Food delivery is now a $150 billion business, but uncertainty and lack of profit still loom

As the two largest app-based delivery platforms in the United States report profits this week, investors are still searching for the answer to a question they’ve been asking throughout the COVID-19 pandemic. : How will food delivery take place once there are no more lockdowns or restrictions?

Uber Technologies Inc. Analyst Research and Information UBER,
+0.50%
and DoorDash Inc. DASH,
-1.32%
suggest consumers have become accustomed to delivery, which more than doubled in the first year of the pandemic. McKinsey says food delivery is now a $150 billion business globally, despite being unprofitable.

Uber’s release of its financial results on Wednesday and DoorDash on Thursday will provide deeper insight into delivery progress and what’s next — especially now that pandemic-related restrictions have been lifted nearly everywhere in the United States, their biggest market.

“Delivery performed surprisingly well in the post-omicron environment, as Uber bookings in the U.S. increased sequentially throughout the first quarter,” BTIG analyst Jake Fuller wrote in an article. recent note.

Based on the results of a UBS survey, another analyst also expressed surprise in a recent note.

“We came away pleasantly surprised by the outlook for the U.S. food delivery space despite tough comparisons and questions about the consumer outlook,” wrote UBS analyst Lloyd Walmsley.

According to the UBS survey conducted in February, 68% of US residents surveyed said they were likely to order delivery within the next 12 months, compared to 65% who said the same in 2020 and 66% last year. Globally, those figures were 77% this year, unchanged from last year and higher than 74% in 2020.

Delivery remains largely unprofitable, and businesses facing pressure to make a profit may have to increase the fees customers pay. In the case of Uber, it has already added a fuel surcharge for each delivery (and trip). Add to that the rising cost of food due to inflation, and some analysts are pondering consumer reaction.

The UBS survey, which had more than 11,000 participants in 11 countries including the United States, found some sensitivity to hypothetical delivery price increases of $3 and above.

“We believe a critical component to understanding the profitability of food delivery is how consumers perceive/react to price increases,” the UBS analysts wrote. They noted that over the past three years, consumer sensitivity to price increases has declined. But this year they said there was an increase in sensitivity.

What to expect from Uber

Earnings: According to FactSet, analysts on average expect Uber to post an adjusted loss of 27 cents per share. Estimize, which compiles estimates from analysts, hedge fund managers, executives and others, expects the company to post a loss of 6 cents per share.

Revenue: Analysts on average expect revenue of $6.08 billion, according to FactSet. Estimate expects $6.27 billion.

Movement of stock: Uber stock has fallen after posting earnings in two of the last four quarters, and six of the 12 reports he has written since their publication. Uber shares are down 28% so far this year through Monday’s session, while the S&P 500 SPX index,
-0.16%
fell nearly 13%.

What to expect from DoorDash

Earnings: Analysts polled by FactSet on average expect DoorDash to post a loss of 21 cents per share. The average expectation as collected by Estimize is a loss of 19 cents per share.

Revenue: Analysts on average expect revenue of $1.38 billion, according to FactSet. Estimize guides much the same.

Movement of stock: DoorDash shares are down about 45% this year until Monday’s session. Shares rose each of the five times after the company reported earnings since its IPO.

What analysts say

Analysts said DoorDash and Uber Eats continued to lead the industry, with Grubhub continuing a “downtrend”, according to UBS. (Just Eat Takeaway.com TKWY,
-2.25%
recently announced it was bringing Grubhub to market after buying it a year ago.) UBS analysts also said the two biggest delivery platforms saw “a bit of a loss in market share over the last year (probably for the smaller fast-delivery players)”.

On DoorDash vs. Uber Eats, BTIG’s Fuller wrote that transactional data showed monthly growth in U.S. delivery bookings during the first quarter, but DoorDash appeared to be growing faster. He said, however, that he considers Uber “just as well positioned as delivery consolidation unfolds” because the ride-sharing giant can leverage its broader platform.

Morgan Stanley analyst Brian Nowak wrote that he was optimistic about America’s “mainstream restaurant and courier supply network, large high-frequency DashPass member base, and unit economy.” industry-leading food delivery”.

Nowak did mention a possible risk, however, saying he believes food delivery “remains a largely discretionary purchase with sufficient and cheaper substitutes.”