Shares of two online food delivery companies are expected to soar by 120% over the next 12 months, according to RBC Capital. The investment bank said that Delivery Hero and Just Eat Takeaway.com are making significant strides in the industry, despite facing a few challenges. The bank expects shares of both companies to rise by a little over 120% over the next 12 months. RBC expects shares of Berlin-headquartered Delivery Hero to hike by 122% to 85 euros ($93) a share, while anticipating that Amsterdam-based Just Eat Takeaway.com’s stock will increase by 121% to 30 euros a share. The investment bank’s analysts said that the increasing cost of online food ordering indicates that food delivery providers are prioritizing profitability over growth — a change that makes sense, considering the current trend of “normalizing” online orders. The bank believes that Delivery Hero’s service is particularly attractive compared to its competitors, especially in its largest markets — giving the company the potential to deliver double-digit growth once demand returns. DHER-DE 5Y line The RBC analysts compared the delivery services of major food delivery players in Delivery Hero’s and Just Eat Takeaway.com’s primary markets, including countries like the U.K., Germany, Spain, the United States, and South Korea. They found that most players in the U.S., U.K., and Spain tend to charge a delivery fee along with an additional service fee. This includes extra tax and a tip in the US. An average order of $10, for example, would cost consumers an additional $6 in fees, excluding tips. Despite these extra costs, the service remains attractive in the Middle East and North Africa, where Delivery Hero holds a leading position. They noted that Delivery Hero’s service is more competitive than that of peers, particularly in Turkey (like Getir), where it offers free delivery for most restaurants on its platform. “We believe this supports its outperformance versus peers, consistent with the trends we observe from app usage data,” said RBC analysts Wassachon Udomsilpa and Richard Chamberlain in a note to clients on June 27. TKWY-NL 5Y line On the other hand, the Just Eat Takeaway.com delivery service is considered less competitive in the U.K., Spain, and in the U.S., particularly in terms of speed. Although its service costs are comparable to those of its competitors when order sizes are above their minimum threshold, they still lag behind in certain key markets. RBC also believes that Delivery Hero and Just Eat Takeaway.com can further bolster profitability by improving gross margins. They said this can be achieved by increasing delivery-related costs, such as higher delivery fees and introducing small basket fees and additional management/service costs. While this may impact growth in the long term, the analysts acknowledged, the step is seen as a practical strategy, given the limited growth in the industry this year due to factors like normalizing online penetration and rising living costs.
