Groupon, Grubhub Shares Climb on Partnership

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Groupon, Grubhub Shares Climb on Partnership

By Donna Fuscaldo | August 1, 2017 — 7:26 AM EDT

On Monday, deal website Groupon (GPRN) and food delivery service Grubhub (GRUB) inked a new strategic partnership that will allow U.S. customers to order food delivery from Grubhub’s 55,000 restaurant partners on the Groupon platform.

Grubhub will acquire certain assets in 27 company-owned OrderUp food delivery markets from Groupon and will power the food ordering and delivery capabilities of Groupon’s To Go markets.

“We’re thrilled to join forces with Grubhub to vastly expand the number of food delivery options available through our marketplace,” said Rich Williams, CEO, Groupon in a statement. “This partnership connects two of the biggest players in local commerce and is a win for both consumers and restaurants by providing people with more savings and access to the food they want, when they want it.”

Investors seem enthused as shares of Groupon and Grubhub were 3% and 2% higher, respectively, in pre-market trading.

In addition to being able to order food from one of the restaurants Grubhub delivers for via the Groupon platform, users will eventually be able to redeem deals. Grubhub’s Chief Executive Matt Maloney also touted the partnership in a press release, saying it is always looking for ways to make it easier for people to eat and that Groupon’s “massive, active mobile audience – and great savings opportunities – will help drive new customers and more order volume for our restaurant partners.” (See also: Groupon Stock Rises on Alibaba M&A Rumor)

Groupon has long offered discounts at local restaurants as part of its service, and its deal with Grubhub is a part of its effort to boost its U.S. business. But for Grubhub it may be a saving grace with concerns mounting about the impact Amazon (AMZN) will have on its business once it completes its deal for Whole Foods Market (WFM). (See also: 5 Companies Amazon Is Killing)

It is worries about new competition that sent shares of Grubhub down nearly 10% late last month. In a research report, Morgan Stanley analyst Brian Nowak warned that the online delivery service could face stifling competition from the ecommerce giant and cut his rating on the stock to equal weight from overweight and lowered his price target to $43 from $47. He sees the food delivery app’s marketing costs surging even higher as its piece of the pie slips and Amazon ramps up its own restaurant delivery service. Further, Nowak expects Amazon to leverage its base of 59 million Prime service subscribers along with operations at Whole Foods. Nowak says that while “GRUB’s food delivery awareness continues to rise (up 500bp​ yoy) and is still ~2x larger than everyone else, the gap is narrowing.”

Published at Tue, 01 Aug 2017 11:26:00 +0000

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