Berlin-based Delivery Hero and Dutch multinational Just Eat Takeaway are two companies at the center of the ruthless online food delivery sector. Investment bank Stifel examined both stocks and found that one has significant upside amid a fiercely competitive “winner-takes-all” market. Shares of both companies are traded in the U.S. and across Europe. DHER-DE JET-GB 5Y line The online food delivery industry has dramatically transformed over the past decade, with companies pursuing aggressive growth strategies to gain market dominance. Stifel noted that this approach, dubbed “Blitzscaling,” aimed to create “first-scaler advantages” by reaching critical mass and generating positive feedback loops in their respective markets. More restaurants would join a platform as more customers placed orders on it. This strategy led to impressive revenue growth, according to Stifel analyst Benjamin Kohnke, with Delivery Hero and Just Eat Takeaway recording compound annual growth rates of 38% and 17%, respectively, from 2019 to 2023. However, this growth came at a significant cost. Over the past decade, Delivery Hero has accumulated net losses of 9.6 billion euros ($10.47 billion) , while Just Eat Takeaway has racked up 7.1 billion euros in losses. [net profit chart] The pandemic initially boosted food delivery services as consumers turned to these platforms during lockdowns. However, the subsequent reopening of restaurants, return to the office, and cost-of-living crisis have led to a sharp deceleration in growth rates. This slowdown, rising interest rates, and intense competition from global players like Uber , DoorDash , and Grab have put pressure on the sector’s profitability and balance sheets. In response, the companies have pivoted their strategies toward profitability and cash flow generation. Stifel pointed out that this shift is starting to bear fruit, with both Delivery Hero and Just Eat Takeaway showing year-over-year improvements in adjusted earnings in the first half of 2024. Delivery Hero wins? The investment bank is particularly bullish on Delivery Hero, initiating coverage with a “Buy” rating and a price target of 60 euros, implying a potential upside of 60%. They believe that the company’s focus on profitability over “growth at all costs” will finally reveal the inherent value of its business model. “Prioritising profitability over ‘growth at all costs’ should finally unearth the inherent value of the business model and translate into an adjusted EBITDA margin of 2.8% and a [free cash flow yield] of [approximately] 6% in the fiscal year 2026,” Stifel’s Kohnke said in a note to clients on Oct. 8. Delivery Hero’s recent announcement of plans to list its Middle Eastern subsidiaries on the Dubai Financial Market in the fourth quarter of 2024 has also been well-received by the market. Deutsche Bank analysts noted that this move “could help valuation” and is likely to be viewed positively by investors. Meanwhile, Just Eat Takeaway (TKWY) has a “Hold” rating from Stifel, with a 17% upside potential on the current share price. Kohnke believes that Just Eat Takeaway has a relatively slower growth rate business model, which justifies the lower premium on the stock. “Despite a strong financial profile in Northern Europe and an improving performance in the UK, TKWY’s growth profile is significantly below peers, which justifies a valuation discount, in our view,” Kohnke added. Despite the optimism, analysts warned that there are risks for both companies. RBC Capital Markets highlighted the fierce competition in most markets. While most “pure-play” operators continue to show meaningful top-line growth, the high level of competition is hurting margin profiles and the ability to generate attractive free cash flow, the cautioned. — CNBC’s Michael Bloom contributed reporting.
