Amazon just bought a stake in a major competitor to food delivery giants like UberEats and Just Eat, and experts have some theories as to the logic behind the deal and what it means for the e-commerce giant.
“The curse of Amazon strikes again,” said Russ Mould, investment director at brokerage firm AJ Bell. “The online giant is now so dominant the mere mention of its entry into a new industry can leave incumbent companies and their shareholders quaking with fear.”
Mould says the technology titan could be looking to compete with food delivery services by buying into an established player like Deliveroo. Amazon had previously tried to enter into the space with its own food delivery service in the U.K. called Amazon Restaurants, which shuttered late last year amid competition from Just Eat and UberEats.
The impact on Just Eat’s share price following the announcement of the Amazon-led round in Deliveroo was punishing. The stock was last trading 8% lower on the London market, as shareholders digested the news. Uber shares, meanwhile, fell 2% in early trade.
Deliveroo raised $575 million from the fundraising in total, but did not disclose how much of that came from Amazon. The London-based firm said it would use the funding to grow its engineering team in the U.K. capital and expand its reach to offer its service to new customers.
“Given its financial firepower it is little wonder that Amazon effectively parking its tanks on Just Eat’s lawn is spooking investors,” Mould said.
Amazon, with a market capitalization of nearly $940 billion, is one of the most valuable companies in the world. The company drew in $59.7 billion in revenue in the first quarter of 2019.
‘Clear shot’ at Uber
The move has been interpreted by some as an obvious challenge to Uber, one of the most dominant players in online food delivery.
“This is a clear shot across the bow at Uber,” said Dan Ives, managing director of equity research at Wedbush Securities as CEO Jeff Bezos and his company “realize they need to aggressively play defensive and offensive on the food delivery front.”
“This is a $50 billion market opportunity over the next decade and Amazon knows now is the time to build its presence on this front with Uber doubling down on Uber Eats,” Ives added.
And though it’s a large amount of funding, the investment is unlikely to be a concern for Amazon’s financials, said Laith Khalaf, a senior analyst at U.K. financial services firm Hargreaves Lansdown.
“We don’t know how much of the $575 million of funding Amazon contributed, but considering it’s got $23 billion of cash on its balance sheet, this won’t break the Bezos piggybank,” he said in a note.
“The investment represents another one of Amazon’s many tentacles, and it’s not too concerned when some get burnt, if others can take a vice-like grip on the markets they operate in.”
—CNBC’s Chloe Taylor, Matt Clinch and Spriha Srivastava contributed to this report.