Transatlantic food delivery value gap will narrow

HELSINKI, Dec 3 (Reuters Breakingviews) – Investors on either side of the Atlantic have different appetites for food delivery companies. That’s one explanation for the valuation gap between DoorDash (DASH.N) and Just Eat (TKWY.AS). The rivals have similar revenue and growth prospects, but the U.S. group’s $57 billion market capitalisation is four times that of its European rival. As each pushes into the other’s home market, the divergence is unlikely to last.

Judged by their financial results, the companies aren’t that different. Analysts expect DoorDash to bring in $4.9 billion in revenue this year, according to forecasts compiled by Refinitiv, rising to $7.5 billion by 2023. Just Eat is expected to turn over $5.5 billion this year and grow at a slightly faster rate, reaching $8.7 billion in two years’ time.

Yet DoorDash has a dominant position in the United States. The company run by Chief Executive Tony Xu has expanded in suburban areas where customers order bigger meals, bringing in higher fees. DoorDash accounted for 57% of U.S. sales generated by meal deliveries in October, up from 17% in 2018, according to Bloomberg Second Measure. Xu also made an early move into the market for rapid deliveries for groceries and household supplies – he has set up over 25 warehouses and joined forces with over 40,000 retailers, from Bed Bath & Beyond (BBBY.O) to 7-Eleven.

By contrast, Just Eat shareholders worry CEO Jitse Groen has bitten off too much by acquiring U.S. group Grubhub earlier this year. The company had a meagre 15% of the American food delivery market in October; the total value of orders in the three months to September grew by just 3% year-on-year. Groen has also been sceptical about delivering groceries. Meanwhile, competitors are challenging Just Eat in Germany, where relatively few restaurants offer deliveries.Report ad

One of those competitors is DoorDash, which last month bought Finnish food delivery startup Wolt for $8 billion. However, the U.S. company confronts a very different market. Most European countries have stricter rules on employing casual workers, while consumers are less generous with tips for delivery riders.

For now, DoorDash has the edge when it comes to profitability: analysts expect it to generate EBITDA of $943 million by 2023, compared with just $350 million for Just Eat. However, DoorDash is valued at 56 times that EBITDA, after deducting net cash. Its Dutch rival trades at 41 times. Notwithstanding the different appetites of American and European investors, the gap looks set to narrow further.Report ad

– DoorDash on Nov. 9 said it is buying Wolt Enterprises in an all-stock transaction that values the Finnish food delivery startup at about 7 billion euros.

– Anglo-Dutch food delivery company Just Eat bought Grubhub for $7.3 billion in June, but has since faced calls from investors to sell it due to competitive pressures in both the United States and at its core European operations. The company’s Chief Executive Jitse Groen on Nov. 17 said at a conference that he has no plans to sell its U.S. subsidiary Grubhub, but the company is actively looking for strategic partnerships for the business.


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