Berlin-based Delivery Hero and Dutch multinational Just Eat Takeaway are two companies in the cutthroat online food delivery industry. Investment bank Stifel conducted research on both stocks and found that one of them has significant upside potential in a competitive “winner-takes-all” market. Shares of both companies trade across the United States and Europe. DHER-DE JET-GB 5Y Series The online food delivery industry has changed dramatically over the past decade, with companies pursuing aggressive growth strategies to gain market dominance. Stifel noted that this approach, known as “blitzscaling,” aims to create “first-scale advantage” by reaching critical mass and generating a positive feedback loop in their respective markets. As more customers place orders on the platform, more restaurants will join the platform. Stifel analyst Benjamin Kohnke said this strategy has resulted in impressive revenue growth, with Delivery Hero and Just Eat Takeaway growing at compound annual growth rates of 38% and 17%, respectively, from 2019 to 2023. This growth came at a huge cost. Over the past decade, Delivery Hero has accumulated a net loss of 9.6 billion euros ($10.47 billion), while Just Eat Takeaway has accumulated a net loss of 7.1 billion euros. (Net profit chart) The pandemic initially gave food delivery services a boost as consumers turned to these platforms during lockdowns. However, the subsequent reopening of restaurants, the return of offices, and the cost-of-living crisis caused a sharp decline in growth rates. A slowing economy, rising interest rates and fierce competition from global players such as Uber, DoorDash and Grab have put pressure on the industry’s profitability and balance sheets. In response, these companies have shifted their strategies toward profitability and cash flow generation. Stifel noted that this shift is starting to bear fruit, with both Delivery Hero and Just Eat Takeaway showing year-over-year improvement in adjusted profits in the first half of 2024. The investment bank is particularly optimistic about Delivery Hero, giving it a “buy” rating for the first time and a target price of 60 euros, implying a potential upside of 60%. They believe that a company’s focus on profitability rather than “growth at all costs” will ultimately reveal the intrinsic value of its business model. “Prioritizing profitability over ‘growth at all costs’ should ultimately unlock the intrinsic value of the business model and translate into fiscal 2026 adjusted EBITDA margin of 2.8% and (free cash flow yield) of ( About) 6%,” Stifel’s Kohnke said in an Oct. 8 note to clients. Delivery Hero recently announced plans to list its Middle East subsidiary on the Dubai Financial Market in the fourth quarter of 2024, which has also been well received by the market. Analysts at Deutsche Bank noted that the move “could help valuations” and could be viewed positively by investors. Meanwhile, Just Eat Takeaway (TKWY) has a “hold” rating from Stifel, and the stock price currently has 17% upside potential. Kohnke believes Just Eat Takeaway’s business model has a relatively slow growth rate, which justifies the stock’s lower premium. Kohnke added: “Despite strong financials in Northern Europe and improving results in the UK, TKWY’s growth profile is significantly lower than its peers, which we believe justifies the valuation discount.” Despite the positive outlook, analysts warned that Both companies face risks. RBC Capital Markets highlights the intense competition in most markets. Experts warn that while most “pure play” players continue to show meaningful revenue growth, fierce competition is hurting profit margins and the ability to generate attractive free cash flow. —CNBC’s Michael Bloom contributed reporting.
