Whenever Amazon (Nasdaq: AMZN) forays into a new business, the traditional players turn cautious and look for ways to protect themselves. So, it is quite natural that the opposite happens when the e-commerce firm exits a particular line of business. Online food delivery platform Grubhub (NYSE: GRUB) witnessed a buying spree early Tuesday following reports that Amazon discontinued its food delivery business in the U.S.
Grubhub was probably the worst affected firm after Amazon Restaurants started operations a few years ago. According to market watchers, the Chicago-based company benefits the most from Amazon’s withdrawal. It is also speculated that Grubhub might become a target if Amazon pursues buyouts to stay in the highly competitive sector.
Grubhub was probably the worst affected firm after Amazon Restaurants started operations a few years ago
Considering the pessimistic outlook on Grubhub, after investor sentiment weakened due to the company’s dismal performance in the recent quarters, the recovery comes as a big relief to the market. Shareholders can look for higher returns, going forward, as increased market share will be contributing to revenue growth.
About four years after the launch, Amazon Tuesday announced the closure of its online food delivery service in the U.S. Earlier, operations of Amazon Restaurants were discontinued in London. The US division will cease to exist on June 24. Despite intense efforts, covering about 20 cities across the country, Amazon was not able to find a foothold in the market that is ruled by UberEats, GrubHub and DoorDash.
Also see: GrubHub Q1 2019 Earnings Conference Call Transcript
That doesn’t mean the retail giant is quitting altogether. Last month, the company bought a significant stake in Deliveroo, a food delivery firm based in the UK, and hinted at making additional acquisitions in the field.
After opening higher, Grubhub shares maintained the uptrend in the early hours of Tuesday’s session, gaining as much as 7% and crossing the $70-mark. It comes at a time when the stock is struggling to recover from an 18-month low. Earlier, the value more than halved after hitting a record high mid-2018. In the past twelve months, the stock lost about 42%.
Though Amazon’s shares dipped in the early hours, they recovered and traded slightly higher Tuesday afternoon.