidance. Its shares declined to mid $30s from a high of $50. However, the share price slowly crawled back, and today’s news helped the company to regain levels before declaring Q3 earnings.
Competitors to GrubHub
GrubHub is facing competition from several startups that include DoorDash, Postmates, and Uber Eats. Following the news of options to sell GrubHub, the shares of Uber has spiked up because investors are hopeful that consolidation in the food delivery space would help the company.
According to Mandeep Singh, a Bloomberg Intelligence Analyst, the competitors such as DoorDash or Uber could acquire GrubHub considering the weak sales and margins for this year. Google division of Alphabet or Amazon could also acquire GrubHub. The margins of GrubHub are under pressure because of increased spending on advertisements and venturing into new delivery markets and a hike in spending on marketing.
Why Amazon show interest in GrubHub?
Recently, Amazon has invested in Deliveroo, the UK based Food Delivery Company. The global market for online food delivery is estimated at $200 billion by the year 2025. Therefore, it is not surprising that Amazon is showing interest in acquiring GrubHub to enhance its share in the online food delivery business. The takeover helps Amazon with an established food delivery network and doesn’t need immediate investments.
The growing partner base of GrubHub and the distribution strength of Amazon would augur well for the marriage to reap rich dividends for the e-commerce giant. Amazon could also challenge the dominance of DoorDash and Uber in the food delivery space of the US.